How Energy Crisis would affect the Global Economy?

Joseph Tainter made a study of collapsing societies in a book “The Collapse of Complex Societies”

Here is a review of the book by Chris Stolz..

Tainter’s project here is to articulate his grand unifying theory to explain the strange and disturbing fact that every complex civilisation the world has ever seen has collapsed.

Tainter first elegantly disposes of the usual theories of social decline (disappearance of natural resources, invasions of barbarians, etc). He then lays out his theory of decline: as societies become more complex, the costs of meeting new challenges increase, until there comes a point where extra resources devoted to meeting new challenges produce diminihsing and then negative returns. At this point, societies become less complex (they collapse into smaller societies). For Tainter, social problems are always (ultimately) a problem of recruiting enough energy to “fuel” the increasing social complexity which is necessary to solve ever-newer problems.

Complexity, writes Tainter, describes a variety of characteristics in a number of societies. SOm aspects of complexity include many differentiated social roles, a large class of administrators not involved in the production of primary resources, energy devoted to different kinds of communication, centralised government, etc. Societies become more complex in order to solve problems. Complexity, for Tainter, is quantifiable. Where, for example, the Cherokee natives of the U.S. had about 5,000 cultural artifacts (things ranging from recipes to tools to tents) which were integral to their culture, the Allied troops landing on the Normandy coast in 1944 had about 40,000.

Herein, however, lies the rub. Since, as Tainter writes, the “number of challenges with which the Universe can confront a society is, for practical purposes, infinite,” complex societies need to keep on increasing their level of complexity in order to survive new challenges. Tainter’s thesis is that these “investments in aditional complexity” produce fewer and fewer returns with time, until eventually society cannot muster enough energy to fuel complexity. At this point, society collapses.

Consider this example: A simple hunter-gatherer society with limited agriculture (i.e. garden plots) is faced with a problem, such as a seasonal drop in food production (or an invasion from its neighbours who have the same problem and are coming over for food). The bottom line is, this society faces an energy shortage. This society could respond to the food crisis by either voluntarily declining in numbers (die-off, and unlikely) or by increasing production. Most societies choose the latter. In order to increase production, this society will need to either expand territorially (invade somebody else)or increase agricultural production . In either case, this investment can pay off substantially in either increased access to already-produced food or increased food production.

But the hunter-gatheres of the above example incur costs as they try to solve their food-shortage problem. If they conquer their neighbours, they have to garrison those territories, thus raising the cost of government. If they start agriculture on a larger or more intense scale in their own territories, they have to create a new class of citizens to man the farms, distribute and store the grain, and guard it from animals and invaders. In either case, the increases in access to energy (food) are offset somewhat by the increased cost of social complexity.

But, as the society gets MORE complex to confront newer challenges, the returns on these increases in complexity diminish. Eventually, the costs of maintaining garrisons (as the Romans found) is so high that both home and occupied populations revolt, and welcome the invaders with their simpler way of life and their lower taxes. Or, agricultural challenges (a massive drought, or degradation of soils) are so great that the society cannot muster the energy reserves to deal with them.

Tainter’s book examines the Mayan, Chacoan and Roman collapses in terms of his theory of diminishing marginal returns on investments in complexity. This is the fascinating part of the book; the disturbing sections are Chapter Four and the final chapter. In Chapter 4, Tainter musters a massive array of statistics that show that modern society has been facing diminishing returns on investments in complexity. There is a very simple reason for this: we solve the easiest problems first. Take oil, for example. In 1950, spending the energy equivalent of one barrel of oil in searching for more oil yielded 100 barrels in discovered oil. In 2004, the world’s five largest energy companies found less oil energy than they expended in looking for that energy. The per-dollar return on R&D investment has dropped for fifty years. In education, additional investments in programs, technology etc. no longer produce increases in outcomes. In short, industrial society is looking at steadily fewer returns on its investments in both non-human and human capital.

When a new challenge comes, Tainter argues, society will eventually be unable to muster the necessary resources to deal with the crisis, and will revert– in a painful and unhappy way– to a much simpler way of life.

In his final chapter, Tainter describes the modern world’s “arms race of complexity” and makes some uncomfortable suggestions about our own future. (…). In an age where, for example, the U.S. invasion of Iraq has yielded net negative returns on investment even for the invaders (where’s that cheap oil?), and where additional investments in education and health care in industrialised countries make no significant increases in outcomes, the historical focus of Tainter’s work starts to become eerily prescient.

The scary thing about this deeply thoughtful and thoroughly researched book is its contention that the future, for all our knowledge and technology, might be an awful lot like the past.

