Inflationary Collapses, or The NPV of Grandchildren

Suppose you own a forest. You'd like to make some money from the trees and you are considering two options. One is to clearcut the whole thing and sell the timber, which will net you \$X. This particular forest happens to be on a steep erodable slope such that the soil will probably wash off and no more trees will grow after one clearcutting.

Your other option is to manage the forest sustainably. You consult a sustainable forestry expert who estimates that you could cut an amount of timber that would net you \$kX this year, where k is some number much less than one, and the same amount of timber year after year in perpetuity (which would produce more \$\$ when adjusted for inflation). Thus k is roughly the fraction of the timber you'd get in one go from the clearcut that you could cut each year on a sustainable basis (the "roughly" comes from correcting for harvesting and management expenses, etc). The expert believes in sustainable forestry and emphasizes to you the benefits for the wildlife (who live in the trees), downstream neighbors (who won't get flooded with rivers choked with your silt), and fish (who can spawn in the unsullied gravels of the streams).

Before acceding to these persuasive arguments, you check with your accountant. What would she recommend?

I should say at the outset: yes I know this is a gross oversimplification of the tradeoffs present in real forestry. But bear with me - let's just take this premise and see what your accountant would recommend.

He or she would probably perform what's called a net present value calculation to determine what was economically rational. The idea is as follows. Somehow we'd like to compare the value of getting a one time payment of \$X with an infinite stream of smaller \$kX dollar payments from now into the indefinite future. Clearly we'd like to somehow add up the benefits of all the future payments into a single number that we can compare to \$X (the sum we'd net if we just clearcut the forest).

It might seem that this sum will be infinite if the forest lasts forever, but it isn't so. Let's take it step by step. Clearly, this year's \$kX of sustainable income from the forest is money that is directly comparable to this year's \$X of clearcut payment. However, next year's payment seems to be somehow not quite as good, since we won't get it till next year. The trick to comparing is to notice what money we would have to invest now to get \$kX next year. If interest rates are currently i%, then it would seem like if we invest \$kX/(1+i) now, we would have \$kX next year. So the net present value (NPV) of \$kX next year is \$kX/(1+i) (which is smaller than \$kX).

Which interest rate should we use? Well, a sensible thing (since we are overall making a long term comparision) is to use a safe investment like a long US treasury bond. Right now, the nominal yield on those is about 5.25%. However, it's a little tricky because next year we'll have the same amount of wood, not dollars. And the wood will be worth more in dollars because of inflation. We can correct for this, however, by using real interest rates (minus inflation), rather than nominal ones. The treasury also issues 30 year inflation indexed bonds. The yield on those is a decent estimate of what the market thinks inflation-adjusted yields will be over the long haul. That number is about 2.5% presently.

You might think you should compare against something with a higher yield than treasury bonds, but assuming all those hedge fund managers, investment banks, and credit rating agencies have done their homework right on setting bond price/yields in the bond market, any bond that yields more should mainly be doing so because it's riskier and the extra yield should exactly take into account the extra risk. So let's stick with treasury bond yields. Then i, the interest rate, is presently 2.5%. (And let's assume that the \$kX is net of insuring the forest so we don't have to worry about the risk in our future income stream from fire etc - in reality companies use higher internal discount rates to account for the various risks/uncertainties that plague projects).

You might also think that perhaps wood will get more valuable in future, more so than the general rise in prices embodied in the inflation rate. But let's assume for simplicity now that the real price of wood is anticipated to stay fixed (eg by the lumber futures market). (Uncertainty in future wood prices would tend to make us choose a higher interest rate to compensate for the risk). We'll take up price changes in a later thought experiment.

So then we can just proceed out to further years. So far, the value of the income stream is \$kX (for this year), plus \$kX/(1+i) for next year. For the year after that, the amount of money we would need to have to get \$kX in two years (in current dollars) is \$kX/(1+i)^2 (because that amount would get multiplied in a compounded manner by (1+i) on two years to give the \$kX payment). Clearly, we can keep doing this for all the years.

I'll spare you the algebraic detail, but if you work out the series it sums up that the net present value of the future income stream is \$X x k(1+i)/i.

So the condition that the net present value of the sustainably managed forest would be higher than profit from clearcutting it is that k > i/(1+i). Now, remembering that the proper i right now is 2.5%, we see that the equation is equivalent to k > 1/41. In other words, if we have more than 41 years worth of forest growth on the land, then we are definitely financially better off clearcutting the forest than managing it sustainably forever.

I note that in translating profit ratios to forest age directly, we are making a crude approximation. In reality, it's worse than this because the economies of scale in doing the harvesting and managing will be greater if we clearcut, and not only that, but it's likely there will be some regrowth after the clearcut and young trees create wood faster than mature trees. Thus where trees take a long time to regrow, you can see why there's a financial advantage to clearcutting as fast as the regulators will allow. And that's why lumber companies often do it: they have a fiduciary duty to provide their shareholders with the maximum possible return on shareholder capital, and clearcutting frequently provides it.

Age structure of US forests. Source: USDA Forest Service.

If it seems like this net present value calculation is some kind of complex technical accounting rule that ought to be changed for the benefit of forests, I'd like to try to disabuse you of that idea. As far I can see, any economic system in which:

1. natural ecosystems like forests are private property and can be traded for money
2. people are allowed and encouraged to maximize their own self interest
3. interest is paid on loans
will have this property. In particular, an equivalent way of looking at it is this. If k < 1/41, you would make more money by cutting down the forest and investing the money in treasury bonds. (Of course, regulations could, and do, limit what landowners can do, but the finances dictate what self-interested landowners would like to do, if they can).

We've been running our civilization on those three rules for many centuries now, so the NPV logic is very deeply embedded in the whole way Western culture works. To change it would be a massive cultural wrench.

An important point is that the actual current price of lumber should make no difference to our decision criterion. Unless we can predict changes in prices in the future, the economics of our decision should mainly be sensitive to interest rates.

Now, in this condition of whether sustainable management of the forest makes economic sense or not, recall k > i/(1+i), the variable k is more-or-less a property of the forest - the speed with which it grows (modulo some correction for the cost of managing it). However, the interest rate i is a property of the economy, and indeed is somewhat under the control of the central bank (the Federal Reserve in the US). (I say somewhat because the Fed targets short-term rates and long-term rates don't move exactly with short-term rates, though mostly so). Because of it's importance to these kinds of NPV calculations, interest rates basically set how much society cares about the future. Specifically, let's first look at some history of real interest rates to get a feeling for the range they vary in:

Nominal yields on ten year treasuries (1955-Feb 2006), nominal rates minus CPI-U inflation over the prior 12 months, and inflation adjusted ten year treasury yield. Source: Federal Reserve Bank.

Note that the best estimate of long-term real interest rates is the yield of the inflation-adjusted treasury (the blue line). However, this series only goes back to 2003, so I've also included an estimate of real rates constructed by subtracting the consumer price index change over the prior 12 months from the nominal rate on regular 10 year treasury bonds. That line (green) goes back to 1955, but should only be viewed as a rough approximation of anticipated real interest rates (since long term expectations of future inflation could vary somewhat from the value the CPI happened to take over the last 12 months). In particular, it's probably never been the case that long term expectations of real interest rates were negative.

Anyway, the graph gives us the sense that real rates vary from 0%-8% or so over the course of recent history. Let's have a look at the shape of the net value function for the rest of the century as a function of those interest rates. Ie what I'm about to plot is how much the cashflow from the forest (or anything else) would contribute to NPV in year Y relative to how much it contributes in 2006.

Discount applied to future cash flows (in present dollars) as a function of year for varying real interest rates.

In general, as you can see, the degree to which future cash flows contribute to present value is highly dependent on interest rates. When interest rates are high, the degree to which future cashflows contribute is very small and it's very unlikely that it would make financial sense to manage the forest sustainably. On the other hand, when interest rates are low, the discount function is still non-negligible far out into the century, and managing the forest sustainably is more likely to be the profitable option.

A way to summarize the situation is the half life (the point at which the contribution from a future cash-flow drops to half), which is given by log(2)/log(1+i). If we plot that, it looks like this:

Half life of discount function as it depends on interest rate. The red square is based on interest rates as of this writing.

Again, when interest rates are low (below 1%), the half life of our interest in future cash-flows gets up around a century. However, when they are high, it drops down to only a decade or two, and the poor trees have no chance.

As an aside, it's interesting to note that the very controversial acquisition of Pacific Lumber (then owners of the Headwaters Forest) by Maxxam, which was financed almost entirely by junk bonds and led to greatly increased cutting of Pacific Lumber's timber holdings (and a long litany of litigation), took place in 1985. If you look back up at my first graph of interest rates, you'll see that real interest rates in 1985 were just about at their peak of around 8% (on the nominal-CPI method of estimation). This suggests that the influence of high real interest rates on unsustainable cutting of forests is a real effect.

Also, during the era of high interest rates in the 1970s and 1980s, forest cut rates increased. Since then they have been reduced, and we are importing more timber instead. So this is at least consistent with the hypothesis that interest rates are important in affecting the desire to liquidate natural resources more quickly.

Rates of growing stock growth, removals, and mortality on productive unreserved forest, 1953-2002. Source: USDA Forest Service.

So in summary, real interest rates control how far project finances are sensitive to cashflow into the future (what economists call inter-temporal preferences). In a sense, they control how much the economy cares about the future.

Now, this is not usually the main focus that the business community places on interest rates. Instead, the focus is on the effects of interest rates on the short term growth of the economy and on inflation. Generally speaking, when the central bank wants to accelerate the economy (or prop up an ailling one), it targets a lower interest rates. This makes it cheaper for businesses and households to borrow, thus encouraging them to do so, which can increase both consumption and capital investment. It also makes it less rewarding to save, and this also encourages consumption. This tends to increase the amount of economic activity in the near term.

Correspondingly, when the central bank is concerned about inflation (which economist frequently view as aggregate demand for goods and services (and/or labor) growing faster than businesses can supply those goods and services, or trained labor can become available), it is likely to increase interest rates which has the reverse effect and slows the economy. This, eventually, will reduce inflationary pressures.

Note that the Fed does not directly control interest rates - what it directly controls is the size of the monetary base, the amount of currency in circulation and the quantity of bank reserves on deposit with the Fed. However, what it does with that power is adjust the monetary base via open market operations in such a way as to maintain short term interest rates as near as possible to a stated target. And it has got increasingly good at that:

Fed target and actual daily market rate for Fed funds. Source: This is Figure 18.2 of Money, Banking, and Financial Markets by Stephen Cecchetti (a book I highly recommend).

In short, the interest rate is viewed as a big lever that roughly controls the speed of the economy. Push it down (lower rates) and the economy goes faster, but if it goes too fast, inflation is likely to ensue. Pull it up, and the economy slows down. You cannot read the business press or economics blogs for any length of time without reading constant discussion of what the Fed is likely to do to interest rates and how that will affect the economy.

And herein lies the paradox. On the face of it, the question of whether the economy should care about the far future or not is fairly unrelated to the question of whether the economy should be sped up or slowed down in the near future. But in fact, the same lever manages both things. And it seems to me that there is a potential problem there.

Let me switch to another thought experiment. Suppose humanity were faced with the following dilemma. We could carry out a series of projects which would result in unsustainably consuming the entire biosphere to make food, fiber, and biofuels for the present and near-term human population, but which would mean that there would be no biosphere for our grandchildren (who would therefore all die). Under this alternative, we recklessly use up water, degrade soil, and throw away genetic diversity in such a way that plant productivity in future is irretrievably damaged. Alternatively, we could experience a decrease in our lifestyle now, which would mean that the fossil fuels would last longer, and the biosphere could continue to produce a fairly constant amount of food, fiber, and fuel indefinitely. Which should we do?

Again, I stress that this is a hypothetical thought experiment. I realize that the actual human dilemma in the 21st century is more complex and much less clear than this. However, bear with me. I'm making an extreme simplification of the situation because I want to explore what seem to me some less than optimal things about the decisions free market economics suggests in these cases. It's also not totally out of the question that we face a complicated variant of this choice: biologists do estimate that humans already appropriate 15%-25% of net primary productivity and those biologists are pretty concerned about it:

Land use has generally been considered a local environmental issue, but it is becoming a force of global importance. Worldwide changes to forests, farmlands, waterways, and air are being driven by the need to provide food, fiber, water, and shelter to more than six billion people. Global croplands, pastures, plantations, and urban areas have expanded in recent decades, accompanied by large increases in energy, water, and fertilizer consumption, along with considerable losses of biodiversity. Such changes in land use have enabled humans to appropriate an increasing share of the planet's resources, but they also potentially undermine the capacity of ecosystems to sustain food production, maintain freshwater and forest resources, regulate climate and air quality, and ameliorate infectious diseases. We face the challenge of managing trade-offs between immediate human needs and maintaining the capacity of the biosphere to provide goods and services in the long term.
So the world is filling up in several senses, and peak oil is just one symptom of that. We can probably expect to be hitting a variety of resource constraints in this century, and having to work around all of them.

Anyway, whether you buy that or not, just suppose that the situation was as I describe it in my thought experiment. In a more-or-less free-market world, each individual decision to cut down this or that forest, or take all the straw from this or that field for biofuels, would be taken separately based on the profitability for the individual or company owning the land. Recall that a main control on whether you want to slash and burn something or manage it sustainably is real interest rates. The higher interest rates are, the faster your NPV discount function decays in future years, and the less sensitive economic decision-making becomes to anything that might happen in the future.

So the question becomes as the economy hits various resource constraints, what is likely to happen to interest rates?

Well both theory and past experience suggest that resource constraints are inflationary. The theoretical argument is that resource constraints reduce aggregate supply of goods and services, and unless aggregate demand is correspondingly reduced also, price levels will increase as people enter a bidding war for the goods and services that are still available. To manage this contraction (possibly in the face of people borrowing more aggressively to maintain their lifestyle) the central bank will have to increase interest rates.

The best empirical evidence of this comes from oil shocks. Major oil shocks have all caused a big spike in inflation over and above whatever the prevailing rate was beforehand (and indeed they've been the main cause of big spikes in inflation in the US in the last 50 years. This is not to discount that other factors have caused lower but longer-lasting inflation. Also, this is not to discount that there are some tempting arguments that we are overdue for a credit contraction - but I view that as something likely to be short-term (decade or sub-decade) if it occurs. Over the mid-to-long term, a cascade of resource constraints has got to be inflationary.

So if that's true, we might expect that a biosphere constraint (along with other resource constraints like peak oil) will tend to cause inflation. In the current economic consensus, the correct central bank response to that will be to increase interest rates with a view to throttling the economy back and reducing inflation.

And the problem with that is those higher interest rates will sway the balance of decision-making towards less sustainable management of the biosphere.

In other words, it appears to me that there is a potential for a nasty positive feedback here that could promote a downward spiral. One might call it an inflationary collapse: the harder the resource constraint bites, the more tendency towards inflation in the economy, the higher interest rates will go, and the less incentive anyone will have to manage their piece of the biosphere sustainably.

Now, there's one dangling point here that I should clear up. In my first example (the individual forest) I assumed that price rises were not forseeable; prices were expected to stay flat. However, in this example of consuming the entire biosphere, someone might argue that the classic Hotelling analysis of a finite resource should apply (eg as discussed by Dave a while back). Basically, the Hotelling analysis says that if you know how much of a resource there is left, then as it becomes more scarce it's price should go up exponentially with the exponential constant being the interest rate. If that situation obtained, then the net present value analysis above (which assumed constant real prices) does not apply.

However, it does not seem that the Hotelling model is all that applicable to real resource constraints. In particular, if experience to date is any guide, it seems that we usually have terrible information about the amount of resource left. This is obviously true of oil (think OPEC reserve distortions, uncertainties over future recovery rates, undiscovered oil, etc). So the effect of this has been to make the futures price-curve more-or-less flat. As of yesterday, it looked like this:

Price of a barrel of oil on Nymex future contracts as of 6/28/06. Source: New York Mercantile Exchange.

However, over the course of the last few years, the shape of the back-end has been whipping up and down (in and out of contango) but always staying within \$10 of the current price. Meanwhile, the current price has been rising exponentially at about 30% per year, much faster than interest rates. Thus the Hotelling theory really doesn't seem to help us: at any given time the futures curve has been more-or-less flat, because the information about the resource was too poor to constrain the price curve well, and so what the back end of it is probably doing is wandering up and down driven by momentum traders. In the meantime, the spot price has continued to rise, on average, much faster than interest rates.

Now, the situation in biosphere resource constraints is that the information is even poorer than on oil reserves (this will have to wait for future posts to flesh out, but aquifer volumes, etc are very poorly understood). And thus we might expect whatever resource constraints there are to show up in the same not-very-forseeable way that peak-oil seems to have been showing up.

And that's a problem. Because it means that the economy will not get the right signals to anticipate the problem, and then when it does hit the constraint, inflation and high interest rates will tend to promote exactly the wrong kind of choices.

I'm not saying that this is definitely going to happen - I don't know at present. But it seems plausible enough to be worth worrying about. It also reinforces two points:

• Improving the information available to the economy about the true situation with resource constraints is extremely valuable, environmentally as much as economically.
• Situations in the environment where there are lags between causing the damage and experiencing the consequence are exceptionally dangerous if the lags are long compared to the half-life of the discount function. The oceans warming up in response to carbon emissions and the melting of ice sheets come particularly to mind.
Whoohooooo!! (making myself into a "cannon ball" and jumping in with a splash).

I am experiencing something like this on a personal level. I've sold on Ebay for nearly a decade now, but I think I'm on their S-list, you see, I'm a powerseller but don't do PayPal. Thus, I'm paying about 1/2 the fees I "should" be from their viewpoint, and they seem to be leaning on me. Leaning on me means all kinds of auctions being ended by them and some really scary credit card fraud that is only on the card I only use for them.

Meanwhile I'm finding myself working 14-hour days, running on an increasingly-faster treadmill to stay in one place!

If 10 years ago I'd just kept on drawing and drawing and drawing, and developed my art skills instead of my Ebay skills, I'd not be spending any 14 hour days, since I work fast when I draw hehe. I'd have a valuable skill and some magazine covers under my belt, and a bit of a name, and truth be known, some social capital. It would be a sustainable way of living.

Instead, I only have a long enemies list (everyone on Ebay gets one after a while, some real nuts on there) and am looking at declaring bankruptcy, and living out of some cheap sleep-in-able car since the Prius will go back to Toyota. I chose the short-term better looking fork in the road, and it's led to stress, lack of social capital, and a lifetime of debt.

If I'd chosen the other fork, yeah, I'd have given away a lot of beautiful work for cheap, but kept on living cheap, built up a network of real-life friends (people like ya when you're an artist, it's weird) and prolly have a decent amount of savings in the bank.

This is another reason why I'm skeptical these days of the something-for-nothing hydrogen/ethanol/oil shale crazes now, even if they can be forced to work for a while, you'll end up crashing and having to go back and learn what you should have learned the first time around.

Nice post. I'll look forward to the discussion on this one.

However I have doubts about two elements in your argument:

1. Use of interest rate as discount rate
2. Role of interest rate in liquidation decision

Interest rate as discount rate

A project's cash flows are not discounted at an interest rate. They are discounted according to the weighted average cost of capital of the project owner - called a discount rate. The important distinction here is that cost of capital contains both time value and risk elements.

This is most commonly derived using the Capital Asset Pricing Model (CAPM) according to the formula:

Risk free rate + beta * (Market return - Risk Free rate)

Here the risk free rate is the equivalent of your treasury bill. The second term is made up of beta (a measure of the risk of the individual project relative to the market of projects) times the spread over the risk free rate that a project of market level risk demands.

This is important because the majority of the CoC capital of the forest (or any other) project could come from the risk element, not the risk free element.

This would imply that stable political systems that provide some assurance of returns over the longer term are far more protective of resources than those that do not. This is intuitive and seems to be proven in reality. If you could lose the forest in five year, the incentive to cut goes way up. This is the case in many developing countries where politicians or land owners would rather have a million dollars in a Swiss bank account than 10 million dollars in forest assets.

Maybe the reason that Maxxam was pressured to cut down their holding was not the prevailing interest rate, but rather the contribution to their cost of capital (discount rate) from junk bonds, which require a higher rate of interest than most other debt financing.

If you are looking for a very rough and easy number to use as a discount rate, try 10%. This is not far off of the average return of on US publicly traded stocks over most time periods going back as far as 100 years. While an individual stand alone project with concentrated ownership would require a premium and forest project have their own risk features (more or less than the market), we can ignore that for now.

Plus, a question:

I am a bit confused by the meaning of 41 years in the post, although I expect this is my fault. If we use my 10% discount rate figure, this comes down to 11 years (1.1/.1). Are we now better off after only 11 years?

I think it means that \$X = an annuity of \$kX for that number of years. An annuity of 10% of X for 11 years is worth X today. An annuity of 2.5% of X for 41 years is worth X today. I can't relate this to your use of 41 years in the post, but again expect this is my fault. It's just after lunch here and my mind is not yet clear.

2) Role of interest rate in liquidation decision

Unless the interest rate only impacts your project, the situation seems far more complex. In the Maxxam case, junk bonds force up their cost of capital, but not those of competitors. However, the underlying interest rate is the same for everyone and thus must be subject to adjustments in the greater economy.

If everyone saw higher rates and wanted to cut, there would be a lumber surplus and prices would go down. To the degree that the interest rate reflects inflation, the increases in discount rates (in the denominator) would be balanced by an increase in prices (in the numerator).

Is there any evidence that resource liquidation follows trends in interest rates? Was it high in the 70s and low in the 90s.

I don't know the answer to this one. I'll try to figure it out while hoping someone else provides the answer first.

Nice comments Jack.  I agree about the use of higher internal discount rates (and alluded to it in comments like "in reality companies use higher internal discount rates to account for the various risks/uncertainties that plague projects", but didn't want to make an already long post longer.

The 41 comes from 102.5/2.5.  If a higher (real) discount rate was used, then the number would be smaller (eg at 10% it would be 110/10 = 11).  As you say, it's the point at which an annuity paying at the discount rate would exactly balance the income from sustainably managing the forest if the forest's characteristics allowed the sustainable income to be k times the income from consuming the forest this year.  Probably no forest would stand much of a chance at a 10% discount rate, which would require that the sustainable income is only 1/11th of the immediate consumption income.  (Then I suspect equipment capacity constraints become important also - borrowing to invest in new equipment in order to do more clearcutting will be disfavored also and that provides a negative feedback - I have a whole nother post in mind on the issues with capital investment).

I agree that Maxxam's junk bonds were likely a particularly important feature of that particular situation.  However, the graph I posted above does suggest that the cut-rate generally increased in the 1970s and 1980s.  However, this point could certainly stand to have further evidence adduced.  I intend, when I get around to it, to have a look at the international statistics.  We might posit that the cutting will show some tendency to move around to wherever discount rates are highest.

In a healthy economy, I agree with you that "If everyone saw higher rates and wanted to cut, there would be a lumber surplus and prices would go down".  However, in an economy where resource constraints were causing aggregate supply to struggle to meet aggregate demand, thus sparking inflation, there is excess demand for the products of the biosphere and the high interest rates (plus a high risk premium due to the uncertainties as you note) will provide financial justification for unsustainable consumption of natural capital.  We might imagine a world in which an already slightly strained biosphere is now being used also for biofuels to replace depleting petroleum looking that way.

Stuart, I understand why the Fed would raise interest rates to reign in inflation under conditions of rapid economic growth ("over-heated"economy) with more goods and services being produced thereby reducing  associated borrowing and thus slow the economy.  However, why would this same strategy be employed under conditions of inflation due to resource constraits that result directly in economic contraction--no need for interest rates as an economic "brake"?
"I have a whole nother post in mind on the issues with capital investment"

Stuart, my far away favorite website for finance information, data and many free models is that of NYU Sterns school finance prof Aswath Damodaran:

Take a look. I will eagerly await your next post.

*

In my reading 41 (beside being one off the Adams' answer to all things :) gives the minimum portion of the resource you may liquidate sustainably (indefinately) in order to break even with immediate total liquidation now.

That is if you are able to liquidate 1/41 of the resource each  year indefinately you will be in financial tie with cutting it down right now. If you can sustainably take off bigger share per year you would (theoretically) prefer to do so.

I do agree that 10% is more real world discount rate, which immediately poses the question why lumber companies do not liquidate since it seems to be the most profitable decision.

My explanations go along these lines:

1. If a company liquidates its principal resource in a snap it would have to invest additional resources for the liquidation process which along with the previous invesments will turn obsolate afterwards and will not payoff.

2. Companies do price in the externalities which clear cut would cause. Ruined reputation, moonlike landscapes and Greenpeace members tied to trees are really bad for business.

3. The companies (especially bigger once) have much less abstract view of the "market" as economists. Therefore they don't just "produce something" and expect the "market" to absorb it. It is all tied with contracts, and most of them are aware that overproduction by single one of them could cause significant price drop.

4. Last but maybe most important, companies are made of people, and people usually have family, and most of them plan for retirement. Both of these lead people to prefer security over the long term than immediate profits in the short term. Whatever Adam Smith may have said greed is not always the dominant motivation.

All of these are very well applicable for all companies consuming non-renewable or slowly renewable resources. I think that both psychologically and economically people become worried if they see the business they run will deplete during their lifetime - some 20-30 years ahead or less. Usually you can not get humans to think 50 or 100 years ahead.
1/41th of the resource says nothing about what is sustainable, as far as I can tell.  What is sustainable is governed by ecological processes, not financial ones.

People are not rational actors, but rationalizers, and the math behind financial systems is a great excercise in justifying short-term interests over long-term inhabitability of the planet.  It basically tells people what they want to hear, given our inherent bias towards present rewards.

Has anyone looked at Richard Douthwaite's work on the issue of responding to inflation from resource constraints by raising interest rates and how damaging that would be?

A quote: "Central bankers must therefore recognise that higher energy prices are necessary to enable the energy companies to develop more expensive sources of fuel, and that, consequently, they must allow the inflation to take its course. They must not choke it off by preventing the higher energy prices being reflected in the prices charged for the goods and services which use fossil energy. Inflation is the only relatively painless way that every price in the global economy can change by a different amount to reflect the new energy price level. The inflation needs to proceed for several years as, initially, firms will put prices up by only the amount their direct fuel costs rise. They will consequently require further increases later when the higher cost of the fuel used in the products they purchase works its way through to them and has to be passed on. Resisting inflation would essentially be an attempt to maintain the purchasing power of money in terms of the amount of energy it buys. This is obviously an inappropriate response if energy is getting scarcer and/or requires more resources to produce."

Oh... think I was not clear enough. 1/41 is the financial threshold, not the physical (or biological etc). Compare this to the physical threshold and you will find whether financially it makes sense to go for sustainability or for caching in.

Example:

The forest has 5% of growth, so you can cut only 5% (1/20) sustainably. If discount rates are such (2.5%) the NPV of the forest would be higher if you manage it sustainably instead of clear cutting it.

If the discount rate is 10% the forest still renovates for 20 years but you have financial incentative to cut it right now, because you don't care that much for the future.

This has some very real world implication. Suppose I borrowed the money to buy that forest (with adjustable IR for simplicity). If interest rate is 2.5% and I get a return of 5% from my forest (skipping over some assumptions here) I could be paying the loan interest and get some profit. If IR of my loan goes to 10% then I will probably decide to clearcut the forest and repay the loan as I am forced to think short-term and get the cache now.

Sorry, missed to comment on the quote which is rather interesting indeed.

Personally as someone who lived once through hyperinflation I could not agree less with it :) What it misses is that with rising rates central banks targed containment rising of general price level, not the energy prices per se. If properly applied tighter monetary policy can suppress uncontrolled devaluation of the currency, while energy prices would be still rising relatively to the other goods and services though slower in nominal terms.

This would in fact benefit energy producers as they would still be facing rising profits in real term, while providing a stable monetary environment.

This gets into all the reasons that people like Michael Ruppert, Catherine Austin Fitts and Aaron Russo have been saying that until you change the way that money works, you change nothing.  Even if friendly aliens appeared and gave Earth an unlimited supply of zero point energy modules, biology and the economic system guarantees environmmental destruction, overshoot, and dieoff.

It is a disturbing thought that the best hope for the planet might be for all wealth to be concentrated into the hands of a few thousand "noble" families.  These elites, like Japanese feudal lords, would be biased in favour of sustainability, as their families could rule their domains forever.  Unruly peasants could always be culled by the samauri, controlling overshoot.

Tolkein had a similar idea in his fiction.  The utopian elven domians of Rivendell and Lothlorien were spared from clear cutting because they had immortal autocratic guardians who protected them with a military force of vassals.  No democracy, no upward mobility, and no economic growth were allowed.  The wiser people in the various elite clubs, councils, and commissions in our time appear to be working toward a similar goal.  (The fools want a nuclear armageddon so Jesus will come back.)

Wow Micro, I gotta read some Tolkien.

Most of this article is over my head, but I do know that the average American financial advisor will tell you to get it all, and get it now - hang the consequences.

Yes, underneath all of the swords and sorcery nonsense, Tolkein was a deep foe of population increase and industrialization.  He finessed the birth control issue, as his elves were gifted with a very low fertility rate to go along with their agelessness, deaths by violence matched births and there was no need for forced abortions or sterilizations to prevent overshoot.  But is was quite clear that the elves didn't even believe in farming, they lived off permaculture forest gardens like Amazon tribes.  And any man who entered the elven lands with an axe planning to build a log cabin or clear a farm caught an arrow in the chest before he broke a twig.  (Yes, like Bob's Earthmarines.)  The totalitarian social structure was also finessed as all members of the community were expected to share the same values and goals.  The elves were considered "free" despite being under the same regimes for 7000 years.  No one thought to overthrow Elrond or Galadriel, they were idealized as beloved monarchs, the wisest of the wise.  (Of course the tyrannies of Sauron and Saruman were contrasting examples of what happens when immortal rulers go bad.  In theory, a benevolent monarch is a good government, but real world royals have been a mixed bag.)

I suppose that Green party members are trying to develop values close to Tolkein's ideal, but they are only 5% of the population.  The other 95% just want to buy stuff.

Yep gotta get ahold of some Tolkien, I've just not dug into his stuff. But I think he had the right ideas all right.

I did read somewhere that he grew up in a village which he saw literally turned into "dark satanic mills" when he returned to it. I in my lifetime have seen ecosystems trashed, just in the space of a few years of my childhood.

Sigh. It's mostly down to overpopulation isn't it?

Looks like the decision is being made for me, but it looks like I'll be Poweringdown quite a bit. First looking for an old Volvo 240 wagon or old Toyota van and the Prius gets sold - there goes a lot of debt. Also to look into renting either a storage space or a small "R&D" office, that means the kind you can run a drill press in. Will cost less than 1/2 times what this apartment will. Officially at least, I'll sleep in the car/van. Got a LOT of stuff to just plain sell, just plain get rid of. No more on-line sales, no more feeding that vampire. The most "industrial" I'll be is taking stuff to the swapmeets locally and selling it. You know, bag up useful stuff like ring lugs and mic connectors, etc and sell for \$1 each. What I really want to do is work on artist skills, paper 'n' Conte crayon, technology hundreds of years old or really, thousands. Ultimate desired end result would be I guess, to do without a car entirely and live in a cheep place and just draw, caricatures and cartoons for magazines and stuff like that, the odd sign. And have expenses down far enough so I can live OK that way, or go wash windows and live OK also. But one thing at a time. This isn't even my choice, Ebay/net/computer/credit cards etc are going through their own Tainterish collapse for me right now, and I may only be 6 mos. ahead, a vanguard of large numbers of Tainterish collapses for a lot of people.

So yeah, I'm thinking Tolkian is right on the button right now.

Art is an excellent skill.  Low overhead and timeless demand.  Art might be more appreciated after the oil age.  IMO, probably classical Greece spent a far  higher % of GDP on art than any fossil fueled society.  My sister paid a guy outside a mall to do a portrait of her dog, lots of opportunities out there.
Yes. Probably why it's so suppressed.

There's no real "journeyman" training in art in the US, it's the plaything of the rich and distrusted by most nose-to-the-grindstone Americans. I was destined to become an artist, but my family crashed from middle class to welfare-class and art was just not trusted.

But no one ever got tired of looking at their own ugly mug!

If you've been around a bit, even the most bone-headed person can see that the present work-til-you-drop way of life is a scam. Most Americans are dropping dead before they ever collect Social Security, it's the top quintile, maybe the top two, living to collect. And everything else in the slush fund goes for .... I dunno, black helicopters or something.

It's looking good, get an old volvo and a shop, and stop spending so damned much money to make a little money. Instead, spend next to no money to make a little money.

If I keep going the way I've been, I'm going to have a heart attack and I'll have to gear way down anyway.

Well, more than the U.S., that is for certain. I remember reading/learning that in Golden Age Athens, a rich citizen was expected to either finance a play or a warship. To a major extent, this explains the incredible output of drama from a tiny city state more or less in the middle of nowhere.

The value a society places on something is neither an economic or a technological decision - it is a human one.

Yes, everyone should really read Tolkien, starting with The Hobbit and The Lord of the Rings, four thick paperbacks.  Its a long read, but the only complaint on the part of most of my friends, is that the book is too short!

The first of the four, The Hobbit comes across more as a kid's story, and indeed, Tolkien wrote it for his kids in 1936, but it reads well for adults and provides a good prequel, making it easier to get into the main story of The Lord of the Rings.

Tolkien himself apparently always insisted that his sole purpose was to tell a rattling good yarn, and he specifically disavowed any perceived parables or metaphors that anyone might read into the tale.  I don't think many believe this, and considering the time it was written, which included the World War II era, (the tale was reworked and evolved even as it was being written; the whole thing took about 20 years following the publication of The Hobbit) it's easy to identify Sauron with Hitler, etc.  And in that light, the book's stark rendering of good vs evil makes sense.  For in World War II, there was no question as to where the evil lay.  And it was evil, beyond the usual depredations of various despots past and present.

Antoinetta III

It takes more than just a monarch.  It requires that the hereditary system be applied to all aspects of society.  This destroys the real estate industry because you can't sell your land, you have no choice but to stay in place and eventually your kids will inherit your property.  This immediately creates an overwhelming incentive to limit your exploitation of it to a sustainable degree.

Actually, the Green Party is not in favour of anything like Tolkien's vision.  While they no doubt like the sustainable part of the vision, they also want to keep our current electoral "democratic" type of politics. In fact, they complain that it is not democratic enough.  Unfortunately, democracy is very "me" oriented, and leads to short-term thinking, and therefore the pressure to clear-cut or otherwise trash the property for a quick profit come to the fore.  Democracy and sustainability are inherently incompatable and can only co-exist until the unsustainability eventually causes the democratic political and economic system to collapse.  The question then is, of course, will the planet be so badly trashed at this point that will we have the ability to rebuild any sort of decent existance even when a sustainable, hereditary system returns after the house of cards of our current democratic system has collapsed.

Antoinetta III

Very interesting discussion here about Tolkien, the Greens, and our society as cancer!
I think you have to argue much more strongly that democracy isn't compatible with sustainability. The fact that interest bearing currencies lead to short term thinking and competitiveness is well documented, and Stuart did a good job of distilling it into a TOD post. The fact that democracy leads to short term thinking hasn't really been shown at all, and I won't believe it until it is.
Democracy causes short-term thinking because everything about the system is itself short-term, and it is ultimately all about "winning."  Election cycles are generally four years, unless you are a member of the House of Representatives, where it is only two years. Several members of the House have complained that due to their short terms, the first thing they have to do upon getting elected is not attending to the business of governance, but to immediately set up a re-election campaign committee, to prepare for the next election.  To get elected, or re-elected requires, in addition to brown-nosing up to the campaign contributors, pandering, promising the electorate in one way or another "more."  Whether its more cheap goodies or gasoline or more developments that will grow more economy or create more convenience or whatever, you do not get elected by promising lean times and calling on the electorate to tighten their belts.  The only way for "more" to keep happening is, of course to have a perpetually "growing" economy, something that, due to the finite nature of resources on Earth becomes at some point unsustainable, at which time the whole thing collapses.  But if such an end is not anticipated within a decade or so, its not going to interfere with any current politician's immediate need to get elected.  Our failure to seriously attempt to address energy shortages at the time of what should have been our wake-up call, the 1973 Arab oil embargo is a case in point.  And due to the fact that a lot of the negative results of particular policies may take a few years to become evident, as far as incumbents are concerned, bad policies now might not be all that bad if it means that it is the other political party that will be in office at that time and be, in essence, left holding the bag, being blamed for what was started before their term, and that they will be also held responsible for dealing with whatever mess has been created by their predecessors.

It's like Goritsas said in a post further downthread, hereditary institutions have a vested interest in long-term sustainability, and others don't.  A monarch will be inclined to think twice over some scheme that will have a short-term positive aspect but also negatives that might not be obvious until a generation into the future.  The monarch knows that s/he, or her/his immediate descendants will have to deal with whatever problems crop up after a decade or more, the elected politicians, who generally morph into the puppets of those with the organization and resources that "game" our system operate under no such constraint.  Likewise, a farmer is going to try to avoid overworking/depleting his land, if he knows his kids are going to need it in productive shape if they are to eat.  So its not only a monarchy per se that's required for long-term thinking, but a hereditary principle in society generally.  If a real estate industry exists, anyone who sells their property has no concern about the viability or health of that property once its sold and the money is in the seller's pocket.

Antoinetta III

A-III,

Good insightful analysis. Thank you.

To summarize: there are different kinds of "valuations" in a "Democracy" / "Capitalist Market" system:

1. Short term return on invenstment (ROI) to current incumbents / renters of the office / property, and
2. Long term costs to all future holders/renters of the office or property.

The short-termers ignore or "externalize" the long term cost items (#2) because they will have skiddadled and will be distanced or disassaciated from the long term costs when finally TSHF. Therfore the short-termers "account" only for the short term factors.

What this says is that in 1973, Peak Oil was a long-term problem which the short-termers (politicians) could conveniently ignore. As the time to impact shortens, it becomes more and more difficult for the system to remain in denial. But then again, we are a resourceful species. We will come up with ever more clever ways to deny. In that I have faith. Uggh.

That's a pretty good analysis but you're using the word "democracy" to mean the exact system we use today (or rather, America uses today).

Democracy doesn't imply 2 party politics, 4 year terms or time limits on what leaders can do, and I think you could argue that the American constitution actually has too many checks and balances in that vein. For instance England has no time limit on how long leaders can remain for and yet it's also a stable democracy. In fact you can have democracy with no political parties at all!

I'm also sceptical of "the masses" being stupid and short sighted. Maybe people vote for short-term-ism because that's the only thing they're being offered. You say "nobody votes for leaner times" but that's a self fulfilling prophecy: nobody can vote for it if no party is offering it.

At the last election I wanted to vote green, but couldn't because there was no candidate in my area. So I ended up voting Lib Dem, a party with no really notable policies :(

MH,

A number of points in your posting:

1. sceptical of "the masses" being stupid.
1. sceptical of "the masses" being ... short sighted
2. Democracy doesn't imply 2 party politics

• As to #1, absolutely on target. You and I are no smarter than "them". We are "them". 5 fingers on each hand and 2 eyeballs. We are people creatures just like them and them like us.

• For #2, it all depends on what your definition of "short" is is.

• Re #3, TOD has hosted a number threads on why the "winner takes all" election system forces a 2 party menu
• To clarify, when I use the term "democracy" I am referring to any system in which the rulers/leaders are elected as opposed to attaining their positions in any other way.

Elected government, unfortunately, involves a rather complex and expensive process.  It responds, not to the real overall "will of the people", but to those best constituted to pressure it.  This essentially requires two things, organizational capacity and money, the latter mostly to finance the hugely expensive campaigns for the various offices.  And who already has a huge head-start with this?  Well, those who are already organized, even if influencing the government was not their original purpose, and those who already have access to large amounts of cash.  These are corporations, of course, who find it relatively easy to divert a bit of their attention away from whatever they are selling and making money on and to lobbying the government on their behalf.  Their ability to provide the funding (or to deny it) to politicians for the spin doctors and sloganeers campaigning requires directly influences what positions and policies both candidates and incumbents will adopt.  The only non-corporate interest groups tend to be those of the one-issue fanatics, the partizans on either side of the abortion, death penalty, affirmative action, etc. debates, issues which have been going on all or most of my life (I'm 54) and which our democracy seems unable to resolve, as the losers at any one turn simply retreat, re-organize, and keep pushing the issue.

Ultimately, the complexity of democratic systems means that these above lobbyists etc, learn how to "game" the system to get what they want.  The vast majority of people do not follow politics in any kind of depth as their lives focus almost exclusively on the minutiae of daily life; get up in the morning, get something to eat, get the kids off to school, get to work, then come home and eat dinner, while somewhat listening to the crap on Fox News.  Since only about half the people even bother to vote, and the vast majority of those who do, do so based on gut "feelings" derived from the newspaper headlines and TV news, "gaming" the system is not all that hard to do; marketeers and admen have long ago made a science of it.  Political campaigns have devolved essentially into duels between competing groups of the above marketeers and admen, devoid of real substance, focussing instead on the emotional hot-button issue stuff which will become increasingly irrelevant as the world gets to the top of Hubbert's Peak and continues the trip down the other side.  And, I suspect, a political platform offering a long range viewpoint, and "lean times" isn't on the ballot because pretty much anyone out to get elected considers this a big loser.

Its not that people are stupid (I never said this) but their focus and attention is elsewhere.  Those of us who participate on The Oil Drum aren't necessarily "smarter" than anyone else, but, in our own way, we are part of an "elite."  Just the fact that we are here indicates that we are "plugged in" to what's going on in the political world far more than the general populace.  And I doubt the total number of participants on all the political web-logs combined come to more than two or three percent of the electorate; out votes are overwhelmed by those of the masses not so politically aware.

Antoinetta III        Posted on The Oil Drum on 7-2-2006

What's the real nonsense here: swords and sorcery, or a perfect heriditary governmental system lead by an enlightened dictator.  I don't think you should draw distinctions here, because they are both equally ludicrous (which doesn't mean it makes a bad story, but this is a fantasy novel we're talking about).

I think it should be noted that just because someone writes something in a story, that doesn't mean they necessarily believe it would work in the real world.  So, we have no idea what Tolkein really thought was the ideal government for the real world (unless he wrote it down somewhere outside his books).

But the idea of a perfect heriditary power structure with enlightened rulers simply doesn't work in the real world.  If it did, we'd have achieved it long ago, but the fact is, on the whole, monarchies tended to be quite less than idea.

I would say that Tolkein's depiction of the elven society might be considered an idealistic fantasy: what might be possible in a perfect situation, with a benevolent ruler, and where everyone in society was of like mind about everything.  That doesn't mean it's a true blue print for the real world.  Incidentally, consider that if everyone in society is really of like mind, the form of government becomes irrelevant.  A democracy could work as well as an enlightened despot in that situation, because both will come to the same conclusion.

I have to say, I think this is one of the biggest dangers of reading too much into a fantasy novel, or indeed a fiction novel of any type.  It is a construct of a person's imagination, and what works in such a constructed world may not be accurate of how things work in the real world (although I do think the best storytellers do try to achieve such realism).

It's can be a grave mistake to cross the line from thinking something is a good story, to thinking it can give you 100% accurate insight into human psychology, or tell you how you should go about living your life.  In the end whatever is written in a fiction story is the opinion of the author, and you can often end up with works where the conclusions are simply completely false (Lord of the Flies, for one, and then there's Crichton's novel about Global Warming being a farce).

When it comes to Tolkein's novels in particular, I would suggest that their inherent black and whiteness prevents them from accurately reflecting the imperfect shades of gray, which comprise the nitty gritty of human existence.  That doesn't mean they are bad stories, it simply means it's the wrong source to use as a guide for human government and society.

I would say the true value of all literature is in making us think about things.  So, there is no harm in thinking about the message Tolkein might be presenting with his elven society.  But part of thinking is also rejecting ideas that are clearly outlandish and which would not work in the real world.

It also gets into some of the same things that Lester Brown has been saying in his book "Plan B, 2.0".  I am only partway through the thing - I haven't gotten to the actual "Plan B", but I have heard him talk, and I know that in effect he is proposing that our entire economic system needs to be rethought and redone.
Plan B 2.0 is a pretty derivative work, more of generalized summary of the situation and various things that can (but probably won't) be done than a coherrent and sweeping answer to the world's problems. Which isn't to say that it's bad a bad book, but I didn't find any really ground-breaking ideas for greening the economy. But it has been six months since I finished it...

The Ecology of Commerce would probably be the best to read for that. Natural Capitalism had some good stuff too.

I haven't read Plan B so I can't comment on it, but I have read The Ecology of Commerce by Paul Hawken, and at the time I read it, it was a life-changing experience.

Highly recommended.

If you look at it the right way  (that is, my way), you see that we (I) ARE immortal, since we are all the same thing.  So If I look at that forest, I have to be thinking about me in the future looking at the same one, and I have to think- how do I manage this thing so ALL OF ME, me now and me in the future, benefit the most?  With that outlook, which is to my mind self-evidently the right one, I manage the forest very carefully indeed, and if it means one or two of me die in the process, well, that's the way it goes.

Now, having solved that little puzzle,  would one of me out there please tell me how to conjure up more from "there's more", which hasn't worked for this version of me for a long time?  I would really like to see what else Stuart wrote.

I think the Elves penchant for nature had more to do with their virtual immortality and skill with 'magic' (read technology) rather than their social system, which was similar in substance to the other races of Middle Earth.
It would also be interesting to see if there is any way to work social consensus into this.

For example, Germans consider their forests to be important at a level where monetary value is not really applicable - though the forests are also excellent sources of revenue. Anyone proposing to clear cut for personal gain will find that the entire society around them will be opposed, possibly to the point of serious threat.

I realize this is a simple thought experiment, but I am not really convinced it applies equally to different societies even in the capitalist, industrial West.

There is a somewhat old joke that from a cost benefit analysis persepctive, an alien race trading infinite energy, materials, and knowledge for 500 years in exchange for the death of every human at the end of the bargain is a no brainer - the deal is impossible to resist from the cost benefit perspective.

But even if a society such as Germany has the right overall sentiment, all it takes is a few bad actors to spoil it. And it sounds like the problem is the government:

" ... The adventures of Germany's most famous fugitive - Bruno the bear - came to an abrupt end on Monday when a group of Bavarian hunters unapologetically shot him dead. After weeks of attempts to stun and capture the bear, Bavaria's environment ministry announced over the weekend that Bruno could be shot. Three Bavarian hunters took matters into their own hands.

German officials confirmed that Bruno had been killed at 4.50am near the town of Zell in southern Germany. "The shooting has happened - the bear is dead," said Manfred Wölfl, the Bavarian government's bear specialist.

"It's not that we don't welcome bears in Bavaria. It's just that this one wasn't behaving properly," Otmar Bernhard, an official with Bavaria's environment ministry said. ... Environmentalists who had been campaigning to save Bruno - the first bear to wander into Germany for 170 years - reacted with fury.

"It's incomprehensible," Heike Finke, spokeswoman for Germany's Wildlife Alliance told the Guardian. "Other countries like France, Romania, Austria and Italy manage to co-exist with bears. But three weeks after the first one turns up in Germany we have to shoot it dead. It's so frustrating."

... Bavaria still intends to honour the bear it has killed. Bruno will be stuffed and exhibited in Munich's Museum of People and Nature, Mr Bernhard said, refusing to answer further questions."

You have nailed one of the most interesting paradoxes of living here. Germans love and revere 'Natur,' except when it is not well behaved. (A quick note - the bear was not exactly a gentle beast - it seems to have slaughtered six sheep at one point, for example, was what I heard on the radio about a week before getting shot.)

Growing up in Northern Virginia, it wasn't like the national parks on the East Coast I backpacked in are purely natural, but they are generally the result of decades to more than a century of general human non-interference. That is, the national parks are simply nature.

In Germany, there seems to be one true 'national park,' with 5000 hectares. (All from memory here, from Die Zeit.) This tiny parcel of land was intended to be left alone in the normal sense of an American national park. But in the last few years, some beetle seems to have gotten out of control, and many locals were very angry at the non-interference policy, since the beetles were destroying the natural view of trees they had enjoyed.

Germans love 'Natur' as long as it fits into their view of natural. Real nature, however, is something of a problem.

This place is not paradise, and it is not some sort of anti-America. But even in my story, notice how the trees and the forest are considered critical - even nature should not be allowed to tamper with 'Natur.'

I find it all a bit strange. Germany is an eco-friendly industrial society with a general long term view and a faith in long term planning, after all, not some sort of back to the Earth commune.