My modification of Tainters collapse includes the folly of simple substitution. We had cheap oil for 16 years because we substituted NG for oil in a lot of use cases this had two effects it kept prices low but it also ensured that remaining demand for oil was in a market with no easy substitution. I like to think of it as a compression phenomena like a spring we causes a compression with this event and thus the markets became inelastic. Where we substituted for oil electric generation etc NG became critical and oil became critical for transportation. But the reward was lower prices.

Next you set up a parallel depletion path i.e your depleting two resources and in time with population growth oil demand reached and surpassed the peaks of the 1980’s. In addition NG demand increased dramatically.

Finally you hit the real Tainters collapse situation not from outright depletion but because we now need NG in the trasportation industry to help with substitution of heavy sour crudes for light sweet crudes but the previous round of substitution has eliminated this as a source.

Coal is no different we did the same thing substituting coal where NG or oil where too expensive. The current markets for coal need coal and demand is inelastic. Trying to things like CTL simply drives up the cost of coal.

Now here is the important part our society is dependent now on all three resources coal/NG/Oil and they are used in large amounts in critical areas. You cannot take from one of these sources without increasing prices this price increase is eventually passed on lowering consumer purchasing power.

You have zero net new money or GDP created. You simply shifted the expense from your gasoline bill to your electric bill. At first this might be a nominal win but eventually you reach price parity.

A perfect example of this is corn ethanol. Initially at least it nominally saved you money but it eventually drove up both NG and food prices and now your paying out more then if you had never done corn ethanol.

We are out of free lunches we have eaten it all.

Even a move to electric rails or electric cars is not free since it limits the area accessible by high speed transport. With gasoline powered cars you get a general rise in property values across a broad area while a electric transportation system favors denser population areas. You get a exponential drop off in desirability as you move away from the rail system. Even adding a EV commute plus rail does not help since your total commute times are significantly longer then driving a gasoline powered car. Also of course roads are horribly expensive and maintaining them for a few EV’s when most people are using rail does not make sense.
The point is even this solution cannot keep property values from falling exponentially as you leave the rail lines. The changing desirability pattern alone makes it obvious that you would see significant deviations from the current pattern.

And of course all the various robbing Peter to pay Paul conversions generally result in higher costs anyway so purchasing power is going down. And its going down anyway because of resource depletion.

Bottom line no matter how you work this for the next several decades each succeeding generation will have less money to spend then the preceding generation. This will continue until we move to electric transport and renewable or long lasting (nuclear) electric supplies.

Once you are in the situation that the next generation can afford less debt then the proceeding one the party is over. You cannot take on a 30 year loan for a house expecting that in 10 years someone can pay you what you payed plus inflation etc. Your interest is not covered nor your principal payments.

You can’t pay 20k for a car then 5 years later all a smaller amount of people can afford are 10k cars so new cars cost 10k your car you just paid off with interest is worth 1-2k.

Same for credit card debt

Same for companies their energy costs go up each year and the eventual consumers purchasing power goes down each year.

Bottom line is our current economic system is dysfunctional and it should be obvious to everyone that its already dysfunctional. It cannot be saved by any known technology. The wedge to scale up a new technology and its costs coupled with increasing existing costs simply reduce purchasing power of consumers.

This is another important point substitution works only if it results in lower overall costs in the short run if your goal is to maintain the status quo or business as usual.

I argue that a transformation back to rail if you factor in the losses in property value and the direct costs does not meet this criteria so we won’t do it without pain and we cannot do it fast enough without a national mandate to prevent current transportation costs from increasing while we transform.

Bottom line is we are going to lose a tremendous amount of money in fact we are basically going to lose everything we spent 70 years building and restart our economies from a level similar to that of the 1930’s.

It will be 30 years at least before real GPD growth returns and it will be done in ways that are low energy.

And finally we cannot make this transformation without having to deal with the population problem.
Its pretty clear that if the average Americans wealth is reduced to the level of his grandfather that
the level of wealth in the poor countries is effectively zero.

This can be seen simply because once Americans are spending most of their incomes on necessitates they don’t need most of the products currently sold via world trade or most cannot afford them. These export economies don’t have in general a large enough internal economy to localize without tremendous hardship.

But the sooner we recognize that we need to write off our current style of living and convert to electric rail the sooner we can get back to having functional economies and more important by not burning up the last of our fossil fuels trying to transform without pain we may have enough to help the third world transition without undue loss of life. Population can and must decline but it can be done gradually with dignity.

We can feed our current population and if we create human policies that encourage slowing and reversing population growth then we can do better overtime.

I’m not saying life would be great in these third world countries it won’t be good in the first world but its possible if we act decisively and quickly to convert to reduce the suffering by orders of magnitude.

Pussy footing around talking about EV’s and ways to keep our current dead end economic system going simply condemns millions and maybe billions of people to death. The chances of keeping a stable society anywhere on earth under those conditions is zero.

- by memmel