Are you saying Germany has ZERO wild bears, anywhere inside its borders?
Nope - there is not much that can be considered wild here. I seem to recall from something that the last German bear was shot in 1888 or some such. It was stuffed, and a plaque attached commerating such a momentous occasion. People have lived here a long long time by American standards.
To Europeans 'nature' is their rural agricultural areas.
Well, yes, but Germans go one step further with their whole attachment to forests. I can understand rural, and fitting that into 'Natur' is pretty easy, but the forests are 'Urnatur' (original) nature somehow, even though they are essentially nothing but man made and maintained systems.

But then, I'm not German, and never will be.

They shot the bear for being a bear and doing what bears do?

What's the point then?

Ordnung
I mourn for Bruno too. There's something romantic about the idea that there's still (almost) a little room for some of the wild creatures that used to roam Europe.

In the USA, I'm sure he'd have been considered a problem bear, spending too much time near settled areas, munching livestock, trashing beehives. He was a problem bear in Bavaria too. It may be impossible for a bear in Bavaria not to be a problem.

In the end, he was doomed because sooner or later, he would have hurt sombody.

One of the foremost responsibilities of the state is to protect people from their own stupidity. It was inevitable that some fool (or maybe just an unlucky soul) would get too close and get mauled. Imagine the uproar then, "Why didn't you kill the bear before it was too late?" coming from some of the same voices who are now condemning Bruno's death. Maybe they could have tranquilized him if they'd tried harder. But he had to be "taken out of traffic."

I say it's great that people mourn for Bruno - but how about they start mourning for factory-farmed Babe and Bessie - those tortured animals that end up on people's plates.  Oh wait, those animals aren't "wild" and therefore have no capacity for suffering right?  Their central nervous systems only come online once they reach "the wild."
Where's the beef?
I guess taking the "traffic" out of Bruno's living room (literally) is not an option.  My hope is that once human traffic shrinks to a trickle of its present overshoot, there will be enough bears (and enough everything else) left living in their isolated rooms to re-establish their rightful place in the global community of life, where the general rule is eat and be eaten, rather than avoid humans above all else or die (and be stuffed).
Stuart,

Brilliant post. Such a very difficult topic to explain to people who may be used to doing the "right" thing.

I think that your negative feedback theory will play out in many ways other than the economic sphere. The last man standing theory is what most people call it. In other words, when Dick Cheney says, "The American way of life is non-negotiable," he means it. The US will stake out for itself in old school imperialist fashion the energy supplies it needs to continue its long cheap energy run. Unfortunately, the rest of the developed and developing world will also be bidding for those sources.

Every war is ultimately a war for resources. When a particular resource that is necessary to the economic health of a country is endangered, the typical response is a military solution.

Unfortunately the corporate world is stepping up its ongoing war to the death with all of humanity. Because of the inexorable forces of accounting practices and economic theory, the world will be thrown on the bonfire of corporate greed. The only way to stop this insanity is to rescind the idea of corporations as an immortal quasi-humans and take away any and all constitutional rights they have ursurped over the last 150 some years.

For more information on how corporations abused the Civil Rights Act of 1866 which was designed to give freed slaves personhood go to:

The truth is corporations have no legal standing in this country and should be dissolved immediately.

V

I like "bonfire of corporate greed", but you are going to have to work on "the inexorable forces of accounting practices and economic theory" if you ever want to get your revolution off the ground.
A perfect description of a corporation is an alien lifeform on paper. Why the Supreme Court had the brain-fart of giving them personhood is anyone's guess. Corporations are like giant single-cell organisms capable of eating anything and excreting anything and at the the same time capable of dividing and merging and incapable of being punished.

No biological organism can merge though they can divide and consume and excrete a wide variety of substances. Think of useful alcohol that yeast excrete as their "shit". Some germs can "eat" oil even. But only corporations can "eat" creativity, plutonium, and other bizarre inputs not found in bio-organisms. And excrete burnt-out workers left to die in the streets loaded with their toxic excreta. Corporations excrete consumer products as they feed on money, people, and raw material.

It can easally be said that humans created life already - in the form of corporations!

Why the Supreme Court had the brain-fart of giving them personhood is anyone's guess.

Many claim it was not the court - but a clerk.  (and a well paid one)

lTHE HIGHTOWER LOWDOWN, April 2003
Title: "How a Clerical Error Made Corporations 'People'"
Author: Jim Hightower

I have always liked the story (but have been unable to substantiate it) that the Chief Justice of the Supreme Court that decided Santa Clara County v. Southern Pacific Railroad Company in 1886 stood to profit considerably by his ownership of stock in the railroads if they were considered "persons" and able to take advantage of the various "free land" offers made by the federal government at that time. No brain-fart -- just simple human greed.
Hello,
this time, just a couple of comments.

I do think wars like the American Civil War are not really about resources - different social systems (agriculture/slave vs. proto-industrial) can find other reasons for war than resources alone. It would also be fair to say that civil wars are a special case, in your defense, and that even a civil war has a resource component.

'In other words, when Dick Cheney says, "The American way of life is non-negotiable," he means it.' - Cheney can tell the rain in DC to stop since the American way of commuting is non-negotiable, and even mean it, but the rain could care less. America's way of life is soon to be facing something a bit harder to negotiate, something even your finest imperialist has to deal with at some point - reality. What is most shocking about watching the current American political system is how utterly unconcerned they seem to be with the real world around them - though who knows, maybe even Cheney's currently undisclosed location is getting a bit wet.

Hmm. While we may be concerned with the reality, they are busy creating other realities... (Isn´t this what somebody in the Bush administration said?)

This reminds me of a scenario I read, heard or thought of quite some time ago:

When things start going really badly, what TPTB need is a major terrorist attack on, say, Ras Tanura, and within a few hours of the attack we will be told that it was those evil Ayrabs and Eyeranians who did it and are therefore responsible for the economy going into tailspin. After that most people will be calling for war, and just by magic, that war will have been planned well in advance. So, there is a major conflagration in the Middle East and possibly elsewhere, and very few people will pay any attention to those who suggest things were going horribly wrong anyway. When nukes start flying about, few people will think about PO...

This is, of course, extremely pessimistic, but I find it hard to imagine how major Western governments could survive when TSHTF without being able to blame somebody else. And we know who´s been framed for some time already...

Actually the material cause of conflict in the US Civil War was who would profit from western settlement.  If the Confederacy had been allowed to pursue free trade, New Orleans would have been the seaport serving the western expansion.  The Union needed protectionist tariffs to protect industry, and would not have been able to compete with a free port.  NY papers editorialized about this issue, that seccession would lead to the economic collapse of NYC.

Slavery, like WMD in Iraq, was a red herring propaganda issue.  There is no way that Indiana farm boys would have enlisted to protect the wealth of NYC elites.  So there had to be a noble quasi-religious excuse for the war, freeing the Africans from bondage.

Sounds right, remember the Confederacy was going to be their own country. They were arranging alliences with other countries in Europe, etc. Legally, it wasn't over slavery but over some technical matters of states' rights. But deep down, like all conflicts, it was over resources.
It is certainly correct that expansion was a major part of the conflict. This is why I wrote about two systems, and did not write about slavery as such - Maryland was a slave state in the Union, for example. The Civil War was about many things, but speaking broadly, slavery was not a primary cause - though it was an easy one to hold high morally.

But in this case, I am not not at all convinced that resources was the cause compared to power, and it is certainly true that the two systems competing with each other in a single framework were not compatible. Civil wars do tend to be special cases - I could have written about Cromwell, but then the whole religious issue comes up.

The Civil War was about many things, but speaking broadly, slavery was not a primary cause - though it was an easy one to hold high morally.

But in this case, I am not not at all convinced that resources was the cause compared to power, and it is certainly true that the two systems competing with each other in a single framework were not compatible.

OK, lack of power to have their way was quite probably the causus belli. But what constrained their power? Would it not be their inability to obtain enough of a very scarce resource called congressional seats?
But isn't it just ducking the issue to say 'competing systems' when one of the systems was slaved-based planation agriculture? The south's entire system of political economy depended on slavery. It was what kept southern elites rich and firmly in control of southern politics. You cannot separate out the slavery issue as it was the root cause of all the other derivative issues that sparked the civil war. The North and South had differnt systems precisely because the south used the coercive power of the state to keep a huge portion of its population in chains. The ante-bellum south was a society based on and had all its interests shaped by slavery.
Initially, slavery wasn't the consideration, but I think it was major in the aftermath.  The value of slaves and their work was a huge fraction of the economy of the time.  From the perspective of society, eradicating slavery then would be comparable to outlawing corportations now. I am amazed that the USA didn't totally implode.
The confederacy imploded and took a century to recover economically.  In the case of Alabama and Mississippi, I am not sure they ever recovered..
The slaves didn't stop working when they were freed. The price resource of the slaves to their owner was on-paper. The productive value of the people didn't change.

A lot of paper wealth evaporated; new economic systems had to be developed; new social systems were developed to create an underclass based on skin color rather than ownership (read Freedom Road and Black Boy, for example).

But there's no obvious reason why the South had to implode. Perhaps the carpetbaggers contributed, and the North's anger over Lincoln's death?

Chris

That is not quite true - a lot of real wealth was utterly and thoroughly destroyed. Another writer joked (well, maybe) about a couple of other states, but Nothern Virginia, one of the oldest settled parts of America, collapsed after being involved in what was in essence the first modern industrial war. In part, it collapsed because both sides saw it to their advantage to destroy whatever could be used by the other side.

Of course, the forests that I grew up around are now gone again, but there were really no forests in Northern Virginia at the time of the Civil War - it was all farmland. After the Civil War, it lay fallow for a century. Partially because of destruction, partially because more promising areas beckoned out west.

What a bunch of nonsense. SLAVERY was the root cause of the civil war. Its existence propped up and made economicaly viable the south's plantation agriculture economy and the parasitic landed aristocracy that ruled the south with an iron fist. Everything else flows from this. Slavery was THE issue. It was the root issue of the state's rights dispute, tariff policy, AND western expansion. Who would control the future? Landed aristocrats enriched by slavery, or industrial capitalists and free labor?

Slavery, like WMD in Iraq, was a red herring propaganda issue.  There is no way that Indiana farm boys would have enlisted to protect the wealth of NYC elites.

Saying the civil war wasn't about slavery is like saying today's culture war has nothing to do with fundamentalist religion. The continued existence of slavery in the United States in the industrial era would have fundamentally threatened free labor everywhere. When's Sherman's trooped torched southern planations they were looking after their own long-term interests in addition to freeing slaves.

Seems to me y'all are essentially arguing semantics.  Was the Civil War (and are current conflicts, and will future ones be) about resources, economic systems, religion, power, freedom or...? I think PS gets it right here: "Who would control the future?"  It's all about control, which is obviously about power, and also about freedom, which includes religion or the absence thereof, and certainly includes economic systems, which is meaningless without resources.  All of which becomes even more unified when resources is defined to include people - labor, markets, intellect, creativity - all resources to be exploited by whoever controls the system.  This is what we fight over - control of resources of all types.
One of my ancestors was an officer in the Union Army and, according to family lore, resigned his commission upon learning of the Emancipation Proclamation.  "I will fight to the death to preserve the Union, but I'll be damned if I will break a sweat to free the darkies".

IMO, you are using today's PC logic to interpret history and it gives you a distorted view.

One datapoint does not a theory make.

What else was the civil war over if not slavery? 600,000 Americans died over western expansion? Tariff policy? Come on. The war was about who would control the future -- an aristocratic, non-democratic, slave-owning elite, or free labor and industrial capitalism. Banana Republic or Industrial Powerhouse?

Plus, it was the slavery issue that kept Britain and France from recognizing the Confederacy. The British upper-class, being labor-repressing landed elites, were sympathetic, but it was the church-going, voting middle-classes that kept Parliament from siding with the South. That, and Egypt and its cotton was swiftly becoming part of the British Empire.

What else was the civil war over if not slavery?

To quote a primary source, Lincoln said

I would save the Union. I would save it the shortest way under the Constitution. The sooner the national authority can be restored; the nearer the Union will be "the Union as it was." If there be those who would not save the Union, unless they could at the same time save slavery, I do not agree with them. If there be those who would not save the Union unless they could at the same time destroy slavery, I do not agree with them. My paramount object in this struggle is to save the Union, and is not either to save or to destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it; and if I could save it by freeing some and leaving others alone I would also do that. What I do about slavery, and the colored race, I do because I believe it helps to save the Union; and what I forbear, I forbear because I do not believe it would help to save the Union.

The War Between the States was about whether the Southern States had the right to self-determination or not.

A President was elected that was not even on their ballots and would likely work against their interests (tariffs & location of railroads to the West as much as slavery).  They thought they had the inherent right to self-determination and could secede.  The Northern States thought differently.

IF the Constitution had included a single sentence the war would have been avoided.

"The various states shall (or shall not) have the right to leave these United States upon a 3/4ths vote of their legislatures and approval by their Governor".

The War Between the States was about whether the Southern States had the right to self-determination or not.

And what were they fighting to be able to determine for themselves? Tariff policy? Railroads? Are you kidding me? Johnny Reb marched off to slaughter in protest over where Union Pacific was going to lay track? That luxury goods he couldn't even afford had a tariff on them? They risked EVERTHING over railroads?

So what does your Lincoln quote prove exactly? That he was trying to reassure the pissed off and frightened slaver-owing aristocracy that his fire-eating Republican party really wasn't interested in banning slavery? When a moderate conservative today says to liberals afraid the GOP will ban abortion that he will not ban abortion should they believe him? They they should disregard all those fire-breathing fundamentalists who make up the Congress?

You're fundamentally ducking the issue. Waving your hands in order to distract attention away from an institution that (like the social capital map) doesn't paint your area of the country in a good light.

Why was the southern elite afraid and threatened by the Republicans? Why didn't they collectively jump ship earlier? Hell, South Carolina nearly did but realized fighting Andrew Jackson over tariffs wasn't worth a war. Why was tariff policy or western expansion worth a war under Lincoln but not under Jackson? Why was it Lincoln and the anti-slavery Republicans, but not some earlier crisis or president? What was it about them that made them intolerable, but not, say, someone else? Why wasn't the GOP on the ballot in the south? Why were the democrats split?

Lincoln and the Republicans represented a gun pointed at the head of southern plantation elite. Sure, Lincoln promised not to pull the trigger, but the planters felt they couldn't trust him or his party so they loaded their own guns and shot first (at Ft. Sumter). Lincoln shot back. The rest is revisionist history.

Just a thought,

But when Cheney says, "...non-negotiable".   Maybe he means, non-negotiable in the sense that we can't change even if we wanted to,  not that we shouldn't.   In particular, the finances of the country(extrapolate - world),  it's hard to slow down or stop an economy that is based on debt(staggering amounts), and the only way to pay back the debt is with a growth economy.

Another words,  checkmate.   Cornered between the Queen of Peak Oil and Rook of Financial collapse.

Ahh..its all fun! ;-P

`=``=``=``=``=``=``=`==
It's all about Population!

Maybe the truth is it doesn't really matter what Cheney says.  He's quite old and has a bad heart.  He won't be around for that much longer.  In any case, he won't be in power much longer.  He can say what he wants, in the long run his statements don't mean jack.  It's not his generation who will have to address the problems we are facing today or adapt to them (not that Cheney's generation monolithically believes as he does by any means).
Cherenkov,

I concur, this is an excellent post by Stuart, that has led to one of the best threads I've read on TOD.

Re:  "The US will stake out for itself in old school imperialist fashion the energy supplies it needs to continue its long cheap energy run." I'd only change "will stake" to "is staking"

Re:  "The only way to stop this insanity is to rescind the idea of corporations as an immortal quasi-humans and take away any and all constitutional rights they have ursurped over the last 150 some years."  This is perhaps the most important paradigm shift we could make, and it's one that actually doable.  Not that it would be easy, given the power in favor of corporate personhood.  But it's a body of law that can be undone with the appropriate amendment/legislation/legal decisions, unlike many of the other shifts that would help, but would require changing human nature to one degree or another.

Hello Stuart,

Well done! Your Quote: "Improving the information available to the economy about the true situation with resource constraints is extremely valuable, environmentally as much as economically."

This is exactly what Matthew R. Simmons has been advocating for: full transparency and full audits of FFs everywhere, but especially in Saudi Arabia.  His latest presentation, "The Energy Crisis has Arrived" has even advocated using spies or military force to gain this vital info [see slide 48].

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

http://www.hubbertpeak.com/hubbert/monetary.htm

"Two Intellectual Systems: Matter-energy and the Monetary Culture"
(summary, by M. King Hubbert)

During a 4-hour interview with Stephen B Andrews, SbAndrews at worldnet.att.net, on March 8, 1988, Dr. Hubbert handed over a copy of the following, which was the subject of a seminar he taught, or participated in, at MIT Energy Laboratory on Sept 30, 1981.

"The world's present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evloved from folkways of prehistoric origin.

"The first of these two systems has been responsible for the spectacular rise, principally during the last two centuries, of the present industrial system and is essential for its continuance. The second, an inheritance from the prescientific past, operates by rules of its own having little in common with those of the matter-energy system. Nevertheless, the monetary system, by means of a loose coupling, exercises a general control over the matter-energy system upon which it is super[im]posed.

"Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely, exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest. This disparity between a monetary system which continues to grow exponentially and a physical system which is unable to do so leads to an increase with time in the ratio of money to the output of the physical system. This manifests itself as price inflation. A monetary alternative corresponding to a zero physical growth rate would be a zero interest rate. The result in either case would be large-scale financial instability."

"With such relationships in mind, a review will be made of the evolution of the world's matter-energy system culminating in the present industrial society. Questions will then be considered regarding the future:

What are the constraints and possibilities imposed by the matter-energy system?

Human society sustained at near optimum conditions?

Will it be possible to so reform the monetary system that it can serve as a control system to achieve these results?

If not, can an accounting and control system of a non-monetary nature be devised that would be approptirate for the management of an advanced industrial system?

"It appears that the stage is now set for a critical examination of this problem, and that out of such inquries, if a catastrophic solution can be avoided, there can hardly fail to emerge what the historian of science, Thomas S. Kuhn, has called a major scientific and intellectual revolution."

"If not, can an accounting and control system of a non-monetary nature be devised that would be approptirate for the management of an advanced industrial system?"

Ah. But what is appropriate. I paraphrase Churchill (I think) in saying that capitalism is the worst economic system known to mankind except every other one that we have tried. Also:

Capitalism is a bad idea that works,
Communism is a good idea that does not

My feeling is that capitalism does a pretty good job of allocating resources, although it is not perfect. I think the only relevant question is indeed the one asked in your post. Is there a better one? Should we risk destroying the current system in hopes something better springs up? Should we try to improve what we have?

It is a very, very simple thing to do to sit around and say the current system is bad, but unless you have a reasonable expectation that something else is better, it is just complaining. Every day these threads are full of posts saying capitalism is bad, companies are bad, people are bad, modernity is bad, cars, suburbs, etc.

So my answer to the question is no. We can not devise a better system. But we can keep trying improve this one.

If your answer is yes, what does it look like?

The stakes are high. Many people have tried these experiments. You know their names. Americans aren't idiots or sheep for not wanting to go that route.

So improving the system is all right, but changing it is not. How will we know the difference?
To my mind exchanging the current system for a bunch of fanasties of utopia is folly.

I'm not feeling adequately philosophical to draft a real answer to how do you tell the difference between chnaging and improving.

My point is that there is a huge continuum between complaining and changing the world. Most of what I hear here is complaining.

Many posters want to ditch capitalism and democracy on some wild die roll of hope that something better comes along. Sorry if I'm not ready to bet my future on the appearance of an benevolent and immortal elf with magic powers.

"Many posteres want to ditch capitalism and democracy  on some wild die roll of hope that something better comes along."

Since the 1960s has been ditching democracy n favor of a military/industrial autocracy (just as Eisenhour warned).  Capitalism has morphed into a casino of financialism coupled with radical deindustrialization. American "capitalism" today has little resemblance to the system envisioned by Adam Smith.  The "invisible hand" has turned into an iron fist.  Smith's view encompassed mostly localized community-based enterprises such as the blacksmith, the butcher, the baker, the candlestick maker, etc.(sort of like Fleam's wish)  An individual learned a trade and then invested/risked his personal "capital": his expertise, land, money (sometimes borrowed) and effort.
According to one or more authors I have read recently, post-industrial financialism (along with imperial adventures)are the final stages of cultural evolution preceding collapse.
Add PO, GW and overpopulation -- fasten your seat belt, it's going to be a wild ride!

Cheers,
--Mort

"To my mind exchanging the current system for a bunch of fanasties of utopia is folly."

So keeping the current system for a bunch of fanatsies of change and / or improvement isn't folly? What if the system is so dysfunctional it can never be improved? What if the only way forward isn't to make it work from "within" but to make it obselete? Does that frighten you? Will you cower from the idea or will you embrace it?

Capitalism and Representative Democracy have been given a fair trial. In a vast number of areas Capitalism and Representative Democracy seem to have failed. Distribution of wealth springs to mind. Are you truly happy with the gap between the pay of CEO's and the workers? Are you truly happy with the performance of your senators and your congressman? Why are you not truly free in your own country? Why can your government spy on you? Why can your government take your real property for non-payment of taxes? Even if the deed is yours, your government can take it away. Yet, they don't own it. You don't live in a Democracy and your representatives are not yours to direct. You live in some Disney fantasy that confuses liberty with freedom. That confuses legal justice with truth. That mistakes the electorate for servants of the state.

"Many posters want to ditch capitalism and democracy..."

I would be really surprised if most posters wanted to ditch Democracy. Sadly, it would seem democracy has ditched them. When was the last time you evaluated your representatives voting records? If you do such, do their votes match your expectations? If you believe you live in a Democracy you might like to take a good hard look at your beliefs and expectations.

As for capitalism, perhaps if the rise of the corporation had never happened, then Capitalism would be an economic system worth preserving. But, as it seems to have happened, the lives of people around the world are blighted by Capitalism and, in partciular, the brand that gives the corporation the same rights as natural persons. If you feel Capitalism has served the Niger Delta, or the Amazon Basin, or the Appalachians you have a perspective I cannot share.

Agree with everything you say here, Goritsas, but to close the circle, we have to realize that it is the democracy that enabled the capitalists to create, then empower the corporate structure.  Democracy may start out idealistically enough, but by its very nature, it empowers those best organized and financed more than it empowers the average Jane and Joe.  The former are eventually able to "game" the system and gain an increasingly disproportionate influence over the government, until, as at the point the USA is at now, the government devolves into window-dressing, preserving the illusion of actual democracy which in turn enables the corporate types to scarf up an increasing proportion of a society's overall wealth.  Electoral democracy, in a nut-shell, carries from the start the seeds of its own destruction

England is, I believe another example of this.  Its been essentially "democratic" longer than most of continental Europe and by the '80s we saw the free-market corporatic Margaret Thatcher elected and the privatizations that followed, even the national health service, long a sacrosanct institution came under attack, again with calls for privatization.  This last hasn't happened yet, but give it another 30-40 years--if the overall eternal growth system lasts that long, which I doubt.  And, if the system could hold out another 80-100 years, it would happen in continental Europe or any other country that maintains an elected governance as well.

Antoinetta III

Stuart, in his excellent post, pointed out a big change in the capitalist system: regulation of monetary policy by central banks has smoothed out the boom/bust cycles typical of pre-WW2 capitalism, and while one hears much quibbling with the particular decisions, there doesn't seem to be much sentiment to throw the system out altogether and go back to completely unregulated monetary markets.

As Gus di Zerega points out, corporations are run by a one share, one vote system. Change that to a one worker, one vote, and you have a cooperative corporation. The Basque country has a cluster of cooperative corporations who are competing successfully in capitalist markets, making white goods, securing big construction contracts, etc. Whether shifting to cooperative corporations would be more oriented to sustainability or not is unproven, but I suspect they might; the current US corporate system is so driven by quarterly profits that the long view gets lost.

Actually, just up and changing the system really is NOT alright.  The difference between improving the current system incrementally, and just throwing it out the window is massive.  Just "changing" to something else means that we actually spend a lot of time in anarchy, which is basically total societal collapse.  If you want to make sure that the most pain is inflicted on everyone, then go ahead and just try to change to something else.  In reality what comes out of such anarchy is unlikely to be better than what we have now.  It will probably be worse, something like despotism.

Capitalism is a very integral part of our social structure.  You can't just rip it out and expect anything we have to survive.  That's like curing the disease by killing the patient.  When push comes to shove, I highly doubt most people advocating drastic change would really be willing to suffer the consequences of such a change.

I know. However, capitalism in its current developed form and operation will collapse if peak oil occurs before sufficient advance preparation is completed. I guess that most of us here think insufficient preparation will happen in time.

Some form of capitalism may be part of what emerges after the anarchy but I hope, if it is, it will be rather different from the current incarnation. Sometimes the patient must go through a period of fever and delerium for the body to cure itself of an infection.

That is what the present model of capitalism has become: an infection. It has, to a significant extent, been a causal factor in putting humans into overshoot; it is also a major factor 'preventing' humanity from rationally solving problems like those we discuss here.

Yes, it will be worse for quite some time. Probably decades, possibly longer. Terminally so for a fair proportion of people. Unless human society, attitudes, behavior, fundamental thinking and drives change very dramatically and very soon that future is unavoidable.

Jack: Relax. Your side has won. The future belongs to China, and those damn Commie Chinese are far better at building a high-consumption, ultra-high pollution society than the Americans ever were.
I'm not on a side. The Chinese have been hugely successful in transforming their economy, which has lifted more people out of poverty than any other accomplishment in history.

I don't worry too much about pollution as market economies have a pretty good track record of cleaning up after. I do think the Chinese will regret the destruction of their resources and the world may not survive the additions to global carbon or competition for dwindling oil resources. So, see I'm not a cornocopean.

But what would you have them do? Go back to communism and the woes it brought the country?

Sure it would be nice if there were only 100,000,000 people on the earth and we all lived in harmony. But until someone can map out a way to get there that doesn't involve killing everyone, I think working with what we've got is the best option.

I would have them go back to the system that was sustainable for the 3,000 or 4,000 years before it was destroyed by the 1911 revolution.

Antoinetta III

OK. Now I see why you don't like democracy. That is not going to be very popular.
Alas, long-term, I don't think a significant variation/improvement over the 3-4000 year old system is sustainable.  It's not a matter of "wanting" any of this; it just seems like a logical outcome.  Likewise I feel it likely that the year 3000 will far more closely resemble the year 1000 than it does our current time, never mind some Jetson's fantasy-future.

Antoinetta III

Now I see why you don't like democracy.

Why do you hate America?

Calling it a Democracy.   The CIA says it is a Constitutional Republic.

"I don't worry too much about pollution as market economies have a pretty good track record of cleaning up after."

I guess it depends what one looks at.  Did we do a good job with CFCs?  Yeah, but they were relatively easily replaced by products that some corporations could profit by.  Have we done a decent job with some basic water pollutants that were directly poisoning our drinking water?  Yeah, we decided we liked drinking water that wouldn't kill us next week.  Did we make headway on the precursors to acid rain?  To a degree.  SOx are down significantly, but the rain over the northeast is still many times more acid than natural rain.  What hasn't the market taken care of.  Would that I knew and/or had time for an exhaustive list.  Something like 50,000 people die in this country every year as a result of the mercury spewed out by coal plants - all so we can burn lights we don't really need, dry clothes that the sun would for free, air condition space to the point that people wear coats in their workspace or theater...  Last time I checked, the sphere we call home was embarking upon meltdown as a result of CO2 our market considers "an externality" - Arctic Ocean will be ice-free in summer in about a quarter of a century, Greenland and Antarctic ice sheets are starting to break up and melt to the sea (look out Florida, Bangladesh, UK - oh hell, just look out).  The groundwater we have depleted/polluted/infused with saltwater will replenish and cleanse itself in tens or hundreds of thousands of years - a good market response there.  But not to worry, we have a global excess of potable water, right?  From my vantage point market economies have a pretty lousy track record of cleaning up after - and it's been made much worse these past 6 years.

Capitalism is a bad idea that works,
Communism is a good idea that does not

I think that with the advent of PO, GW, etc, we are seeing that capitalism is just as big a failure.  Or worse.

My feeling is that capitalism does a pretty good job of allocating resources

Yeah, 80% of the resources to the wealthiest 5% of the people, or something like that.

So my answer to the question is no. We can not devise a better system. But we can keep trying improve this one.  If your answer is yes, what does it look like?

As if the only two possibilities are capitalism and communism?  Besides the fact that socialism <> communism (and communism in practice was not even an example of socialism), there's much more that's possible.  Read Herman Daly on the Steady State Economy.  (It's not just a good idea, it's the law of nature.)

I think you're pretty close with that figure - I had read a while back and I can't find the reference but I'll keep searching:  70% of the wealth in the US is now concentrated in 1% of the population.

This 70% threshold has never been exceeded by any nation-state in history...

Capitalism has been an overwhelming success if you were lucky enough to have the right last name.

I think that with the advent of PO, GW, etc, we are seeing that capitalism is just as big a failure.  Or worse.

Strictly speaking, you are predicting a failure.

I don't put one outside the relm of possibility, but again, I don't think we've really tested the hypothesis.

I do note that high GDP growth is being tallied for the US in 2005, with pretty flat energy growth.  That seems to be a very positive development.

We havn't seen a collapse yet, yes I'm predicting one.  The current dire situation is obviously unstable, and due to endless growth of population and consumption.  And, as Hubbert said, the religion of growth will collide with the finite physical world.  It's only a matter of time.

High GDP growth?   I think it's mostly inflation (the part that is not counted in the official inflation stats).  And anyway, GDP goes up, so what?  GDP counts all money-related activity as positive.  Hurricanes hit the Gulf coast and houses need to be rebuilt -- economists rejoice.  People get sick due to diet/pollution/etc, medical spending rises -- economists rejoice.  When will economists learn to subtract?

I think the best thing about GDP going up (if it proves not to be simple inflation) is that the extent that it disproves those capitalists who feared energy conservation, or CO2 limits.

Remember when the Kyoto discussion was about economic doom?  Numbers like "a trillion dollar cost" were thrown around.

Well, here we've got seeming growth combined with a little bit of that conservation (on a per-capita basis) we were supposed to fear.

It's a great time to say "look how easy it is!" and 'why not double those efforts?"

What is high GDP growth if the real inflation rate is higher? There are too many ways to skin that cat, if you know what I mean.

As for capitalism, PO, GW, and possible disasters - given the growing body of scientific data do we even want to test capitalism for failure? Is that a test that we rationally would want to even conduct? And yet off we go to try to conduct that test. Do I get to declare capitalism a failure when 25% of the earth's species are destroyed? 50%? 95%?

And the sadly funny part is that capitalists will urge more capitalism to conquer this "unexpected" disaster that befell us, as if more of the same poison is going to make us better.

As someone else asked (in different words) do you have an example of a human culture that has done better?

BTW, I actually discount the word "capitalism" because we are not ruled by capitalists.  We are ruled by middle-managers inside and outside government.  We stopped being capitalist in stages, but certainly the 1930's and 1940's were a great turning point.

Who rules?  "Middle managers" like BCR?  And who appointed them?  And who benefits from the biggest use of my taxes?  (Hint: no-bid contracts.)
BCR is Bush, Cheney, Rove?

Yup, I'd say they are all hopped-up middle managers.  But more to my point, look back at the Philip Cooney episode.  There was a guy changing the course of national policiy.  He didn't do it by being "rich and powerful" in the traditional sense.  He did it by being a middle manager in the right spot.

But that guy worked for the oil industry?
Yes, but above I was talking about "capitalism" which was originally about "capitalists" who owned/controlled things.

Back in the day it wasn't who you worked for, it was what you owned.  Rockefeller didn't "work for" the oil industry, he "owned" the oil industry.

By the way, I am probably calling them "middle managers" to belittle them.  I mean "hired managers" in a more propper sense, as opposed to management-by-owner.
As someone else asked (in different words) do you have an example of a human culture that has done better?

Define "better" in this context. Seriously, try to do it. Tricky, eh?

If we're currently at or near a peak before a precipitous fall (and there is mounting but still inconclusive evidence that we are), we could easily call ourselves the "best" culture of all time, but reconsider as we careen down the slope.

I think it's straightforward given the post above mine:

As for capitalism, PO, GW, and possible disasters - given the growing body of scientific data do we even want to test capitalism for failure? Is that a test that we rationally would want to even conduct? And yet off we go to try to conduct that test. Do I get to declare capitalism a failure when 25% of the earth's species are destroyed? 50%? 95%?

Has there been a society (esp. an industrial society) that has been better at totalling the scientific data, and doing planning, and protecting the environment on that basis?

But really, again, "capitalism" is a bad word to use.  We are further along the "capitalist-socialist" continuium than the word implies.  I mean, is the EPA (or the EIA) a "capitalist" institution?

This is just friendly banter. I'm not trying to be argumentative at all.

If your basis for "better" is "lasted longer", then there is a large list of cultures better than western-style culture. If it is "lived in a sustainable way", then there is also a long list of better cultures. If it is "grew to an enormous size and increased affluence very rapidly over a short time-period", well, then we rock. If it is triumphed over tremendous difficulties and outside pressure while gaining the respect of its people, then Cuba has done pretty darn well. (Couldn't resist.)

But I agree with your issues with the word "capitalism" and have avoided using it. I often think that many of our problems would go away if we weren't such a socialist society. Then again, this is a many-dimensional problem.

It's interesting.  Cuba has done well with the constraints placed upon them (poor in natural resources and limited in trade) in good part because of the "let's pull together" nature of their socialism.

Without those constraints, it's a question of who is willing to self-limit themselves, knowing and having the resources to persue environmentally damaging technologies.

I notice that E-P has posted a story of his diesel and its efficiency, and asks "why don't we make more of those?"

Well, it's an example of the US being able self-limit itself, knowing and having the resources to persue wider diesel technologies.

I don't know, is that an example of where we are ahead?

Cuba is frequently mentioned as an example of a country dealing with a post-peak situation, but Cuba has two enormous advantages over the US in dealing with this stuff.  First of all, Cuba is a relatively small country and has a population of only 10-12 million people.  They, therefore do not have the immense problems of scale that we will, and scalability seems to be the major problem with those alternative energies/technologies that actually do have some potential.  Second, Cuba has a government where Castro can sit down with his inner circle and hammer out a coherent response to the crisis, without the conversation constantly being skewed by legions of parasites, the hucksters and lobbyists for every imaginable alternative, whether real or imaginary.  In addition, Castro could then implement this response without having to worry about the "politics" of the matter, without having to pay some price at the polls for doing the sometimes unpleasant but vital things that have to be done.

Antoinetta III

I hope such observations do not get people to wish for dictatorships. You loose a lot when living in such a society and it can be worse the Cuba, think about North Korea.
It's not all roses:
Hello Odograph,

Your Quote: "As someone else asked (in different words) do you have an example of a human culture that has done better?"

Perhaps the Japanese Edo Period (1603-1867) might be an instructive example:
---------------
During most of the Edo Period, Japan was closed off to the world, suffered no invasion from the outside, and had virtually no exchange with other countries. For the most part, it was a peaceful period, with almost no war inside the country, and marked a remarkable time of development in the economy and culture of Japan.

The first national census, conducted around 1720, indicates a population of approximately 30 million people, which remained relatively constant throughout the entire two and a half centuries of the Edo Period.

The population of Edo, at the time the largest city in the world, has been estimated at 1 million to 1.25 million people. In comparison, London had about 860,000 people (1801) and Paris about 670,000 (1802).

Today Japan depends on imports from other countries for 78 percent of its energy, 60 percent of its food (caloric value), and 82 percent of its timber consumption. But for approximately 250 years during the Edo Period, Japan was self-sufficient in all resources, since nothing could be imported from overseas due to the national policy of isolation.
------------
http://energybulletin.net/5140.html

This still boggles my mind!  If America could replicate this as we go postPeak--I would be much more optimistic for the 'No Thanks--I like Empty Tanks' mindset.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

How many people do think the planet would support in a "Edo-like" system.  I guess it would solve the fertilizer problem.
The independence of Japan or the US in the modern era is irrelevant.  You're talking about Japan being a stable closed system.  Today the closed system is the whole world.  The solution is not to move back to isolationism, it's to implement a world structure that is self perpetuating.
Hello Nagorak,

Thxs for responding--I'm listening...oops, ready to read. Tainter, Diamond, Catton, et al, make a pretty convincing case for less complexity; less shared carrying capacity; the falling back to ELP.

Tell us more on how you visualize a self-perpetuating world structure and the requirements to bring it to fruition.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

I should have remembered the Edo example.  Yes, it is famous and oft-quoted.

Tell me though, do you think it would have worked without the caste system?

"Do I get to declare capitalism a failure when 25% of the earth's species are destroyed? 50%? 95%?"

We better write that declaration into our will, 'cause we will be one of those species long before 95%, probably before 50%, and quite possibly before 25%.

This has been a great thread.  If only our society were having this conversation, and not just the few of us...

A better system would be pure capitalism for luxury items and central clearinghouse for basic goods like ecosystems, water, food, etc. NASCAR frequenters would have to pay extra.
Capitalism is a bad idea that works,....My feeling is that capitalism does a pretty good job of allocating resources.....We can not devise a better system.

Please define the term 'Capitalism' you are using.

Then, if you would be so kind, show how the way the government you live under follows that definition VS paying lip service to following that definition.

(The United States has people claiming it runs as a capitolist society.   Yet, what is the explination of the allocation of resouces in the Middle East if the 'feeling' about 'the allocation of resources' is correct?)

I think you're conflating capitalism and free market.

Free market is a very good way to allocate scarce resources.

Capitalism is where the debt and compound interest come from.

The two are often spoken of as though they were synonymous. They are not. I'm not even sure either one requires the other, or necessarily leads to the other.

Chris

Granted. I broadly agree with each of your points. My post did not make clear the inmportant distinction between these systems.

I am also not sure that "sure either one requires the other, or necessarily leads to the other.". However they seem to be closely related and share many features.

I am sure that this has been discussed at great length by people much smarter than me. I would be interested in any references. Also, do you have any examples of places where one existed without the other?

Capîtalism, as a historic phenomenon, can be said to exist from the 16th century. It's characteristics are: nation states organized in a labor division consisting of center (hi-tech, finished products), semi-periphery and periphery (low-tech, resources). (Geographic and technological) expansion and competition to increase capital are also mandatory.

Free market is basically every form of trade. There were often taxes and restrictions, but all of prehistory and most of history there has been relatively little control on trade. At the city gates, yes, but what the inhabitants inside the cities, or villages did was pretty much their business. The resources to control everything simple weren't available.

Very true, a mistake that is made way too often.
Here is precisely why Hubbert was so brilliant:

He can take a complex subject and articulate it in such a way that you think, :why isn't this common knowledge?:

Whereas the above posted...stuff, like so much of the babble here, seems intended not so much to inform as to flaunt.

Good going. I still see this forum continuing as an energy sink in a time of crisis.

Maybe it's frustration with people who have little knowledge of what they're talking about.  Not to mention people like Hubbert are valued precisely for their contrarian viewpoint.  I might know fundamentals and econ theory, but I'll be the first to admit I have little thought on how to change the current state of things.
Instead it's easier to play the defense team and poke holes to figure out how to drive a bus through them :)
...how to change the current state of things...
Never underestimate the power of a few committed individuals to change the world; indeed, it is the only thing that ever has. -- Margaret Mead
Did Hubbert make any longer writings on this?

I suspect there's no simple fix.  Every society has always developed money, and as I said above, if you have natural resources as private property, money, and interest, then you have this potential problem.  I'm with Jack that removing any of those from our society strikes me as an incredibly dangerous experiment (that would require a revolution to impose).

So my reaction right now is that the best option is to work to improve the existing system by improving the quality of available information.

(I don't agree, incidentally, with this idea that the monetary system cannot in principle handle a contraction in the real economy at all - a subject for another post).

"I suspect there's no simple fix.  Every society has always developed money, and as I said above, if you have natural resources as private property, money, and interest, then you have this potential problem.  I'm with Jack that removing any of those from our society strikes me as an incredibly dangerous experiment (that would require a revolution to impose)."    Posted by Stuart

Which, I suspect, is why charging interest was always such a taboo in ancient/pre-industrial societies.  But I suspect "removing any of these from our society", is, long-term, less dangerous than trying to keep our current set-up.  On the other hand, a revolution or coup won't be necessary to replace a system that has already collapsed and has been generally discredited.

Antoinetta III

Of interest, as more US fundamentalist Christian households go under, the "jubilee" meme is making the rounds.  This is about proclaiming universal debt forgiveness.   It is not being pushed by the wealthy megachurch ministers, but is going around the grasssroots.  Scriptures against usury are being rediscovered.  Reminds me of the 1930s when bank robbers became folk heroes.  We could see a "peasant uprising" against Visa card and Fannie Mae.
Oh this is just too funny, Micro; in the same league as praying for cheaper gas.  Do you have a link, perchance?
Reminds me of the 1930s when bank robbers became folk heroes.  We could see a "peasant uprising" against Visa card and Fannie Mae.

That just might be possible. Here are a few excerpts from an unusually candid government report (on Fannie Mae among other things) discussed by Dan Denning in today's Whiskey and Gunpowder newsletter.

Contagious Complexity and Breathtaking Insolvency

EVERY ONCE IN a while, a report comes out from a government agency that's so unassumingly candid you're forced to admit a mistake has been made and that the document was mistakenly leaked, or that its author will soon be fired.

I couldn't help thinking something like that when I read the remarks of Emil W. Henry Jr., assistant secretary for financial institutions at the U.S. Department of the Treasury. For the purposes of brevity, I've excerpted the key passages below.

And if you want the even briefer version, here it is: The large size of GSE (Government Sponsored Enterprises) mortgage portfolios (about US\$1.5 trillion), coupled with the lack of market discipline at correctly pricing the risk of GSE debt, multiplied by the interconnectivity of the world's financial institutions has led to a possibility "without precedent." Henry adds that "Financial markets across the board would likely become very illiquid and volatile as firms with significant losses attempted to unwind their positions."

Notice he said "attempted." Here are more excerpts. Emphasis added is mine, with some sideline commentary interspersed:

"At the outset, let me be clear on the meaning of systemic risk: It is the potential for the financial distress of a particular firm or group of firms to trigger broad spillover effects in financial markets, further triggering wrenching dislocations that affect broad economic performance. Perhaps a useful analogy is to think about system risk as an illness that can become highly contagious...

"The hard lessons from LTCM include: i) the danger of investment decisions which rely upon the presumption of liquidity, ii) the importance of transparency and disclosure, iii) the extent of the interdependencies of our global markets, financial firms, investors, and businesses, iv) the fact that complexity is sometimes the enemy of stability, v) the danger of complacency and false confidence in hedging strategies which, by definition, can never hedge out all risk and which can produce the opposite of the desired effect in the absence of liquidity."

Complexity is sometimes the enemy of stability, but not always. For example, an arrangement in which interest rate risk is not "aggregated" to the balance of the GSEs would be more "complex." But it would also be more stable because the stability of the financial markets and the guarantee of liquidity would not depend on the solvency of two poorly run companies that are engaged in the kind of risk management that's far too complex for one single firm.

In other words, a division of labor in interest-rate risk management, though more complex, would be more stable and more efficient. Centralization loses again. But just what kind of risk are we talking about here?:

"There are numerous levels of risk presented by the mortgage investment portfolios, but at a basic level, the risk is created as follows: GSE portfolios are comprised primarily of fixed-rate mortgages, either held as whole loans, mortgage-backed securities (MBS), or other mortgage-related assets. While mortgages in the U.S. typically allow borrowers the option to prepay at will, the aggregation of fixed-rate mortgages requires that the investor develop strategies to mitigate risks presented by these uncertain cash flows -- both prepayments and extensions. Unless the portfolios are hedged properly, in a period of significant interest rate movement, there is the risk to the GSEs that their assets and liabilities will quickly become broadly mismatched, which can lead to insolvency -- much like the dynamics of the S&L crisis."

It's both refreshing and astonishing for a public official to state what has been plainly obvious for three years now: The GSEs could be come insolvent, and take a lot of people with them. It is not just the idle musings of congenital doom-mongering pessimists like myself. But how might it happen? Henry continues:

"There are three primary ways that the GSEs uniquely impose systemic risk on our financial system. Taken individually, each reason might not be a cause for dramatic action. However, aggregating each of these attributes under a single entity that also carries with it the broad misperception of a government backstop or a guarantee creates a perfect storm scenario.

The first element is the size of the GSEs' investment portfolio... Today's combined GSEs' mortgage investment portfolios still total almost \$1.5 trillion...

"Secondly, the GSEs are not subject to the same degree of market discipline as other large mortgage investors. That lack of market discipline is reflected in preferential funding rates that result directly from the market's long-standing false belief that the U.S. government guarantees or stands behind GSE debt...

"The third element is the level of interconnectivity between the GSEs' mortgage investment activities and the other key players in our nation's financial system... In comparison to bank tier-1 capital, GSE debt obligations exceeded 50% of capital for 54% of these commercial banks, and GSE debt obligations exceeded 100% of capital for 34% of these commercial banks. In addition, the GSEs' interest rate positions are highly concentrated and pose significant risks to a number of large financial institutions."

Three risks, then. Large size, lack of market discipline, and "high degree of connections throughout our financial system." What could it lead to?:

"Systemic events can unfold by direct and/or indirect spillovers. Direct spillovers arise when the failure of a particular firm creates substantial losses for those who carry direct exposure with such firm, such as its creditors. Indirect spillovers typically develop, not from direct exposures to the firm at the epicenter of the crisis, but when this firm causes a lack of confidence leading to a sense of panic and turbulence that results in action that generates substantial losses for firms that were not directly related to impaired firm. Such spillovers -- not the initial event -- typically take the greatest toll on economic activity, and in the case of the GSEs, the potential for both direct and indirect spillover effects is nothing short of breathtaking."

Interest rate shocks DO happen. Henry points out that:

"If such an interest rate shock occurred in a way that was not captured by the models [currently in use by market forecasters], the results could be without precedent. The immediate implication would be actual and mark-to-market losses."

What is without precedent is the magnitude of the losses should such an interest rate shock hit the GSEs today. It's not like this hasn't happened before:

"Has it been so long that we have forgotten Fannie Mae's significant financial troubles in the late 1970s and early 1980s? During this time period, Fannie Mae's balance sheet looked a lot like a savings and loan. As interest rates rose, Fannie Mae's cost of funds rose above the interest rate it was earning on its long-term, fixed-rate mortgages. Like many S&Ls, Fannie Mae became insolvent on a mark-to-market basis. It lost hundreds of millions of dollars."

If the same thing happens today, you can replace "hundreds of millions" with "trillions."

I know Hubbert gave some extensive testimony before Congress on the same subject.

The problem that we are facing is the concept that consumption is a good thing.   My new mantra is that we have to kill consumption before consumption kills us.

The problem is that the majority of Americans live off the discretionary income of other Americans, and vast amounts of debt have been incurred based on the assumption that the consumption party will continue--and get bigger.

I suspect that we may seem something akin to a debtor's revolt--especially among unemployed college graduates.   I think that it is a very good idea to be thinking in terms of being, or working for, a provider of essential goods and/or services.

Thanks for pointing this out.  I graduate next year with only half the "average" state school debt.  I paid in full my first two years at a community college, so I saved a ton of finance charges.  Now the problem is using my new degree and I'm thinking LONG term because P.O. will affect my entire life going forward.  Scary thoughts indeed.
Ideally, the balance between public and private lands would be such that public lands would preserve our "global environmental services."  That is, we could pave 100% of the private land and we'd still be OK.

We (in the US) have a lot of public lands, but unfortunately they are not enough, or balanced enough, to preserve such "environmental services."

Approximately 30 percent of the nation's land is owned by the public. In the 11 contiguous states west of the 100th meridian, approximately 50 percent is owned by the federal government, including 80 percent of Nevada. About two-thirds of the land in Alaska is owned by the federal government. Even the east and Midwest, however, have large areas of publicly owned land, particularly Louisiana (20 percent), New Hampshire (13 percent), Florida (10 percent), Michigan (10 percent) and Virginia (7 percent). Although most of these public lands are owned by the federal government, many states also have large parks and state forests; and most coastal wetlands below mean high water are owned by the state.

So we are playing catch-up, as we discover that those "private" lands, and the "private" actions on those lands, might affect things like the Greenland icecap, with a shake-out on the global scale.

Stuart and Jack,
Have either of you delved into Ecological Economics or Biophysical Economics?

Sources to consider:  textbook by Farley and Daly, books by Daly, Douthwaite, journals such as Ecological Economics.

You are bringing up issues that have been considered and solutions proposed going back many decades now, and some very specific ideas related to climate change, peak oil and the money supply are out there, and as far as I can tell, being virtually ignored.

Would be great for the minds on this list to take a look.

I'm still on the upswing of my learning curve and don't know the ecological economics literature well by any means.  I just (finally) properly figured out how the money supply works :-)  Will follow up on your references.
Thanks, you are doing a great job and teaching me a lot along the way.
"Every society has always developed money"

Do the Yanomami of the Amazon or the San of the Kalahari have money?  A genuine, not rhetorical question.  I'm wondering if some societies have survived without money.

Of course they don't. The great majority of human societies have not had money.
Stuart?
I think it is fairly obvious that Stuart is refering to major societies that we could look for as a comparision. The Yanomami had a fascinating culture - a lot of snorting drugs and hitting each other with sticks if I recall - but don't exactly represent a pathway we can expect the majority of humanity to eagerly follow.
The "every society has always developed money" quote is due to Antoinetta III I believe.  My understanding would be that the vast majority of "societies" have been tribal and did not have money, but the vast majority of people have lived in societies with money (at least for the last few millenia).  Although I have enjoyed the writings of Daniel Quinn, who makes a decent case that tribal life may have been better than civilized life in some ways, I've never seen anyone who wants us to make a return to a tribal life paint a remotely credible picture of how to go about it with our current scale of population.
Stuart,

Glad to hear you're a fan of Quinn.  I'd have to agree that while it's clear to me that at least much of tribal existence is preferable to what we're doing in our mad rush to die with the most toys, I cannot clearly conceive of how to get anywhere near there with our current population.  But based on Catton and others, I don't believe that's going to be a choice we'll have anyway.  Nature is going to force us to live within her limits, which presently happen to include an endowment of accessible ancient sunlight.  Whether we'll go kicking, screaming, killing and starving into that future, or find a way to get there calmly, cooperatively, peacefully and proactively, I cannot know.  But I know which I think will happen...

Always enjoy your posts, Stuart.  Astounding breadth - the plateau, global warming, vehicle miles travelled...  And last week's on interest rates and scarcity led to what I think is the best thread ever.

Well, call me a whacko - heck, I'll do it for ya - "I'm a whacko" - but snorting lots of drugs and whacking each other with sticks sounds better to me than flipping the magic instant power switch on my wall, thereby blowing the top of an Appalachian mountain, poisoning my contemporaries with mercury and condemning the future to meltdown. (That's a form of power that truly corrupts absolutely) It sounds better than pushing a pedal to the metal thereby requiring the drilling of an oil well in yet another fragile environment, leading to a myriad of ecological ills, and the hanging out to dry of our decendants.  Snort.  Whack!
In other words, like Easter Island on a planetary scale. We're gonna go, but when we're gone, there won't be so much as a blade of grass left standing.

In London, much of the land that is built on is owned by leasehold. The original owner of the farmland sold a lease to the people who did the construction - these leases were for 99 years or longer. People living in Knightsbridge own leaseholds to their houses and they have to pay what is today a trivial "peppercorn rent" to the original owner. In due course, all these properties will revert to the owner of the freehold.

If you want to modify/improve substantially any of these properties, the permission of the original landlord must be bought at great expense.

The point that I am trying to make is that the builders and inhabitants of these properties went to their accountants to get advice as to whether it was a good idea to buy these leaseholds and they were told yes because the calculations showed it to be so.. The ground landlords (e.g. Lord Cadogan and his decendants) took a different viewpoint - they were thinking long-term.

Well you can guess who was smartest!

Where I grew up real estate is leasehold (LH) or fee-simple (FS) whereas is most of the US, real estate is almost always fee-simple which means you own the land, although you don't often own the mineral rights. Not that anyone was going to mine for bauxite in the center of Levittown, lol!

I like the concept of land ownership we had as kids. If it was "free roaming" space it pretty much belonged to whoever roamed it freely. That meant us. But, we weren't allowed to trash it. The concept of cutting down a whole lot of trees to build a fort, that changes it substantially, was foreign and repellent to us. If you wanted to build a fort you took dead wood that was given to you from scap wood piles, or if you wanted a big fort so darned bad you made it from natural stuff. I think the hunter-gatherer concepts of land ownership are encoded at the instinctive level, since we were HG's for literally millions of years.

Through almost all of human existance, if you needed a house you just built the friggin thing. Took a week, max, for the largest and most ostentatious models.

Fleam,

I love this.  Evidence for a workable model from our own childhood.  As much as I've believed and argued that the HG way of being is in our genes, I'd never thought of it just this way.  Brilliant!  Thank you.  We are what we were, we've just forgotten it.  But it may be easier for us to remember our childhood than to remember our ancestral stirrings.

"Took a week, max, for the largest and most ostentatious models."

Yea, but where the heck do you put the home theater and whirlpool tub?

Congrats Stuart, I think even I can understand. IMO this is the most depressing topic yet in this place. I always feel queasy reading any economics, when the world is reduced to soulless logic - and simplified self destructive modelling.

The principle that central banks attempt to control everything economic via interest rates is terrifying since it assumes that their control works on all the parameters in the system. However PO'ers are aware of subtleties that bean counters don't even discuss. Energy costs from finite sources can increase all by themselves [as we can all see], simply due to decreasing EROEI. So, the global economic sausage-machine is programmed to end everything in a resource orgy and pillage just because it can't adjust for finite resources causing price rises - what fun!

Has anyone investigated the 'Islamic banking' system as a moral [or more stable] alternative? The snippets I've heard [as an atheist] sound interesting.

"I always feel queasy reading any economics, when the world is reduced to soulless logic - and simplified self destructive modelling."

This is common and natural. No one wants to put a value on a life, a tree or an ecosystem.

However, the counter arguement is that you are placing values on these things regardless by how you plan your life. By not modelling them on a spreadsheet you just don't know the values, can't compare and can't mitigate.

Yes, Jack. A simple question.

What is the value of the Greenland Ice Sheet?

The net present value of the cost of all the assets that will have to be rebuild/recreated somewhere else and all the land that will be lost permanently?

Needless to say, the answer will be very sensitive to the discount rate.

Sensitive to the discount rate? Yes. What's the next biggest named large integer after trillion? I believe it is quadrillion.

I had forgot to add that this might be seen as a scarce resource in so far as there is only one of it.

Al Gore was going to buy it with a lot of cold hard cash, but somehow his assets got frozen.
I guess someone preferred liquidity then when dealing with the Greenland Ice Sheet?

:P

Yup. For that kind of short future you might break it into small chunks before floating it in this hot market.
The value of the Greenland Ice Sheet depends on the application. As a WMD, it's valuable as its melting sinks costal cities and you needn't do anything but sit back and let GW do the deed. The destructive potential rivals a LOT of plutonium, so the dollar value equals the dollar value of its equivalent of plutonium. Not to mention its value as seeding the North Atlantic with mines (icebergs).

As a mine for drinkable water, however, its value skyrockets. Consider freshwater shortages and short shipping routes for tankers to ship it. Even better, you can ship icebergs to North America fairly easally. Tankers would be needed to ship water to oil-rich but water-poor Arabs.

A wildcard is what's underneath interms of mineable resources. Maybe nothing, maybe a super-Ghawar. BTW, Denmark owns this patch of very hard water. Ask a Dane!

Dave -

Nothing in my post suggests that I think it is useful or possible to value every natural resource.

My point is that there are actions that we are going to take that damage nature in nay event. Trying to evaluate the damage so that it can be ranked and mitigated is not the same as putting a price tag on things. And not measuring the value doesn't in any way lead to their preservation - actually the opposite is true.

I fail to see how remaining in ignorance about the relave value of things is the moral highground.

You said
However, the counter arguement is that you are placing values on these things regardless by how you plan your life. By not modelling them on a spreadsheet you just don't know the values, can't compare and can't mitigate.
and for the life of me I can't reconcile what you just said (the comment I'm responding to) and the statement quoted just above (what I was responding to). But perhaps you were not expressing your personal opinion but merely the "counter argument". In any case, I disagree with this argument and am perfectly comfortable taking the moral high ground, which I just did. The view is fine.

best, Dave

"In any case, I disagree with this argument and am perfectly comfortable taking the moral high ground, which I just did. "

No surprise there. That moral highground must be getting pretty crowded with TOD commenters alone.

Here is the point I am struggling to make. It is both an opinion that I hold and a "counter arguement":

Say we want to build a bridge and the only consideration between two routes is environmental impact. How do you decide which is better. Can this be done without some form a ranking and judgement making?

It seems there are three general choices in how to make this assessment:

1. Quantify things in a ranking system. Call it dollars of "frog equivilent units" if you want, but it is still ranking.

2. Use non-quantitative criteria, which to mind my is a step towards subjectivity and guess work.

3. Just build the bridge and don't get your hand dirty with all of this "valuing nature" stuff.

I assert that the first option will produce the best result for nature.

I realize that this is drafted in the language of the practical lowground. We may be talking past each other. Fundamentally I would be surprised if we really disagree on much of this. But I could be wrong and suspect you will think so.

"and for the life of me I can't reconcile what you just said (the comment I'm responding to) and the statement quoted just above (what I was responding to)."  and "What is the value of the Greenland Ice Sheet?"

You weren't really expecting a model were you?

I suspect that when Garrett Hardin wrote the Tragedy of the Commons, he did not have in mind that the entire Earth would be the "commons". What he had in mind was the common pasture that everyone used to graze their cattle.

I could be wrong about that, perhaps he could see the future. Dick Cheney said the American way of life was "non-negotiable". Sorry, that's wrong. The environment, including

• the air we breath
• the climate we live in
• the health of the oceans
• the topsoils we use
• the wetlands nature provides
• the water we drink
• the carbon and nitrogen cycles
I could, of course, go on, but these are the things that are non-negotiable.

You and I have a fundamental disagreement and I don't know how to bridge the gap. These are priceless resources, something I should have just stated at the outset, because they sustain all life, the biosphere, including the one species of hominids that emerged triumphant in the last two million years -- us.

I don't at all disagree that these are priceless resourses, and never said a single thing that should have led you to perceive this. I do think the items you list need to be preserved and don't think a price can be set on them.

But that is not true for lesser resources. I don't believe that you can argue that we should not damage a single living thing on the earth. Obviously we have to and it requires analysis to decide which get damaged and which don't.

What about my bridge example? Surely you use bridges. You must acknowledge that your life on this earth creates negative impacts.

I am saying that at times it makes sense to measure our impacts so that we can compare and mitigate them.

I wasn't going to try to sell the ocean to anyone. Don't worry.

VALUES

Jack said it (higher up here):

I fail to see how remaining in ignorance about the  rela[ti]ve value of things is the moral highground.

There is the kicker word: VALUE.

How many people stop to think what it means?
Our politicians talk about VALUES.
Our priests      talk about VALUES.
Our parents     talk about VALUES.
Salespeople     talk about VALUES.
Accountants    talk about VALUES.
The "V" in NPV stands for "value".
A Joule of an engineer higher up here said he was starting to get confused by all this econo-meister talk about backwards-in-time transformation of values.

Repeat the word "value" often enough and it becomes nonsense noise.

We have been so ingrained with the idea that we can correctly measure VALUE in terms of DOLLARS.

SAMPLE QUESTION: What is the Net Present Value (NPV) of \$100 cash given to you 10 years from now?

Right away you pull out the financial calculator and crunch "the numbers" and feel so clever when you get a numerical answer.

Hold on there clever monkey.

What if the "you" in the above question is diffrent 10 years from now than the present "you"?
What if the "\$" in the above question is diffrent 10 years from now than the present US dollar?
What if the "USA" in the above question is diffrent 10 years from now than the present US?

It's a loaded question (a financially framed question) with many hidden presumptions buried in there.

What time-instantaneous "relative worth" will you attribute to that solid \$100 cash-in-hand 10 years from now if there is no USA? If there is no you? If there is no planet Earth?

Have you cleverly "accounted" for everything? Do you have a clear-headed appreciation of "values"? Or are you brain-washed like the rest of us to salivate when when the "money" bell rings?

Are you already that monkey with his/her hand inserted deep into the coconut and figuring out how good the candy will taste once technology (or the market) helps you to pull it out from that too-tight of a hole? And are you at all curious about that lady in the yellow hat who is walking ever so slowly towards you with a baseball bat in her hand? (Hint: Her name is Mamma Nate.)

VALUES --we know 'em when we got our greedy monkey hands wrapped tight 'round them --when the power of our tunnel visions come into clear focus.

I gotta be careful around you Stepback. One ill considered word and I'm a stupid monkey.

Still I think you and Dave are avoiding my point by launching into different discussions. As I noted, I am not trying to package and sell the natural environmnet to the highest bidder.

I certainly acknowledge that the value of thing smeans an enormous number of different things.

Can you put a price on a spotted owl or endanged toad? probably not. But my point, as yet uncontested, is that we do make these decisions whether or not we break out the spreadsheets.

If you build a bridge, you are going to damge something. If you advocate windmills you are effectively saying that the value of wind energy is worth more than the lives of some birds. Attempting to rank and mitigate damage is not a cause of damage, it is part of the solution.

Jack, --I'm the monkey, not you.
Sorry if you felt there was name calling going on here.
Of course everyone is entitled to numerically rank or order various stuff as they please. If they want to assign a certain number of US\$ to each given item or act, fine. Mamma Nate doesn't care.

Our society has not yet developed a vocabulary for better defining our personal and collective "valuations" of stuff. So we all the same word, value, to mean so many different things.

We can both be Monkeys. No insult taken. I prefer it to sheep actually.
OK. Now that we've got that bit straightened away, which shall it be, eh? Happy monkeys or sad monkeys? And what about this business with the Man with the Yellow Hat?
No. It's the LADY with the yellow hat --Mother Nature.

And she is carrying a baseball bat.
It says "My Laws" on the side of the bat.

We are happy monkeys now because we still have our hands clenched around the crude candy, the candy that we are trying to extract out from the coconut as fast as possible.

But soon ....
we are going to feel the force of Mamma's Laws
Then we won't be happy monkeys any more

One thing I suspect Dave & I will agree on is that our society has these people called "accountants" who claim to account for everything, and who feel very pleased with themselves that they play it by "the numbers", and they have all these fancy spreadsheets filled with numbers and formulas that culminate on a "bottom line".

Then they cleverly proclaim, the bottom line is the bottom line.

Wow, what a masterful think tanking process!

I don't disagree with you and Dave on this front. I am just begging for either acknowledgement or refuation of a simple point.

Quantifiying the value of natural resources is not the same as selling them.

"seems there are three general choices"

Seems to me there's a fourth - don't build the bridge. It's our presumption that we can satisfy all our "wants" as long as we do each in the most cost-efficient manner that is leading us to kill the planet - slowly at first, but ever more rapidly now - and ultimately ourselves as well, unless we learn to live within our needs instead.

True to a point. But you would have to extend that to don't build anything.

Hence my initial question to Dave - you do use bridges don't you?

But the same logic applies to houses, cars and factories that build computers. You use computers don't you?

Yes to all - though I try to minimize at every turn.  But still, yes.  Thus, logically, we'll use them all until we can't, and then we won't, to borrow from Kunstler.
Has anyone investigated the 'Islamic banking' system as a moral [or more stable] alternative? The snippets I've heard [as an atheist] sound interesting.

They still make money.  It makes people warm and fuzzy when they don't call it interest and just ask for a fee.  Why is charging interest on lending money viewed so bad? There is an opportunity cost of me lending this to you for a set amount of time. If it simply boils down to fractional reserve banking, then don't bother - I'm with you on that argument.

the difference between a fee and interest is what is historically called usury.  a fee is a fixed sum that does not change with time.  interest compounds and often leaves the debtor in over his/her head with overwhelming debt, many times over the original loan amount.  perhaps you would like to be introduced to africa and the rest of the 3rd world?
The difference between interest and a fee is far less clear. I think Tate is implying, correctly, that in a fixed length, fixed rate loan, the interest rate is known in advance. Once it is computed, it can be called interest, a fee or whatever you want.

Unless you think calling compensation for loaning capital a "fee" is going to reduce the rate, it won't make any difference. If you tell people they can only lend money if they get a limited amount back, they will stop lending or lend on the black market, which is much, much worse. Perhaps you would like to be introduced to africa and the rest of the 3rd world?

tate was discussing islamic banking.  islamic law forbids usury or interest.  it does not allow "fixed rate interest-bearing loans".

Muslims are prohibited by their religion to deal in interest (riba) in any way.Giving and receiving as well as witnessing are all prohibited.Thus an Islamic banking system cannot pay any interest to its depositors; neither can it demand or receive any interest from the borrowers.Nor could the banks witness or keep accounts of these transactions.But the lender is entitled to the return of his capital in full.This is a Qur'anic injunction.[2]

"While a basic tenant of Islamic banking - the outlawing of riba, a term that encompasses not only the concept of usury, but also that of interest - has seldom been recognised as applicable beyond the Islamic world, many of its guiding principles have. The majority of these principles are based on simple morality and common sense, which form the bases of many religions, including Islam.

"The universal nature of these principles is immediately apparent even at a cursory glance of non-Muslim literature. Usury was prohibited in both the Old and New Testaments of the Bible, while Shakespeare and many other writers, particularly those writing in the 19th century, have attacked the barbarity of the practice. Much of the morality championed by Victorian writers such as Dickens - ranging from the equitable distribution of wealth through to man's fundamental right to work - is clearly present in modern Islamic society.

"Although the western media frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century." (Islamic Finance: A Euromoney Publication, 1997)

Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury. (Deuteronomy 23:19)

forbidding usury didn't cause the "black market" to take off or people to stop lending back in the middle ages, during the reign of the caliphates, or in modern day islamic banking.  just because you don't get compounded interest doesn't mean you can't foreclose on someone.  but in islamic banking you are only entitled to the original loan amount (or property financed) not additional compounding interest debts.

the IMF and World Bank are the biggest lenders to the 3rd world.  what do you think is the cause of the unbelievable and odious debts that these institutions burden the people with?

Good reply. I am not as familiar with Islamic banking as you are. I do know that when I have looked at various arrangements in the past, they seem to have merely restructured the payment method so that interest doesn't look like interest.

The West does something similar (although accounting standards rectify it): a zero coupon bond.

If I sell you a bond that assured you of a payment of \$1000 in ten years, but no interest payments, you might buy if from me at \$550 dollars. But there is an implied interest payment and this transaction is identical to a \$550 bond paying a certain interest rate.

In other words, you can play a lot of games with the way someone is compensated for the use of their capital, but at the end of the day deciding which is interest can be largely semantic.

Interest on loans and loans to third world countries is a complex issue. I live in Thailand, where until recently the poor could not access credit. In times of need they were forced to borrow from loansharks who charged extortionary rates used brutal collection methods. More recently the market has been liberalized and unsavory credit companies have been selling loans to people without being explicit about rates, also causing suffering.

Personally, I think people should have access to credit and pay interest on it, as long as the market is transparent and competitive. The options are worse.

Third world countries are in debt in part because criminal rulers conspired with international organizations and others to rob their countries blind. Actually I do think that the World bank and IMF should bear the loss when it can be shown that they should have been aware that this was the case. I imagine this would be a significant amount of the cases.

But the reason that these organization lend to poor countries is that they do not have access to credit elsewhere. If your argument is that poor countries would be better off without acess to credit, I'll listen.

Recently, first world countries have been forgiving loans to third world countries , but they are being replaced with trade credit from other countries, some like Brazil and China are also developing.

the IMF and World Bank should be abolished, if for no other reason than their cooperation and support for criminally corrupt national governments.   these international banking institutions exacerbate poverty and desperation by loaning money to governments that destroy and rape their own people, economically speaking (though sometimes literally as well).

micro-finance and micro-credit are obvious alternatives to top-down loans which the IMF/World Bank have historically provided that do nothing to bring the ordinary citizen out of destitution and joblessness.  though micro-credit is not without problems, at least it provides loans to the people who will actually do work and start their own businesses with the money.

i do agree that elimination of credit altogether would be a helpful change for people.  and not just in the 3rd world, but everywhere.  by this, i mean the elimination of capitalistic banking practices of interest, debt-based money, and eventually the elimination of centrally controlled money altogether.  local currencies, mutual banking or simple bartering between cooperatives would be much better for all individuals than our current system.

you are right that often the "fee" in islamic banking takes the place of what the interest over the time period of the loan would have amounted to.  however, the critical difference is when the loan cannot be repaid.  in capitalistic banking, this debt continues to grow and accrue as time goes on and can eventually become many times over the original loan amount (including the original interest or "fee").  in islamic banking, you cannot force someone to pay many times over the original amount.  you can only force them to pay the original loan, including the "fee".  thus, there would be no posibility that for example, nigeria could be forced to pay 5x the original loan amount and still not have paid off their "debt".  they are merely servicing the interest of their debt, which continues to grow larger each year.  institutions like international banks are just as bad (if not worse) than the loan shark extortionists for continuing to squeeze these nations dry decades later.

islamic banking, at least, would prevent growth of debt.  it could not spiral out of control as it has with western capitalism.  when the payments could not be made, instead the original property could be reclaimed.  or other items might be forced into liquidation to pay off debt.  or other arrangements could be made.  but regardless, the debt would not continue to amass as the years went on, so that the grandchildren of the debtors were crushed under the weight of decades of compound interest on defaulted loans.  this is the key and central difference between islamic and capitalist banking.

Not only Islamic jurisprudence, but also canon law, condemns lending at interest.
The Torah also bans charging interest. They got around this by using the silent partner concept which eventully evolved into stock markets. Profit sharing meant a farmer wouldn't lose his land if a drought or locusts showed up.
The trouble with maximising wealth (NPV) over a long time span is that it conflicts with the need for short term cash flow. I'm wondering if this is an additional cause of oil price volatility in that oil producers are torn between holding back production (to increase NPV per Hotelling model) and feeding their people.

I've noted with hydro schemes there has never been any regret whatever  interest rate was originally assumed. That could be because replacement cost was not factored in eg how much would it cost to build the Hoover Dam now. That's why I think in time the capital tied up in ethanol plants may not look so bad in retrospect provided the chemistry can be improved.

Stuart,
Your arguement is classic.  However it is also full of thoughts that are not real world experince as so many of the enviromentalists.
Clear cutting-  yes they are ugly! most commercial timberland here is western oregon is thinned at 20 yrs.  cut at 40 and replanted (required by law).  Land such as the property next to mine that is being clearcut as I type (67 acres) It is a mied bag of species. alot of alder and douglas fir, some western red cedar, big leaf maple and western memlock.  It is whatever regrew after the rape and run days of the 1950's.
The problem I have (from my own experience) is that arguemnets about clear cutting to not match the reality on the ground or in the marketplace.
Cutting down a 30" diameter 150-175' tree causes ALOT of damage to anything in its path.  to remove a (1) tree from the forest in lenghts that are required to make lumber at a price(\$ for trucking) that people want to pay you have a 33' long log. logs are cut in multiples of 8 feet plus "trim" hence 33'.  To remove a 32 foot long several ton log takes some heavy equipment.  Threading this long log out of the woods will cause it to rub(bark) other tress causing injury that allow rot to start.
We had a logger locally with only 1 eye who used to thin trees.  The joke was that they should have poked out the other one because the trees he left behind was so heavily damaged that it lost alot of value.
Also, when you remove enoght trees from an area the remaining trees- especially the alder and maple get sun scald- which eventually kills that tree(s)- this is a problem that I have on my own property and have alot more to take down now.  dead trees from sun scald have lower value- they are used for pulp not lumber.
Usually the people who are anti clear cut have never put thier ideas into a working bussiness plan- They think this is something someone else should do - not them.
People put enourous price pressure into the market which is the reason we do not log with helicopters its costs too much.
Clear cutting is not the best but it works better than the other options.
The problem is population and consumption(Or perhaps cheezy goods that are a waste because of short life spans-do we make antiques anymore?)
Nice.

Try looking at the monoculture forests of the central coast range in Oregon. One blow through of disease or bugs and their gone. Poof. That's what clearcutting and applying spreadsheets to ecosystems does.

Those millions of tons of trees being moved out ARE the top soil. It's funny how second, third and fourth growth get slower and sssllloowwwweeeerr to replenish. This whole post is the clearest argument that a bunch of pants wearing monkeys who keel over after 60 years have absolutely no business caretaking any long term project.

Those millions of tons of trees being moved out ARE the top soil.

If one hangs out long enough in the 'lets solve the energy issue' space, you'll find people who want to use 'the waste from forest operations' to power things, and discount a comment about topsoil as 'not relevent'

Agreed!  You cannot strip a foret and have regereration.  The question is sustainability.  I think that it all comes back to population.  There are too many of us.
I think that we humans have a supremacy problem.  The classic grass-rabbit-coyote ecology lession didn't include us humans.
there is a web site called despair.com.  There are many good posters.  One is about raindrops and flooding.  No single raindrop feels responsible for the flood.  We all use paper and wood products and we always will. I hate to see the trees go but hey I use paper too and it has to come from somewhere.
Does anyone else get that pang at the check out? Would you like paper or plastic?  What a choice depleat oil/have a war or cut trees?
With some variances by species, trees tend to build up topsoil.  Some more than others (palms almost none AFAIK).

This is the first that I have heard about significant slowing of next generations.  And I :hang out" with professional foresters a bit.

Trees can and do get minreals from below the biosphere and deposit it, with organic humus, into our active biosphere.

Today I atlked with "Zone Geneticist R5, Genetic Resource Program" per his eMail that he sent me after our talk.

Alan

This is the first that I have heard about significant slowing of next generations.

Technically, he just said 'slower'.   But in a way that you could interperate as you have done.

'rock weathering' is 1 inch topsoil in 1000 years.   With organics and earthworms, 7 inches a year.

Trees can and do get minreals from below the biosphere and deposit it,

Hence the claims of the remineralize the earth people and the guy who runs the peacock site that all you need is rock dust.

And for the 'fun' I present
http://www.thepeacock.com/

Go ahead.   I dare ANYONE to spend the time to go thru the 57+ meg of stuff.   (but the rock house pictures are kinda nice)

The forests of eastern oregon are in bad shape from a lack of fire. period.
Mono cultures are not the way to go and all the state forests admit it too. duh
In the western side of orgon the trees are not the soil.  That arguement applies precisely to the rain forests not Oregon.
The forests of eastern oregon are in bad shape from a lack of fire. period.
Mono cultures are not the way to go and all the state foresters admit it too. duh
In the western side of orgon the trees are not the soil.  That arguement applies precisely to the rain forests not Oregon.
Before acceding to these persuasive arguments, you check with your accountant. What would she recommend?
She should probably say "Look into the timber management industry, because it has it's own complex rules, regulations, tax circumstances, etc. It's not just an accounting question."

:-)

Well, yes.  As I said, it's a grossly simplified thought experiment to illustrate a larger point.
This is one those "whole ball of wax" posts. Really good and really depressing. This is what came to mind for me.
• Hidden or discounted resources eg. the Greenland Ice Sheet -- This is a precious resource because it holds enough fresh water to flood the planet up to 7 metres (about 22 feet). The whole biosphere could be put in this category at this point.

• Externalities eg. melting of the Greenland Ice Sheet
• -- the cost of that flooding.

• Non-linear behavours eg. sudden melting of the Greenland Ice Sheet -- when the SHTF more rapidly than expected.
1. natural ecosystems like forests are private property and can be traded for money

2. people are allowed and encouraged to maximize their own self interest

3. interest is paid on loans

Who owns the Greenland Ice Sheet? Is it the Danes? The Inuit? Or is it all of us? Perhaps the people who will be dislocated by the flood ought to have a say in what happens there. Like those people in BanglaDesh or South Florida.

Trying to end on a cheery note, at least we at TOD are trying to sound the warning and make the world a more transparent place. But that hasn't affected oil futures prices yet. And by the way, capitalism is a flawed system just like any religion and reflects the character of its makers.

It's an interesting question of who owns the Greenland ice sheet. I imagine that most of the land is owned by the government of Denmark and is not in private hands which might manage the resource for maximum return.

Even if it were privately owned, though, it wouldn't help, because in fact the ice sheet is of no value to the local owners. The people who care are the owners of coastal property all over the world.

But even if it were owned by distant coastal property owners, it still wouldn't help, because actually owning the ice sheet gives you no control over its melting rate! It melts due to worldwide climate changes and owning the ice doesn't make any difference.

So this leads into markets for CO2 emissions, which economists agree would be the most efficient way to manage the problem and produce the greatest benefits at the smallest costs. Unfortunately such markets have not been politically acceptable or practical to implement so far.

And there is still an unanswered question, which is how much we should charge for a given quantity of CO2 emission rights. This depends on the crucial question of how much damage a given emission of CO2 costs, and that ties into Stuart's key point about Net Present Value and discounted future harm. Most of the harm of today's CO2 emissions occur late in this century when they have built up to a much higher degree. But we have to discount that harm to get the net present value, using some discount rate as discussed here.

This analysis surveyed over 100 papers which attempt to go through exactly this procedure. The results varied widely, and the main reason for the variance was different assumptions about the discount rate. As Dave notes, the potential damage is enormous, but if most of it is 100 years off, even a modest discount rate can greatly reduce the net present value. And slight changes in the discount rate can make a big difference in the cost. The median NPV from the study was \$14 per ton of Carbon but estimates went as high as \$350.

The book, Undercover Economist has a great illustration about the coal scrubbers that were installed after the EPA demanded it using a type of "carbon credit."  When I get time maybe I'll lift a few passages to explain.  If you get a chance, it's a very thorough and easy to read Econ primer and how Econ theory translates to real life.
So, using the logic of net present value and the discount rate, we must discount more and more the further away the event is in the future. Therefore, from this point of view, the damage to our children is discounted at some rate, the damage to their children (our grandchildren) are discounted more according to application of that rate through time, etc. Is this where this logic goes? And does not the rate (like the current interest rate) itself change over time? -- as you note. That is one reason I brought up non-linear behavour regarding the ice sheet.
Thanks for a bit more wacky baccy econ bullshit. As the Planet heats and the angst grows and the terror rises like bile from the belly, we've got you to help guide us to the promised land.

Better to have a one legged blind man leading the climb to Everest than to listen to crap like "how much we should charge for a given quantity of CO2 emission rights." Wow! Did you make that up on the spur of the moment or did you have to think about it?

No matter, after all, you'll be dead in the long run. On the other hand, what a legacy, eh?

If the best you can do is attempt to apply some monetary value to the output of carbon emissions, given the rather compelling evidence for anthropogenic contributions to climate change, then we'd best pack up and head for the hills.

So we must be at the peak of econ ideas. Is the discipline really so bereft of ideas? May some power that be help us all.

BUt, is taking some trees out every year really sustainable? As noted above, the trees themselves are the topsoil, or at least the fertilizer for the next generation.  If trees are yearly removed, we need to yearly add some fertilizer. If no fertilizer is available, might as well cut the lot. No free lunch, certainly not a perpetual one, here.

We're not providing the fertilizer for coming generations, not least because we're not dying. I've heard there's more people alive than dead. Certainly many are still here while great grandchildren are trying to elbow their way in. The problem is not just too many children, the reduction of which causes no pain to current members, we're also living way too long. Sadly, nobody wants to move on to the next act no matter what they promise.

"Situations in the environment where there are lags between causing the damage and experiencing the consequence are exceptionally dangerous if the lags are long compared to the half-life of the discount function."
AIDS and condoms come to mind.

No, vastly more people have died than are alive now - just since WW2 at least five times more.
Sorry! The second half of my sentence is dead wrong. But the first will stand. For the 2000 years till 1650,10 million deaths a year is a reasonable figure. That's 20 billion people right there. since then, population has been growing faster.
You still expect high demand for natural materials like timber post-peak? I fail to see how  prices would be high enough to make such an energy-expensive endeavour, like clear cutting a forest, worthwhile - especially when the housing bubble has completely popped. Its coup de grace would be die-off, and powerdown. However, it could be saved by economic expansion, through some kind of resource war.

Your hypothesis belongs to a classical economic world. We still have a few years left of one, so perhaps some leeway is allowed.

In many areas, it may be that heavy demand for wood post-peak will be for firewood to heat homes and provide fuel for cooking fire and charcoal.

Of course, some wood will be needed for renovation and retrofit of buildings to reduce heating costs.

I suppose so - but you can't burn deserted post-peak houses?

I doubt using trees as fuel for fires would net large prices for them, though. The timber in the article was more focused on their using in buildings etc.

Most wood used in building is treated and can give off very toxic fumes when burned, although I'm sure people will try.

The last time heating fuels were very expensive, back in the '70s, seemingly half the people in the eastern U.S. either put in a a wood burning (or coal burning)stove.  Others ripped out their natural gas fireplaces and converted them to wood.  Many owners of wood burning fireplaces who used them only occasionally, installed what are called "fireplace inserts" which essentially turn an inefficient fireplace into an efficient stove.  Wood burning became so popular that the air quality in many valleys throughout the Appalachian chain developed severe air pollution problems in the winter.  The price of good firewood, i.e., the harder hardwoods, skyrocketed.  I think that whole thing will happen again, although new stoves and inserts are said to burn extremely cleanly, even those designed for coal, which I also think will make a comeback for home heating in areas where it can be found.

I'm really not sure by how much or how fast our population will drop or consolidate in existing units.  Another factor that may reduce home abandonment may be people heating or cooling only a portion of their dwelling during the winter or summer, respectively. I think that it may be some time before we see a substantial abandonment of housing, except in resort or hurricane prone areas.

Absolutely, wood for construction, firewood, heating pellets, liquid fuels, diapers, toilet paper, railway ties, strong paper for packaging stuff, wooden toys, furniture and so on.
Excellent post, Stuart.  Another example  is whaling, where, due to whales' slow rate of reproductive increase (slower than human's choice of discount rate), it is "more profitable" to hunt them to extinction than to harvest them sustainably.

And this relates to my comment in yesterday's Drumbeat.  The reason we use a discount rate to compute the present value of future money is because we assume that "the economy will keep growing", making investment profitable.  Thus I agree with Hubbert that until we change the monetary system, we are doomed.  The pyramid scheme known as "capitalism" will collapse, and the vast majority of us will be left with nothing.

Of course, Dick Cheney thinks that he and his loved ones will inherit the earth.  (The bleak world-war scenario outlined above by Jussi seems about right.)

This whole subject of what really is 'present value' is a murky one for me, and being an engineer, I won't even attempt to duke it out with all the economics and business people active at TOD.

While I can comprehend the Economics 101 concept that \$10 in my hand today is worth more to me than \$10 acquired over 10 years at a dollar a year, I still can't help wondering if there is some fundamental flaw in the very concept of the time value of money, especially when it is applied to non-renewable resources and activities having a high environmental impact and/or long-term consequences.

I think we need to take a closer look at the hidden assumptions and value judgements deeply imbedded in some of our economic concepts, such as the time value of money, ownership, profit, and what is a reasonable time-horizon for calculating economic benefits and costs.

So many of our current problems are directly or indirectly related to a serious disconect between the parties that derrive the benefits and the parties that bear the negative consequences.. They are seldom one and the same. Problems also arise when there is a long period of time between the act and the negative consequences of that act. The environmental field is replete with such examples, sometimes lumped under the term, 'tragedy of the commons.'

Perhaps this is something that can be corrected with different accounting principles, ones that take into account more 'externialities' and dislocalations.  But I suspect it goes much deeper than that and might have something to do with a lack of wisdom in determining the relationship of the present to the future.

If this sounds vague, it's because my thinking on the subject is still rather hazy. However, I still think that somewhere in this whole messy subject called economics a very bad assumption has been made so long ago and has become so engrained as to have acquired the status of 'law', in the same vein as a 'law' of physics, when in actuality is is little more than a formal embodiment of certain cultural biases and preferences.

(This is something that Don Sailorman could probably enlighten me on, but alas, he no longer appears to be active at TOD).

What is commonly described as "the tragedy of the commons" is actually "the tragedy of self-interest". There have been commons in many times and places, and they fulfilled their role. Abuse was limited since everyone recognized their vital place in the community.
But I bet these all had what we would consider non-democratic governments that had the power to restrain private self interests from trashing the commons.

Antoinetta III

There are two forms of social control that can allow a society to escape the tragedy of the commons.

Tradition can work--but often does not, e.g. Easter Island.

Government, in a command economy, can (but usually does not) price in externalities and take the long run into account.

The market cannot, by its nature, deal with the tragedy of the commons. This is not to say that we cannot use the market to reduce carbon emissions, make car ownership more costly, etc. However, in the absence of other forms of economic control, the market and pure capitalism, if anything, tends to accelerate the tragedy of the commons.

In regard to the best form of government, I think Aristotle was correct. All "pure systems" (democracy, monarchy, aristocracy, oligarchy, plutocracy, tyranny) self-destruct. Thus, what makes sense is a "mixed" society, which has elements of democracy, elements of monarchy, etc.

Let's go back to city states--but with some way to achieve global coercion, mutually agreed upon to escape ruin for all.

The ancients would not have thought there was much democracy in the current Western system we give that name.
Representative democracy was an oxymoron to them.
Ancient philosophers hated and feared democracy: Look what Athenian democracy did to Socrates. Or read Plato. Or Aristotle.

By the way, the Founding Fathers of the U.S.A. also hated and feared pure democracy; they wanted sort of a mixture between the Roman Republic and English representative government without the King and the House of Lords being replaced by Senators (who, BTW used to be appointed by governors and were not popularly elected). The House of Represenatives was sort of like the representation the plebeians had in Rome, but even so, you had to be male, 21, white and own property to vote.

Economics answers this and it's know as externalising.  It's like a company dumping toxic waste and taxpayers pay for the cleanup.  This is oversimplified and not the best example, but the point is that the total real costs are not borne on the business, but shared by all of us.  Global warming is the best example.
By overwhelming popular demand I return to TOD (and thereby divert my scarce resource of time from teaching young women how to sail, reading books, and working as a cook on cruising sailboats).

First of all, thank you Stuart for a most excellent post.

Also, thank those of you who made the 100 best comments--remarkably high quality!

Tragedy of the commons includes the concept that gains are privatized while (external and hence uncounted) huge costs are imposed on the public--sometimes a community, sometimes the whole world. Hardin's solution--and I believe it is a unique and correct solution--is "mutual coercion, mutually agreed upon."

Now, in regard to the BIG problems such as population and climate change due to emissions of greenhouse gases, one can imagine satisfactory solutions being worked out within a particular society, where there can be mutual coercion, mutually agreed upon. However, unless you can get every society to agree (e.g. to limit population), then you still run into the tragedy of the commons. So Germany respects its forests--well, that's nice. But if a hundred other societies destroy their forests and turn most land into deserts, we have a problem. Similarly, suppose the U.S. emitted no carbon dioxide at all. We still run into the tragedy of the commons, which includes "ruin for all" if China, India, etc. keep increasing their emissions of greenhouse gases.

Global problems require global solutions. Can anyone think of a better solution than "mutual coercion, mutually agreed upon" to escape the tragedy of the commons?

It's good to be back.

There is no institutional trick we can apply, after which all our worries will be over. We need to reinforce the notion that the ecosystem is our house and our provider constantly, each generation anew.
"So many of our current problems are directly or indirectly related to a serious disconect between the parties that derrive the benefits and the parties that bear the negative consequences"

Bin-Go!  And the long period of time btwn an act and its consequences is really just another form of this - we get the benefits and leave our kids to deal with the consequences.  A similar disconnect has a big impact on our ability to implement mitigating measures regarding energy use.  Builders install the least present cost energy systems because they won't be paying the bills - the buyer of the building will.  Owners install the cheapest gizmo in their units, because it's the renters who are hung with the bills.  Appliance manufacturers care little about the efficiency of their products, bells and whistles and sexy marketing schemes are what sell.  Then the (all-too-often unwary) consumer winds up consuming unnecessarily large amounts of energy.

The Human Appropriated NPP figures Stuart quotes are from table 2 of this paper, which if I'm reading it correctly is only terrestrial NPP, ie not taking into account the productivity of the oceans.

Also, the text tells us that these numbers "... included only the NPP required to produce consumed goods, not the components of NPP that are lost to land transformation (for example, `shifting cultivation' and `land clearing')".

It is also worth noting (Table 3) that some regions of the world (eg Asia & Europe are appropriating more than 60% of Terrestrial NPP under the assumptions of the paper.

On a completely different topic, the graph Figure 18.2 is suspicious isn't it? I mean one explanation is "And it has got increasingly good at that:" but the almost complete loss of noise at 2000-2001 coincides with other events doesn't it?
Doesn't this also mark the transition to a group of leaders who "make their own reality" ? ;-)

There are several specific technical changes that the Fed made that led to the improved coherence.  For example, they are now willing to lend reserves at a rate slightly higher than the target rate to institutions who need additional reserves towards the end of the day.  This reduces the problem of the Fed guessing wrong about the demand for reserves when they do their open market operations (which they only do once a day in the morning).
The Ecological Footprint is a useful index that is intimately related to NPP used by humans.

A new version of it was just released and about 80-90% of our footprint is related to fossil fuel use--specifically the area required to compensate for emissions.

This version also differs from others by including the "liquididy" areas that make up most of the planet.

I interviewed one authors of this at:

Good post Stuart - the steepness of our discount rates is and will be central to the peak oil issue as well as issues of global warming and environmental sustainability.

ALL animals have steep discount rates - humans are less so due to sunk cost of built capital but are steep nonetheless. Our ancestors that didnt value the present steeply over the future did not become our ancestors. Societies could have more gradual discount rates but individuals that grabbed resources in real time outproduced organisms that waited. Neuro-economics (google David Laibson at Harvard) is an exploding field and has demonstrated that humans (outside of capital markets) have preferences that are hyperbolic in their weighting of time options - discount rates over 1 month are as high as 25% (addicts have substantially higher discount rates, especially when discounting the items they are addicted to. e.g cocaine).

We cannot overcome evolution. What we can do is understand evolution, then 'trick' or 'strongarm' society into valuing the future more than they do now. Ways to do this are a)sharply increase the perceived future costs so their discounted value to today seems higher (global warming comes to mind) and b)create 'artificial' short term crises that people can naturally react to (like raising gas to \$6-7 gallon). Both of these options are of course anathema to stock market culture of growth and profits ASAP so are politically untenable.

But such is our quandary, and that of our grandchildren. Incidentally, I think a marketing campaign along the lines of 'what will your grandchildren think? will they think of us as monsters?" might appeal to our built in steep discount rates. it brings future pain for our actions closer to home (but there is another piece - if ALL grandchildren are equally impoverished people are less likely to act than if THEIR own granchildren are less impoverished than others.) Yet another quandary....

I strongly agree with the general tendency for humans to discount the future generally.  There is also an interesting developmental trend in that children and adolescents generally tend to discount the future more than adults (hence parental trepidation in the face of a credit card wielding 16 year old).  Our present culture, unfortunately tends to promote this tendency and probably to some extent accounts for the increases in diagnostic rates of attention deficit hyperactivity disorder--a condition characterized by a high degree of impulsivity and hence future discounting.  The US in particular seems to promote a future discounting stance which influences are heavy emphasis on consumption and the fascination with the new.  In some respects, I think the genetic contribution from all those novelty seekers that left Europe.  Also, Australia's tendency to politically mirror the US in the "macho risk taker" imago probably has similar roots. Unfortunately, none of this is likely to play well in a scenario of resource constraint/contraction.
David -  I couldnt agree with you more. There is evidence that suggests that novelty, impulsivity and the consumptive behavior that results is at least partially genetic. I am writing up a post about this which will be up soon. However, my personal discount rate is very steep as Im in Montana on vacation so checking internet is not readily available (or desired)
Hello TheLastSasquatch,

Your Quote: "We cannot overcome evolution. What we can do is understand evolution, then 'trick' or 'strongarm' society into valuing the future more than they do now."

Precisely!  That is just another reason why I miss the terrific exchanges between you and Jay on Dieoff_Q&A--among the very best on the web!  I profoundly agree by restating again my quote taken from my other postings--> "Our genes are not our friends."

The best postPeak solutions will come from these 'tricks' and/or 'strongarm' methods.  I am assuming you have read my speculative postings on Foundation, the detritovore humanimal ecosystem, Earthmarines, detritus Powerdown, biosolar Powerup, etc, etc.  I have no idea if any are truly postPeak viable, but in every case I tried to consider evolution, inclusive fitness, and how to best defuse the huddled masses' worst inherent desires.  But I easily admit that I am just a beginning rookie.

I would be very interested in reading more about your thoughts on 'tricking' evolution.  Much as I admire Jay, a very small part of me still cannot believe that he truly has our future nailed.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Note that all the great ethical religions have extending the time horizon as an "institutional trick." I have evolved to loot, rape, and kill. However, that would be against the Ten Commandments, the Sermon on the Mount, the Koran, Confucianism, Budhism, etc. Because I was properly socialized as a child I rarely sail under the Jolly Roger except when playing pirate with my granddaughters.

Note that the alternatives to religion are not rationality and everybody tolerating everybody else's diverse opinions and beliefs. On the contrary: The alternatives to religion are magic, superstition, psychoanalysis, astrology, Naziism, Soviet style communism, etc.

I do believe there is a consensus among cultural anthropologists and sociologists that the "functional equivalents" of religion do not work. Religions have both powerful positive functions of extending time horizons and reinforing other means of social control, along with the serious dysfunctions that the religion-haters on TOD have pointed out frequently.

What is the difference between religion and superstition?

It is possible to have morality without religion.

Please cite specific examples of successful societies that have not based ethics on religion.

Note, the French Revolution tried to replace God with Reason. Results: . . . the rational murder of thousands with an improved chopping machine followed by the despicable tyranny of Napolean.

The classic work in this field is "Magic, Science, and Religion" by Bronislaw Malinowski. The literatures on this topic in anthropology, philosophy, and sociology are immense.

Marx said religion was going to go away because Marxism was better. He was wrong.
Durkheim, the greatest sociologist of all time, believed that religion was going to yield to secularism. He was wrong.
Freud, one of the three greatest geniuses of the twentieth century believed that religion was an illusion that would go away, to be superseded by scientific psychoanalysis. He was wrong.

Northern Europe today?
It has been argued that Europe today is living on the "moral capital" that was stored up from past times when Christianity was taken seriously, and that as this moral capital is used up the civilization will decline. It is hard to evaluate this argument, and I daresay the jury will be out for another few hundred years.

Indeed, it has been argued (not by me) that the atrocities of Hitler and Stalin were made possible in no small part by the decline of the influence of Christianity in Germany and Russia. Hard to say.

In my own opinion, there may indeed be some clear cases of civilizations (or tribal societies) flourishing without a morality reinforced by religion, but it is hard to find examples of these. Consider the ancient Sumerians, for example. Some historians claim that religion was not an important or integral part of their morality and social control, but the case is not clear. Other historians interpret what evidence we have to come to a contrary conclusion.

In general, hunting and gathering and tribal societies did not have "ethical systems" that are typically found in advanced horticultural and agricultural societies. In other words, their "morality" was peculiar to the particular tribe and outsiders did not have human status.

The societies of ancient Mesopotamia were profoundly religious. The gods had created humans to serve them, and no political or economic institution could be conceived in a secular context.
I agree with you. But one of my colleagues (historian and anthropoligist) who knows more about ancient Sumerians than I do CLAIMS that religion was not the basis for their morality. I question this claim.

As I believe Will and Ariel Durant said in "Lessons of History"

The jury is out as to whether societies can survive in the absence of religion. (or words to that effect)

My OPINION (no claim to knowledge here) is that the evidence suggests that the positive functions of religion for socialization and social control are so vital that no large society can long survive on a secular basis.

Case in point: USSR, did not survive long

But the Sovjet union were a dictatorship.

I guess one of the best tests for your theory is to wait and see what happens with the northern european countries, they might me the most secularised in the world.

There are some pretty serious Lutherans in Norway. In Minnesota the biggest Protestant churches are the "Swedish Lutheran" (mostly people of Swedish and Finnish ancestry) and the stricter "German Lutheran" churches.

Do you like the films of Ingemar Bergman? They portray a Sweden filled with increasing anomie, alienation, and existential angst. True, many of these films are partly autobiographical, but if the do capture some of the true essence of what it means to be an educated Swede, then your country has some serious and fundamental problems.

No I do not like them. But I only care about knowing things, not about being educated.

The existensial angst that worries me most is connected to unemployment, I have no idea about the ammount of religious searching.

Again, what is the difference between religion and superstition? As mentioned downthread, is Confucianism a religion? Animism? Shamanism? Polytheism? Pantheism? The worldview of the aboriginals? Is capitalism a religion (just strive for your own profit, and the invisible hand will take care of you - amen)?

Was the French Revolution worse than what came before? Napoleon abolished a huge pile of Ancien Régime and religious relicts - no one wanted them back.

Do you really say that a society without religion is a bad society? A decision without religion is a bad decision? A decision with religion is always a good decision?

Obviously, a highly religious society can be a bad one--e.g. Spain and the Spanish Inquisition, Spanish atrocities in Latin America justified by Christianity; U.S. Southern Christians misusing Christianity to justify slavery; and the examples can be multiplied to great numbers. That is not the point.

The point is that--whether it is "good" or "bad"--the strong influence of religion in, e.g. the European middle ages or in many Muslim countries today does indeed define and reinforce a clear moral code.

"Thou shall not steal."

Why not? Honesty is for chumps. So saith the prevailing "morality" of the guys at places like Enron.

Morality WITH religion is not that common. Like Oilmanbob says, when someone starts promoting religion, keep both hands on your wallet.
Words like morality, religion, superstition - these have so many conflicting definitions, they become almost useless.

Human beings are wonderful animals, because we have the mental agility to construct culture, which means something like: we all experience ourselves in a world constructed by our imagination. Of course we live in a real physical & chemical & biological world that isn't just a fabrication of the imagination... but then again, we don't really experience physics or chemistry or biology. What we think of as the physical world is an imaginary concoction that has taken centuries or millennia of hard work to hammer into a practical tool.

Why do people do what they do? Clearly people's actions are only rarely motivated by a direct need for food etc. Mostly people have a pride in individual identity, or a social role. As Shakespeare said, all the world's a stage. The question becomes, in which play are we all performing? It is by cultivating and maintaining an acceptable social role that we generally get access to food, shelter, heat, medicine, parties, etc.

Sakaiya's book The Knowledge Value Revolution is based on a nice hypothesis connecting resources and culture: cultures tend to approve the profligate use of resources that are freely available, and to disapprove the waste of scarce resources.

The main challenge in front of us, of course, is that resource availability can change a lot faster that culture. As oil climbs from \$40 a barrel to \$400, how can our culture shift from one where it's cool to drive up in a monster car, to one where driving such a vehicle seems a bit like somebody buying up Rembrandt paintings and burning them - i.e. meriting high disapproval.

Seems like Adam Smith marked a major cultural watershed. Most human cultures view greed as meriting disapproval, and generosity as meriting approval. Adam Smith - or maybe it was Mandeville before him, but anyway the 18th Century seems to have popularized a kind of individualism & the idea that if each person just works to increase their own wealth, then the whole group will actually benefit.

There's a lot of resistance to cultural shifts. We devote our lives to securing our roles in society. It's like somebody devoted their life to fixing up a nice house with a garden etc., and now somehow there's a threat of a highway getting built right through and the house getting torn down.

Now it's more like having a nice house on the beach. The owner might hear about warnings of a storm or tsunami or melting glaciers, but once the owner is so committed to preserving their investment, it can be very easy to just ignore the warnings.

Our Euro-American techno-industrial culture has a lot to be proud of. It's certainly one of the pinnacle achievements of the species. Despite that, some deliberate movement might be called for.

The interesting questions seem to be:

1. Is our geological / ecological environment inevitably headed for sudden major changes?

2. Will such environmental changes inevitably bring cultural changes?

3. Is there any kind of fulcrum point available to provide leverage to steer such cultural changes, to open up a space of possibilities, to choose a more positive future from some set of alternatives?

Since culture comes back around to influence the environment, the set of possible alternatives will be trajectories involving these coupled systems. How to comprehend what is possible, together with seeing some way to steer... an overwhelming challenge... but that seems to be where we find ourselves!

Note that Adam Smith's "Wealth of Nations" was essentially a sequel to his enormously popular "Theory of Moral Sentiment."

Also, in sociology, anthropology, and philosophy terms such as "religion," "belief systems," "values," "morality," "ethics," "norms," "mores," and many many more are well defined--as well defined as major concepts in economics or petroleum geology and as well defined as some key concepts in physics, which are fuzzier than most people seem to think they are.

I have a difficult time imagining e.g. Carl Jung, Frank Skinner, Alfred North Whitehead, Richard Carnap, Richard Rorty, C. Wright Mills, etc. all agreeing on a definition of "religion"!

Just to make the uncertainty a bit more concrete: is Confucianism a religion?

A first puzzle here is: in the human sciences, terms can be defined or events described from two perspectives, the "emic" and the "etic", the distinction inspired by the linguistic "phonemic" and "phonetic". The emic perspective is internal to a culture. So, for example, the typical euro-american will have some way of distinguishing "religion" from other flavors of cultural activity. On the other hand, the objective scientist of human affairs will have developed some specialized technical vocabulary, which might include the term "religion". This professional, etic, definition of "religion" will likely be very different from the folk definition.

Do the Chinese have a word that really corresponds to the English word "religion"? At least that's another culture that, however different, has the depth of historical perspective to be able to disentangle the strands of culture enough to make distinctions like religion vs. morality, though their distionctions are almost certainly different. But in a small scale oral culture, all the strands tend to be so tightly wrapped... is a meal a religious ritual?

It's a little bit like the physicist's technical use of a word like "energy" versus the folk use. Except the folk use is still an outsider's use. A tighter analogy would require physical systems themselves to use a term like "energy". That's why the etic/emic distinction is limited to human sciences, or at least to the scientific study of systems that use language to communicate ideas.

I studied physics in school & have worked in computer science and electrical engineering for the last 25 years or so. So maybe it is just my biased perspective that makes me think that physicists have come to a much more uniform understanding of something like "energy" than have philosophers, sociologists, etc. re. "religion" etc.

Of course, there are fringe nutcase types who may call themselves scientists or engineers and use a word like "energy" in ways that make no sense at all from the perspective of the science of Newton & Einstein etc. Maybe that's how somebody can say that philosophers & sociologists have worked out some reasonably consistent definitions of a term like "religion". The trick is to have in mind a clear line between insiders and outsiders. People outside science may have a hard time distinguishing Rupert Sheldrake from James Lovelock. I'm not so sure, though, that the lines are so well agreed upon in e.g. philosophy. Was Jacques Derrida a bona fide philosopher, an insider?

A fascination question is: for a culture to have these kinds of clear lines between insiders and outsiders, to have hammered out consistent definitions for "energy" and "religion" - is this a good thing, or maybe it is actually a sign of poverty and strife! Like a rich eco-system, maybe a culture that supports intellectual diversity is a lot more resilient and productive than one that rejects everyone who don't march in strict formation.

David Loy's book A Buddhist History of the West makes that argument, that the intellectual mono-culture of modern science is not a sign of health. It's a great fun read & opens up some wonderful insights on cultural dynamics.

Physicists don't need to use words consistently, they have mathematics for that.
Sorry, I cannot agree. Physicists are VERY careful to use precise definitions. This tradition goes back at least to Isaac Newton. The reason physicists can talk to one another so readily is that mathematical symbols are based on terms very clearly and precisely defined in words.

Sociologists, and to a lesser degree anthropologists do argue somewhat about correct definitions. But as to what "culture," "society," and "religion" mean there is now general agreement.

Philosophers argue a lot about definitions, and this goes back at least to Socrates. Having said that, most philosophers make clear distinctions between, for example, a "philosphy" and a "religion." As Max Weber would say, these definitions represent "ideal types" (polar cases) of clarity, and in the real world you get mixtures. For example, Hinduism is philosophy and religion and mythology and literature all wrapped up into one big ball of wax, and it is fruitless to argue that it is purely religion and not a philosophy.

Some speak of communism or naziism as "secular religions." In my opinion, that is an oxymoron, because of generally accepted definitions "secular" means "nonreligious."

I do believe that careful usage is prerequisite to effective communication and clear thinking. Confucious, by the way, was very very big on this point. Confucianism is a mixed case that I think can legitimately be claimed to be both a religion and a philosophy.

The whole sacred / secular thing is quite interesting, especially from a historical perspective. You might like looking at the books of Stephen McKnight, e.g. Sacralizing the Secular.

My experience with physics is also that physicists are very careful to use terms accurately. Physics is not just mathematics.

With all the discussion about whether "religion" has a broadly accepted definition, we still haven't seen one here. Maybe one way to understand religion is that it is the way people attempt to deal with the ultimate foundations of existence, or to envision their ultimate goals. I.e. deals with ultimate ends, rather than limited means.

This is what makes the sacred versus secular distinction interesting. With a dualistic world view, where there is a temporary life on earth followed by an eternal life in some non-earthly realm, then the limited versus ultimate or secular versus sacred distinction can easily get mapped onto earthly versus non-earthly.

In a world view that doesn't have this earthly / non-earthly distinction, then the secular / sacred distinction gets a lot messier - I'm not sure it can hold up, really. Maybe we could call these world views pantheistic - at least, any world view that actually attempts to cultivate ultimate values without incorporating an earthly / non-earthly dualism.

The whole thrust of modernism from Bacon through Marx seems to be an attempt to recreate paradise on earth. For many such folks, this is not just an audition to convince any great Director in the Sky to permit one to perform in some Heavenly play. Maybe a real pantheist would be more interested in recognizing the ultimate value of the world rather than attempting to transform the world to bring it up to meeting some ultimate specification.

Techgnosis by Erik Davis is another fun perspective on these issues.

I think we are talking at cross purposes. My point was that verbal precision is secondary. Mathematical precision is what makes it possible to do physics at all.
This is a good analysis although I would take exception with a few points, but I don't have time to write in detail now. I want to briefly say something about the practice of discounting the future in general.

Some people, even some economists, argue that discounting is morally wrong, because in effect it means that we count the impact of our actions on future people as less than the impact on present-day people. It is as though future people are second-class citizens whose welfare is only a fraction as valuable as that of people today. The argument is that we should count future people as equals to present people; and if economic and monetary systems don't do that, government should step in to fix it.

I have even seen this advocated on the level of personal decisions. Many people make decisions that bring immediate benefits at the expense of long-term personal harm. They drink even though they will have a hangover. They spend money instead of saving it. Like the grasshopper in the story, they live for the present and hope that the future will take care of itself. Government, it is said, should step in and somehow force people to stop discounting the future and start behaving responsibly.

The other side of the argument is that discounting makes sense because the future is inherently uncertain and unknowable. In this view, we discount the future because we can't be sure of what will happen. We may take an action that will seemingly have a negative impact, like clear-cutting forests, but we don't really know what the long term effects will be. Maybe the harm won't be as great as it seems; there might be some substitute for wood that comes into use, or maybe other areas will plant more trees and make up for the loss. Many things can happen.

It is this uncertainty which I think is ultimately the reason for discounting. We can't count the future as equal to the present because we have inherently less information about what is going to be happening in the future. And the farther out we go, the less information we have. By the time we are talking about events 100 years in the future, there are so many possibilities and so much obscurity that almost anything could be happening.

I always think of the old Jewish story about the thief who won a reprieve from death by promising he would teach the king's horse to sing within a year. Everybody said he was crazy, but the thief pointed out that his situation was not so bad.  "I was going to be killed, but now I have a year of life. Who knows what could happen in a year? I might die; the horse might die; the king might die. And who knows, maybe I will teach the horse to sing." It is this inherent uncertainty which ultimately gives us grounds for discounting the future.

What an excellent comment. Good job, Halfin.

But you knew what I'm going to say next was coming, I'm sure. So, here it is.

Re: Discounting the future because of uncertainty

First, we must immediately grant that the future can not be known with some degree of uncertainty. However, with science comes modelling and, with modelling comes some clarity. It can be shown that our Sun will die and become a red giant. The Earth will become a burnt out cinder. The climate can be modelled. The uncertainty only involves a number called the climate sensitivity which refers to the global mean surface temperature (GMST) rise following on putting greenhouse gases in the air. At this many parts per million by volume (ppmv) P, you get a modelled range of X to Y increase in the GMST. For P1, another level of greenhouse gases, you get a range of X1 to Y1. And so forth.

In another vein, assuming there are no new vast pools of easily obtainable conventional oil is a high geological probability based on empirical evidence. This evidence consists of past exploration of the Earth to look for the precious liquid. Based on this, the uncertainty inherent in the future is reduced. We know pretty generally that in some 30 years time or so at present consumption rates there won't be much of the stuff left. Now, I've used that phrase at current consumption rates. That was my illegal move! Anything could happen. A big rock could hit the Earth, who knows? That would dramatically reduce consumption. There could be a global pandemic reducing the Earth's population by a 1/3. It's not so crazy. The big rock hit the Earth 65/mya and the plague gutted Europe in the 14th century.

So, in all these cases, we must make an assumption based on present knowledge. In one case (climate) that is what we know about physics. In the other, what we know about geology and human behavour.

Those extrapolations are true as far as they go, but there are still other things that could happen. Take climate change. We can model how the atmosphere responds to CO2 increase. We can estimate how much CO2 we will add to the atmosphere under different policies. But once we are looking out a few decades, there are more chances for things to change fundamentally. Tuesday, the New York Times had an article about technological fixes for global warming:
In the past few decades, a handful of scientists have come up with big, futuristic ways to fight global warming: Build sunshades in orbit to cool the planet. Tinker with clouds to make them reflect more sunlight back into space. Trick oceans into soaking up more heat-trapping greenhouse gases.

Their proposals were relegated to the fringes of climate science. Few journals would publish them. Few government agencies would pay for feasibility studies. Environmentalists and mainstream scientists said the focus should be on reducing greenhouse gases and preventing global warming in the first place.

But now, in a major reversal, some of the world's most prominent scientists say the proposals deserve a serious look because of growing concerns about global warming...

If these technologies were to prove out, then our climate models and even our economic models could be accurate, but we might see much less global warming than we forecast today. This is an example of how future uncertainty can alter even seemingly well grounded assumptions. And of course, we are implicitly limiting ourselves to surprises that we can anticipate now in 2006. Far more surprises will arise in the next 50 or 100 years that we could never have imagined today.

The same principle applies to energy resources. One of the important questions about Peak Oil is whether it is going to happen soon, in which case we have a better chance of predicting the effects, vs decades from now, when we will have a much harder time understanding what will happen. Once we look out 30 or 50 years there is a good chance that new technologies based on renewable energy could be playing a major role in our economy. We've seen big progress in solar cells recently, with Nanosolar making a potentially paradigm changing move. If we have this technology today, what will have have 50 years from now? We can't even begin to imagine it.

We know that the earth gets more than enough solar energy to power a civilization far more energy-hungry than our own. The question has always been whether we can capture and exploit that energy. It's impossible to predict today whether or when that will become possible. But it makes a big difference in how we expect our energy future to play out.

Even with something as well understood as oil, there have been reports of exotic technologies that can wash stranded oil from the reservoirs and effectively double or triple oil reserves. They may not be practical or cost effective today, but again, given decades of development, there is no way to rule that possibility out. So even our seemingly well grounded oil predictions have to be considered uncertain once we look into the more distant future.

Again, a thoughtful post, Halfin.

This is the technology argument as regards predicting the future, especially with respect to peak oil or climate change--which we know are related. Perhaps I am dogmatic here, but I do not believe it. There are primarily two reasons for this: 1) it's not possible or 2) even if it were possible, lack of human foresight precludes effective application of the technology until the "tipping point" has already been reached. That point may be in the physics of the atmosphere (climate) or economic resources available to fix the problem (peak oil).

Sorry, I'm not buying this one. Michael Lynch also is "selling" this. Not buying it from him either.

best, Dave

I forgot to add this. I don't believe we can "engineer the planet" to solve a mess we ourselves have created. Better to live within limits than do the same things over and over again that got us into this mess to begin with. Who knows what the consequences would be? But if history is any guide, the "cure" would be worse than the cancer.
I think it would be reasonable to do "remediation" projects on a similar scale to the destructive mega-projects we've accomplished in the past.

I mean, what is serious post-mining remediation but another mega-project?  That doesn't make it wrong, doesn't say we shouldn't do it.

Yes, but you would have to try to quantify the benefits and impacts, which Dave opposes. Right, Dave?
Didn't have the time, eh?  :)
How you sleep at night is beyond me. If I read you right, you're saying that given the uncertanties of the future we're far better off giving it the wellie today even if that means future generations will simply have to suck eggs.

I knew there was a reason I didn't like econ. You've help me to clarify it.

The thief wasn't discounting the future, by any means. He was optimizing the future. He was seeing his way out. He already knew the worst case so he knew any outcome that wasn't the worst case was probably better. Sure, he seems to have forgot the king, on his failure to teach the horse to sing, as the king was still living, could decide to not kill him, only torture him. But that was never, ever, in the thief's mind. Not in the slightest.

It seems only econ types can think up this crap. Discounting the future? What does that really mean? Am I going to be any less human, regardless of my capacities? Am I willing to become less human just to secure a "future premium?" Maybe you econ types are.

NPV is just another means to ensure most of the folk who live on this planet will never be in a position to assert their rights. As the oil fields are drained and the ores are mined and the topsoil is removed, the folk who could put NPV to use have done so. The rest of have to live with the mess they've left behind. Thanks. Thanks alot. We'll remember you in our wills.

Am I going to be any less human, regardless of my capacities?

Yes. One day you will die. Discounting exists, at the core, because people do not live forever. People want a return on invested effort before they die, in preference to after (religion notwithstanding).

Those crazy economists...

The other side of the argument is that discounting makes sense because the future is inherently uncertain and unknowable. In this view, we discount the future because we can't be sure of what will happen. We may take an action that will seemingly have a negative impact, like clear-cutting forests, but we don't really know what the long term effects will be. Maybe the harm won't be as great as it seems; there might be some substitute for wood that comes into use, or maybe other areas will plant more trees and make up for the loss. Many things can happen.

I think Prairie Home Companion's Garrison Keillor summed up the economists position very well. "Life is uncertain, so eat dessert first."
Okay, I do have a little more time now :) and I want to take issue with Stuart's scenario of inflationary collapse. I should note that I am not an economist, merely an interested layman, but I will offer my understanding.

First, let's look at the inflationary impact of resource scarcity and associated price rises. Classically, this should not be inflationary. Instead, it should depress the economy, leading to a slowdown and a price drop. There is no more money than before, and if anything people will be saving more now due to the economic uncertainty introduced by the price shock.

It's true that historically these have resulted in some inflation, but I believe that is because central banks have applied economic stimuli in order to counter the negative effects of the price rises. This increases the money supply and causes widespread inflation.

The second problem with the inflationary collapse scenario is that this inflation is supposed to lead to higher interest rates, and Stuart argues that this will lead to even faster over-consumption of scarce resources. The problem here is that this would be an increase in nominal interest rates, but Stuart argued earlier that it is real interest rates that matter. There is no reason that real interest rates would increase in an inflationary period, and in fact inflation often takes the economy by surprise, interest rates lagging, and so they end up being lower than usual. Look at the green graph in Stuart's chart, which represents real interest rates (nominal rates minus inflation):
and you can see how they went negative when inflation increased.

A third problem with the inflationary collapse scenario is the time sequence of events. Inflation is supposed to lead to higher interest rates, which will lead to faster production of resources, producing eventual shortages and more inflation. But this skips over the intermediate time, when faster production of resources would  produce surplus rather than shortage. When we look at this scenario in detail we would seem to see some kind of seesaw of over- and then under-production as the markets sort of blindly stumble along. And all the while nobody sees these shortages coming so that futures prices are not being bid up. All in all I don't think the scenario is very plausible.

Halfin,

I'm an interesting point, but let me attempt a rejoinder.

I think the principle flaw in you argument against inflationary collapse comes here in this paragraph:

A third problem with the inflationary collapse scenario is the time sequence of events. Inflation is supposed to lead to higher interest rates, which will lead to faster production of resources, producing eventual shortages and more inflation. But this skips over the intermediate time, when faster production of resources would  produce surplus rather than shortage. When we look at this scenario in detail we would seem to see some kind of seesaw of over- and then under-production as the markets sort of blindly stumble along. And all the while nobody sees these shortages coming so that futures prices are not being bid up. All in all I don't think the scenario is very plausible.

Perhaps one of the best case studies on long-term, resource-limit-based inflation is David Hackett Smith's The Great Wave : Price Revolutions and the Rhythm of History. The crux of the book is that we've seen these waves of long-term inflation followed by periods of price stability for hundreds, possibly thousands of years.

The details differ, but the basic story is that in 'price equilibriums' times are good. People are doing fairly well. They get married earlier. They have more children. Population grows. Society is prosperous. Then, so slowly no one notices, society runs up against the resource limits imposed by the current state of technology and the social system. Prices rise. Inequality grows. Politics grows tense. Inflation becomes more apparent. Economic conditions worsen. Dieoff, usually caused by war, economic collapse, disease, and famine but also reinforced by individual decisions to put off marriage and childbirth, begins to winnow down the population. A new equilibrium sets in, usually with new technology and a new social system, and the process begins again.

When I hear inflationary collapse this is what I think of. And I think it is possible because markets are at best imperfect insitutions that imprecisely convey information. Prices are distorted in millions of ways -- through imperfectly competive markets (read all of them), information asymmetry, non-existent markets, and externalities to name just a few. Markets are imperfect institutions filled with imperfect, greedy people.

Terrific post. I appreciate the attention to explaining when you were "simplifying."

Isn't the clear-cutting made more advantageous because we usually do NOT require the clear-cutter to pay the "external costs?" The destruction of water supply and fisheries, for example, has economic value that the clear cutter does not bear, does he? (Question of current law and policy.) We do expect (often without success) that mines protect water supply and repair damage of various sorts, so the idea is not inconsistent with our current notions of private property/public concerns.

Second, as your title notes, human beings, though not necessarily corporations, do place some economic value on the liveability of the planet for their grandchildren. Not relevant, perhaps, if you're examining the economic forces.

This is a recent comment from Bill Bonner at The Daily Reckoning:

It seemed so simple back then. We watched the bubble in Japan pop at the beginning of the '90s. Then, we watched as the U.S. stock market, led by techs, repeat the same pattern. Every excess, absurdity, and extravagance that had made fools of the Japanese made cretins in America - only 10 years later.

Come the year 2000 and we thought we knew what would happen next. In fact, we were so sure of it we wrote a book arguing that the United States would follow Japan's example...with a long, slow slump that would take stock prices down 80% and make consumer prices fall and push the economy into recession.

Everything that should happen eventually does. But fortunes are lost betting when and how. The market can fail to do what it is supposed to do longer than you can stay solvent.

In the event, tech stocks did fall 80%. The Dow was going down, too, and the U.S. economy went into a recession. But then, peculiar and irregular commandos struck the World Trade Center towers in New York with commercial jets and the American public with panic. George W. Bush and Alan Greenspan joined forces to unplug the biggest gush of liquidity the world has ever seen. Taxes were cut. Spending was increased. And the Fed cut the price of money to below the prevailing rate of consumer price inflation. The resulting tide of cash and credit swirled all boats up.

But did the feds actually side step the correction the country needed? Or, did they just postdate it and make it worse? Inflation is now the big worry, say the papers. We say, don't believe it.

* Robert Reich, Labor Secretary under Clinton, seconds us.

"Deflation, not inflation, is what Ben Bernanke should be worried about," Reich says.

"Each generation, in its determination to avoid the nightmare it does remember, runs the danger of over-reacting, and thereby bringing on the opposite trauma. A generation ago, economic policy makers paid too little
attention to inflationary forces then building in the American economy. Eventually, Paul Volcker had to break the back of inflation by raising interest rates sky high. That put the economy into a severe recession. Now Bernanke and company are paying too little attention to deflationary forces building in America and the global economy.

"Bernanke fears that today's economy resembles the one that began to overheat the 1970s. But he's wrong. Labor unions today don't have nearly the power they did then to get wage increases. Big companies don't have nearly the power they did then to raise prices. Global wage competition is keeping a lid on American wages, just as global price competition is pushing down on American prices. Meanwhile, fancy computer software is allowing rivals all over the map to erode almost anyone's market share. Who's going to raise prices in this environment?

"What's more, there's no reason to raise prices. Productivity has been soaring over the last five years while the median wage has been stuck in the mud. Wages, remember, constitute about 70 percent of the cost of doing business. So how can price pressures be building? Bernanke and company worry the U.S. labor market is heating up. They're wrong here, too. Despite what look like rosy employment numbers, a smaller proportion of the American labor force is employed today than it was in 2000. Millions of people don't show up on the unemployment rolls because they're too discouraged even to look for work.

"The price increases we're now witnessing are not due to excess demand over limited productive capacity, which causes inflation. They come mainly from soaring prices for energy and raw materials. These commodities are being bid upward because of China's rapid growth, but take a closer look and you see something else going on. Much of the increase in commodity prices is being driven by speculators who expect prices to continue to rise. In other words, part of what we're seeing are speculative bubbles. Such bubbles can burst any time. The fact is, the global market is glutted with productive capacity, and that's not chiefly because of the huge gains in American productivity. If you really want to see a glut, take a look at China.

"If anything, there's too much capacity relative to demand. This is a recipe for deflation. Prices can begin to drop because buyers hold off, expecting further price decreases. It happened in Japan in the 1990s. It's
already starting to happen in certain housing markets in the United States that had been red-hot but are now cooling so fast home prices are dropping. Deflation is often accompanied by stagnant or falling wages, which make it harder for consumers to afford to buy. Look what's been happening to American wages.

"The Fed and other central bankers around the world are raising interest rates because they're fighting the last war. But they already won that war. Inflation is no longer our biggest threat. They ought to be worried about the war before the last one, and the specter of deflation. They're in danger of losing that war even before they know they're in it."

Maybe we were not wrong, just early. Pushing up interest rates to fight inflation and "load the gun," the Bernanke Fed could help trigger the Japan-style slump we saw coming five years ago.

What he doesn't mention is that the supply of a lot of these commodities cannot keep up with demand. Sugar and oil are just two examples.
In a deflationary depression (which I believe lies dead ahead) demand would fall off a cliff. Purchasing power can evaporate extraordinarily quickly when speculative bubbles burst, and demand is what one is able to purchase, not what one would like to purchase.

I would expect commodity prices to fall for a time, even in cases where demand is currently bumping up against supply. However, government action to lock in supplies of strategic commodities, either by long-term contracts or by military adventures, could potentially kill the global market for those commodities. Price and availability could then vary substantially over time and by location, hence prices could become very volatile.

Here's more from Bill Bonner at The Daily Reckoning:

INFLATION, DEFLATION, OR BUST!
by Bill Bonner

At 7:15 p.m. London time came the news we already knew: the Fed raised rates an 18th time - to 5.25%. Inflation will be tamed! Deflation, be damned!

Concerning the U.S. economy, and by implication the entire world, there are two major currents of thought. There are, on the one hand, those who believe in the perfection of man and those who don't. The first group thinks the science of central banking has made amazing strides. In the 1980s, the Volcker Fed learned that it could tame inflation. Then, 20 years later, the Greenspan Fed found that it could avoid deflation, too.

Central bankers now have at their command whole armies of statisticians, number crunchers, and economists. When their forward listening posts hear the sounds of oncoming inflation, for example, the feds set the range on their heavy artillery and begin firing away. On the other hand, if it is deflation on the march they know what to do - blow up the dikes! Open the sluices and floodgates! Flood the paddies and lowlands with liquidity!

In the view of the first group, the Fed has finally got the hang of it, and the latest GDP figure, 5.6% growth in the first quarter, proves it. The experts have become so good at fighting both inflation and deflation that neither poses any further real danger. The U.S. economy is impregnable, a citadel of growth that will continue expanding forever and ever, amen.

Nay, say the naysayers; it doesn't work that way. An increase in firepower doesn't eliminate war; it just makes it more costly. At the heart of the Fed is a heart...a living, heaving, squeezing, juice-pumping human heart. And like all human hearts, it is sometimes good, some times bad, but always subject to influence. And the influence to which a central bankers heart is subject is not one easily brushed aside. What can a man do but bend a little when the president of the United States of America leans on him? And when his cronies and future employers on Wall Street come into the bar and ask for more liquidity, can he really say no?

A poll, released just yesterday, tells us that Americans now oppose more rate increases by a margin of three to one. What is more amazing is that they have any opinion at all. The going rate of short-term credit is hardly a matter for public debate. It is, or should be, what it is: a natural equilibrium worked out between borrowers and lenders themselves. Instead, voters expect to find it on the next ballot, along with grumpy resolutions proposing to skip winter this year and round off pi to the nearest whole number.

'Liquidity' is an economist's word for more cash and credit. 'Inflation' is the word used to describe what happens to a currency when too much liquidity is made available. Central banks can control the quantity of the
money they emit, and by extension, its quality. What they cannot do is increase the quantity and the quality at the same time. Given a hard choice, they almost always give way to quantity and let the quality go to hell. The supply of currency increases; it is "inflated." Sooner or later, inflation of the money supply leads to the kind of inflation that voters recognize, an increase in consumer prices.

This second group, more skeptical than the first, and long gold, believes the Fed is neither as competent nor as determined to fight inflation as it pretends. It expects neither sorrow on the part of the Fed for all the inflation it has wrought, nor pity on all the poor householders who live on fixed budgets and low savings. The Fed may want to fight inflation, they say, but its hands are tied. The federal checkbook is overdrawn by some \$500 billion this year. In addition, the U.S. Treasury has a trillion-dollar mountain of short-term debt it must refinance in the months ahead. And then, there are the voters themselves, faced with rising interest rates, falling house values and \$2.7 trillion worth of adjustable rate mortgages that will be reset in the next 24 months. It's no wonder they want lower rates. Under these conditions, consumer price inflation should increase steadily, and the price of gold should climb.

Today's little reflection suggests that both groups - optimists and pessimists - are wrong. We begin and end by pointing out the obvious. The world may have too many dollars, but it also has too few. Central bankers' vaults, drug runners' pockets, and Wal-Mart's cash registers may be full of them, but there is another side of the ledger, too. Average Americans already are having trouble finding enough dollars to pay their bills. When the going gets tough, they may have even more trouble finding that elusive dollar.

According to the latest report from Charles Gave and Anatole Kaletsky, consumers did not cut spending in order to balance their household books. That is why spending has been so robust. It is up at a 5.1% annual rate in the first quarter. Cutting back expenses and saving money may have been the prudent thing to do, but it would not have been as much fun. And why bother? You save for a rainy day. But if the Fed is really as good as it thinks it is, you can throw away the umbrellas.

Instead of cutting back, they borrowed more - in dollars. These extra borrowings create what could be viewed as a massive short position in the U.S. currency. People must need more dollars than ever before, in order to service past loans as well as maintain their current living standards.

Gave/Kal write:

"The bottom line is that oil consumers around the world have decided to postpone as much as they could the moment of reckoning which the increase in oil prices should have triggered. They have decided to borrow dollars (or yens?) to buy oil. As a result, a number of countries are now not only short oil, but are increasingly short the dollar. This means that, slowly but surely, we are building a corner on the U.S. dollar similar to the one we built in the period from 1978 to 1980, or from 1995-97..."

Their conclusion: buy assets with cash flow denominated in U.S. dollars.

Consumers edged themselves into more debt rather than face up to declining spending power. Now they're in worse shape than ever. They have no room to maneuver. Unlike the Japanese, they cannot hunker down and wait out a recession; they have bills to pay! So has the Fed edged itself into a tight spot of its own. Armed to the teeth to fight inflation or deflation, it cannot fire a shot.

Over the horizon are the forces of inflation. Bernanke trains his guns on a 2% core rate as if he were Patton aiming at Metz. That there is no real enemy in front of him, no one bothers to mention. If inflation were a problem, speculators haven't noticed - they recently sold off commodities to buy the dollar! Nor is inflation given any support from wages; for most people, wages are going nowhere. Even gold, that ancient hedge against inflation, acts as if there were nothing to worry about; it rises no faster than base metal.

But what would the Fed do if inflation really were attacking? In the late '70s, Paul Volcker had to set the price of credit at 15% in order to bring stop inflation's advance, causing the worst recession since the 1930s. Members of Congress called for his resignation. Members of the public burned him in effigy. And that was before the country went on its borrowing binge. A 15% fed funds rate today is not impossible, but it would bankrupt 10 million people, and Ben Bernanke would have to flee for his life.

That is why real consumer price inflation, when it comes, will get little fight from the Fed.

While the Fed engages in mock battle with inflation, its real enemy takes the field hardly noticed. Here is where we part company with economists, kibitzers, and commentators on both sides of the argument. The naysayers argue that the Fed's inability to fight inflation guarantees a higher gold price. As Dan Denning puts it, "The fed has one way and one way only of coping with high consumer and government debt levels: it has to inflate." That may be, but it is not the fight against inflation that is likely to be lost first. When push comes to shove, the Fed will fall over. Just as it is unable to fight inflation, it is unable to fight deflation, too. It
has spiked its own guns.

Welcome to cruel irony. Welcome to sweet revenge. Welcome to Tokyo!

The risk of consumer price inflation is more consumer price inflation. People see the value of their currency dropping and rush to get rid of it. Prices rise even more. In the most spectacular case in modern history, in Weimar Germany, inflation got to such levels that employees insisted on being paid twice a day, and a man mailed his landlord his rent in the morning. By the time the letter arrived in the next day, the rent money was worth less than the stamp on the envelope.

But it is not consumer price inflation that the U.S. economy most has to fear, it is inflation in a more agreeable form: asset price inflation. Houses, in particular, have gone up. And the risk from this kind of
inflation is different; the risk is not more inflation, it is less inflation - or deflation. House prices have already begun to go down. Meanwhile, high energy costs are draining cash away from American consumers and toward strange and unfriendly places: Russia, Venezuela, and Saudi Arabia. The price of gasoline averaged \$2.34 per gallon in the first quarter of this year. Now, it is \$2.84. The demand for dollars is increasing, even as their intrinsic value goes down. But Bernanke still believes he is fighting the first kind of inflation, not the second. He trains his cannon on consumer price inflation, and makes noise. Kapow! Kaboom!

But out on the vast plain of Middle America, the flowers begin to wilt. Where will the money come from to pay the mortgage? How will the tank be filled? And by the time Ben Bernanke has his helicopters gassed up and loaded with twenties, it may be too late. The nation may already be in deflation's grip - like Japan in the '90s or America in the '30s - with declining property prices squeezing the juice out of consumer spending. If prices for houses fall, who will borrow to buy another one? How can the feds push their debt when the nation finally goes on the wagon? Why will people spend now, when they can get a better deal next month? Won't they finally get out their umbrellas when they see the clouds forming overhead?

A pullback by American consumers, caused by declining house prices, would put the whole world into the dryer. Liquidity would disappear. Even the hint of declining liquidity, given out a few weeks ago by central bankers
themselves, caused cracked lips and parched throats. Commodities fell 20% or more. Gold lost \$100. Emerging markets shook and quavered. Imagine what a real deflation would do! When the debt-soaked U.S. householder dries out, the whole world goes into a slump. Chinese factories would go quiet. The demand for raw materials would collapse. Unemployment would increase. Wage progress, feeble as it is, would go negative. Even the debt pushers would have to look for other work. Refinancings could turn brown and curl
up like an old leaf. Defaults and bankruptcies would soar. Gold, the ultimate safe haven, may be the only thing to go up. As for the dollar, it might fall in the currency markets, but still be in demand at home. Instead of finding themselves with too many dollars, Americans would find they had not enough.

Here's another take on this issue by Robert Prechter from Prechter's Market Perspective (an excerpt from the most recent Elliottwave Theorist):

The Only Advocates of a Deflation-Depression Scenario
6/30/2006 5:00:29 PM

You've heard of a false dichotomy - when someone gives you an either/or choice, but you know you have more than those two choices available to you. In the world of the economy, one of the choices we've been given lately is more like a false monochotomy - only one choice being given, as in, Is the economy facing inflation or inflation? Where's the discussion of deflation? It seems to be missing from most publications, particularly since a survey of five major daily newspapers in the month of May showed 165 references to inflation and zero mentions of deflation, as we noted in the June issue of The Elliott Wave Financial Forecast.

Well, Bob Prechter is not afraid to talk about deflation. In fact, he's one of the few who will. Here's an excerpt from the beginning of his most recent Elliott Wave Theorist.

* * * * *

A prominent deflationist throws in the towel. Another looks for "good deflation." Bears on commodities expect the economy and stock market to boom. Bears on the stock market and the economy expect gold and silver to soar. A flood of articles insists that the stock market is being "spooked by inflation" even as silver crashes 30 percent, gold 20 percent and copper 25 percent. The Fed agrees and vows to "fight inflation" with higher interest rates.

Economists are looking at lagging indicators such as gasoline prices and warning of more inflation to come. But rising commodity prices are typically the result of past inflation, not gauges of future inflation. The question is what the major event will be, and as far as I can tell Elliott Wave International is the only firm that houses analysts warning of an inevitable, full-scale, economically devastating deflation.

You can bet that when it is in full swing, dozens or hundreds of commentators will claim that they warned of deflation, and our voice will be lost in the clamor. But unless we've missed some important names somewhere, it appears that we were the only ones still making this case--strenuously--right through last month's top in the speculative complex and since. In fact, at the peak of the frenzy in April and May we were issuing sell signals on metals and the stock market. These were not our first, we readily confess, but neither are we capitulating to the force of the crowd. In fact, the opposite is true: the further the credit balloon inflates, the surer we are that it will pop.

For a long time there have been signs of an impending deflation. Now there are signs that deflation has arrived. Japan is leading the way. Its monetary base has fallen dramatically since the beginning of the year (15 percent in the past two months according to USA Today). Stock markets around the world have suddenly fallen 10 to 50 percent. Commodities that were soaring have reversed violently. Real estate is now in a "buyers' market," when there are buyers. The investment binges of the past three years are not the story; they are the precursor to the story. The big story is in the subtitle to Conquer the Crash--How To Survive and Prosper in the Coming Deflationary Depression. The biggest event that the history books will record is not the jumps in investment markets from 2003 to 2006 but the across-the-board collapse that is about to follow.

In 2004, Pete Kendall and I wrote an article for Barron's in which we argued that all investment markets had begun moving together, not contra-cyclically as they had in the past. We theorized that late in the credit and economic cycle, liquidity is the motor of all investment markets. We showed a graph of the major markets, including stocks, junk bonds and precious metals, and called them "all the same market." Of course, two years ago people thought that our claim was crazy because markets would have to be crazy to move all together. But markets are crazy, and predicting such events requires understanding that markets are impulsive and patterned, not rational, and that they go through similar expressions of the same cycle of psychology over and over. The extent and duration vary, but the essence is always the same.

The flip side of markets going up together is that when the reversal comes they all go down together. We have been predicting this event for way too long, but it finally seems to be upon us. The wild speculation supported by the expanding, inverted pyramid of credit is exhausted....

I read both guys regularly and they both have good insight. IMO, where they go off track is in overestimating the importance of the US economy in the whole scheme of things (commodity pricing). They neglect to comment on the major differences between the global economy of 2006 and the global economy of 1986 (mainly the incredible shift in wealth and power to Asia).
to add my two bits to this brutal dsicussion of Net Present Value calculations of Grandchildren:

We Must Preserve The Earth's Dwindling Resources For My Five Children

By Brenda Melford
June 28, 2006 | Issue 42*26

Credit to Matt at LATOC

Reading through the responses to this post, it is intensely disturbing to me to see so many people with a discomfort toward the concept of time discounting.

Would you rather receive your next meal in the next several hours, or have it delivered to the coffin of your starved carcass? Goods have a time value, first and foremost, because people do not live forever. Sorry to break the bad news.

Something short-term and consumable, such as a meal is altogether different than a permanent resource, like the farmland the meal was grown on.

Antoinetta III

My apologies for using an example which has apparently confused the point.

If people were eternal and imutable, you could reasonably argue that now is as good as later. As the condition is not satisfied, value will always have a time component (ie. discounting).

Anyone who feels uncomfortable with discounting, or is angry with the economic system for inventing such a distructive protocol, would do well to consider discounting in these terms.

Back to the tree cutting example, that was a great post. It has obviously gotten readers thinking about some important problems. What's missing from the original, and the 200+ comments, is the concept that an interest rate is not some mysterious, exogenous factor given to the economy. Instead, it is a price, determined on several margins, that balances supply and demand over time.
In particular, one of the determinants of real interest rates is the real yield on capital. Clearly, an equilibrium interest rate has to equal the yield on capital; otherwise, there are gains from trade that are not being realized.
Recognizing that productive capital lurks in the background of any discussion using interest rates, now consider the present value problem. The opportunity cost of holding an asset with a monetary value is the stream of earnings that could be received by purchasing a capital asset. Thus taking the present value of sequence of timber sales can be compared with the income produced by investing that present value in productive capital assets. Importantly, the future is NOT being shortchanged if one good (standing timber) is exhanged for another of equal or greater value (capital).
This line of argument is relevant for considering an exhaustible resource. If we use the resource (as its marginal cost rises over time) and accumulate productive capital, we can leave future generations with the ability to produce even higher levels of income than we now enjoy even though they will be using less and less of the scarce resource. That's why PO is not necessarily a catastrophe.
The market that determines the level of interest rates is one dominated by a single participant, the monetary authority.
Actually, the Fed directly determines only one interest rate, the overnight rate on bank reserves, by its actions that add to or subtract from the quantity of bank reserves. Longer-term interest rates are probably more meaningful for most private decisions. And longer-term rates are primarily influenced by factors other than the Fed. (You can see that the spread between your favorite long-term rate and the federal funds rate has varied tremendously over time.)
If the Fed holds the overnight rate too low, too many reserves are created, too much money chases too few goods, and inflation results.  Vice versa if the overnight rate is held too low.

This is a great comment! I want to amplify a bit because people may not understand the idea of productive capital. Basically this is anything that can produce useful goods. A forest really is productive capital, because it produces wood. Factories are productive capital. Even technologies are productive capital when they are realized as equipment and infrastructure.

Lowsmoke's point is that if the forest doesn't make economic sense to preserve, it's because there is an even more productive investment, one that produces even more valuable goods. Maybe for example we could take the funds from cutting the forest and invest them in a solar-cell manufacturing plant based on new technology - productive capital that could revolutionize our world and eventually free us from dependence on oil. If such investments exist, investments that provide a greater return than preserving the forest, it makes economic sense to give up the forest in order to gain the good with greater value.

Or, turning it around, preserving the forest means giving up something that would actually be of greater benefit and produce greater value. Here is where we run into the familiar economic paradox of "that which is seen and that which is not seen". Everyone sees the forest. But nobody sees what we give up to keep the forest, because it exists only in potentiality. Nobody sees the solar cell factory that is not being built because we kept the forest (say, due to legislation or regulation). There is a great constituency to advocate keeping what they can see, but few have the vision to push for things that cannot yet be seen.

This is another of the miracles of the free market, that it breaks through this barrier. Even if the forest owner has never heard of solar cell technology, he can still make the economically most valuable decision. The mere existence of highly productive investments like our hypothetical solar-cell factory will cause, via the mechanism Lowsmoke describes, an increase in interest rates. Lenders will expect higher rates because of the existence of investments that provide a greater return. And then, as Stuart ably shows in his analysis, these higher interest rates will increase the rate of clearing the forest. The money freed up will go into the most productive investments, like our factory.

In this way, resource owners who are motivated solely by profit end up redirecting society's resources into those investments that provide the greatest returns and the greatest benefits as a whole. Putting restrictions on resources for sentimental reasons like affection for forests has real costs in terms of lost opportunities. These costs are often invisible, as with our unbuilt solar cell factory, but very real nevertheless.

"...productive capital. Basically this is anything that can produce useful goods."

What are you going to produce without resources?

I'm against rent, because it is basically a tax on poverty. It gives the rich power over the poor. Only people with a lack of money need to pay rent, only people with excess money will receive it, in exchange for nothing. Rent will create capital without having produced anything.

More than a hundred years ago Henry George suggested that all taxes be replace by taxation on economic rent to eliminate it.

N.B. "economic rent" is a tricky concept, not to be digested quickly or easily.

So the fouler mess we make of our world, the better, because we will have given up real things of value for things we cannot see, which must therefore be more valuable.
What's missing in this forest experiment, is the value of money. It's no use getting the supposedly great interest rate, if the currency devaluates (as will be the case with the inflated USD).

As forests are cut down, wood becomes scarcer, and its longer term price goes up.
As USD are printed (with the paper from the wood), USD become too numerous, and their value goes down.
In the end, a wheelbarrow of USD does not buy an equivalent quantity of wood or forest.

And when the ecology is overwhelmed, people start to die.

The case could be made that the benefit of forest-cutting could be preserved in another rare natural asset, as a precious metal, but in an ecological catastrophy it is not sure either that the preserved gold or silver could buy back an equivalent quantity of wood or forestry. And, in doubt, the prudence principle is a valid strategy.

(As this thread is a bit old, I will also post this comment at the newer one started by Mike Hearn.)

Stuart, great job.  However, a key issue was overlooked, which is the nature of the monetary system which you are using.  You have to be aware that, unlike in physics, where measurement units are simple and completely defined, in economics/finance, money - one of whose functions is unit of account: a measure used to set prices and make economic calculations - has very different properties depending on the monetary system in place.

Below I'll try to show that:

1. The existence of a WIDELY available, RISK-FREE, interest bearing investment requires a "soft" monetary system.
2. For that investment to also yield a REAL positive interest rate, the economic system must be on the way up to Hubbert's Peak.

By "soft" monetary system ("funny money" in gold bugs' jargon) I mean one which is not PURE precious metals-based.  By that in turn I mean one in which circulation consists exclusively of bullion or at most of certificates thereof issued by "100% reserve" banks.

So, funny monetary systems comprise:

• the fractional gold standard, which was inherently unstable (because a fractional reserve banking system demands a lender of last resort and the gold standard prevents the existence of one), was suspended during any major upheaval (such as Napoleonic War, American Civil War, WWI) and was definitively abandoned during the Great Depression, and
• the fiat money system, both in its universally adopted fractional reserve banking flavor and in the theoretical-domain 100% reserve banking flavor (Simons 1934 and Fisher 1935).

Of note, the biblical prohibition of interest was issued when the monetary system in effect was pure precious metals-based.  And it applies to that system.  So it is legitimate to earn interest from the current funny money system.

To demonstrate the first point, let's assume we have a pure gold system.  How can some person or institution make a risk-free promise to anyone to pay them interest on the gold they initially lent (plus the principal at maturity)?  By one of two ways:

a. The borrower has the power to exact ever increasing quantities of gold from subject/victim populations, i.e. to forever expand its share of the total bullion stock.  Clearly that cannot last long.

b. If we assume the borrower's share of total bullion stocks to remain constant at most, which is plausible, then we need the total stock of monetary gold to grow exponentially at that rate or higher (which implies that the amount of gold mined each year must grow exponentially at the same rate too).  Actually, the cumulative gold production  did grow exponentially, only the rate was very low, as you can calculate from the data at page
http://www.gold-eagle.com/editorials_00/mbutler031900.html

Thus, the annual rate of growth of above-ground gold stocks was 0.11 % from 1200 BC to 600 BC and again from 300 BC to 500 AD (see the reason for the biblical prohibition of interest?), dropping to 0.05 % during the Middle Ages, to rise to 0.59 % during the XIX century and to 1.7 % on average during the XX century (actually it was 1.8 % 1900-1950, 1.6 % 1950-1975 and 1.5 % 1975-2000).  Adding silver to the picture changed the above percentages very little.

As said, the above figures provide the ceiling for the interest that could be offered by a risk-free investment if a pure gold standard had been in place.  BTW, 1.5 % leads to k = 1/67.  Of course, the correlation of higher rates with higher energy use in the XIX and XX centuries is no coincidence, as modern mining is very energy intensive, which also means that, after Hubbert's Peak (for oil and for precious metals), the annual growth rate is bound to get lower and lower.

In a fiat money system, on the other hand, the monetary stock can (and certainly does!) grow exponentially at any rate that suits the keepers of the printing press, so the government can promise beyond any risk to anybody to return them any nominal interest rate below that.

Now comes the second point: how do you insure that the nominal interest earned (plus the returned principal) allows the lender to buy more REAL goods and services than the principal initially allowed them to, in a fashion of a certain annual real rate?  By having the amount of available goods and services grow exponentially at a rate that fulfills:

(1 + yGR) = (1 + RIR) (1+MGR) / (1 + NIR)

where
yGR: real Net National Income Growth Rate (approx real GDP Growth Rate)
RIR: Real Interest Rate
MGR: Monetary stock Growth Rate
NIR: Nominal risk-free Interest Rate

Since MGR >= NIR as said above (to make the investment yielding NIR risk-free), it follows that the real GDP growth rate must be >= the real interest rate.

(BTW, the last condition holds for any monetary system, hard or soft, and it comes from the Fisher Equation of the Quantity Theory of Money, MV = Py, assuming constant V.)

The good news, then, is that after Hubbert's Peak, since real GDP Growth rates will become negative for a long time, so will real "risk-free" interest rates, and therefore there will be no financial incentive for clearcutting the forest.

As an aside, Colin Campbell has become increasingly aware of the financial and monetary implications of Peak Oil.  See:
The Dawn of the Second Half of the Age of Oil (Feb 2005)
Financial Consequences of Peak Oil (May 2005)
What is Money? (May 2006)