Thursday, September 23, 2010

How do we really know collapse is immanent?

Aeldric has done a great post over at the Australia/New Zealand Oil Drum entitled The Networking of Resource Production: Do the Networks Give us Warnings when They are About to Fail? which goes straight to the heart of the problem I have: how can you tell in an unambiguous way that the system we are living in is approaching collapse? After all our human culture is full of legends of The End, replete with prophetic dreams, visions and revelations. If they line up with reality they get incorporated in legend and religious tradition. If they fail, which is vastly more frequent, they make page four in the newspaper under the "Quaint-goings-on-in-some-nutcase-cult" section: something a sharp student doing their Masters in psychology could use as a good subject for a thesis.

As an ordinary member of Industrial Society, what information do I have leading me to say a crash is immanent? What does an ordinary person "see" in their day-to-day existence which allows them to make these kinds of judgments? All of us have networks flowing through our lives but no-one can easily "see" these networks from start to finish or how they may relate to one another. We may understand our little bit very well and have a clear idea what is right and wrong with it. Our appreciation of other people's part is necessarily vaguer and tends to be tinged with the natural human suspicion that "others" are not as competent or hard-working as we and our colleagues. To quote from a comment Aeldric added to the discussion of the above post:
This is not helped by the fact that the problem is hidden by complexity. The people who say "We have plenty of resource X" are not just saying this to inflate the share price - they truly believe it. From their perspective, it is true.

The reason that low-quality reserves of resource X will never be extracted is only obvious when you look at the overall system.

Unfortunately, each entity only looks at their own area, the overall matrix in which we operate is treated as a "black box" that supplies our needs just as long as we continue to play our part. This faith in the system has worked thus far, but it is misplaced - we need to look at the overall system.
Add to that the seemingly exponential increase in complexity when doing anything (My wife and I are building a house and the planning requirements have two extra levels to surmount from the time I built my first: bushfire rating and energy rating which is part of a large engineering bill I didn't have before) and you have a world where everything seems micro-managed for efficiency and effectiveness, yet is all too complex for the ordinary person to control or understand more than a tiny part of their own life.

This situation is also governed by a time factor and a certain perception of "rightness". By "rightness" I mean that in Australia (at least for now!) there is a quite strong sense that we live in the best of all possible worlds, that everything is getting better and better incrementally, year on year, and the time factor means that even big changes often happen imperceptibly. So we have much better cars and sound systems, better roads, cheap international travel and the Internet which we can feel good about, while not noticing how much more difficult it is to buy a house and support a family than it was thirty years ago. We can be lulled by shiny novelties trickling into our lives while seeing our problems making our way in the world a lot of the time as "personal": that is, governed by our individual failings in a complex world where we are constantly struggling to find a role for ourselves. And strangely enough, this perception of struggle to be or at least appear competent increases amongst the more highly educated! As Jim Kunstler remarked in some context I now forget, if you go into any room full of educated people you can bet 90% feel that they are frauds.

Those of us who do want to understand the bigger picture must necessarily depend on abstract knowledge, of which we as a culture have a lot, but which in its sheer voluminousness and the difficulty in assessing its relevance poses yet another challenge. You can hardly blame the uneducated or moderately stupid for plunging headlong into dogma and cultishness which promise a shortcut to true knowledge, usually in the hands of a dubious leadership. Add to this the fact that certain professions such as economics suffer from alarming delusions and are just plain wrong in their very basis and it is little wonder that true knowledge of our real situation is limited to a very few. And even the knowledge of these few is very incomplete!

This is another reason why a political solution is simply not possible. Without the goodwill of a large proportion of the population no political party can push through a program which can address what is coming down the line towards us. And if only the tiniest minority of the population understands what is happening, how can that support appear?

Nevertheless there are people working on the problem in a rigorous and as far as possible, scientific way, so you can get reasonable quality information on what's happening. The problem is here that the phenomenon we are looking at is part of complex systems theory and therefore very difficult to quantify. So we depend on clever simplifications such as that posed by Aeldric in the article on The Oil Drum. But we still have to rely partly on less rigorous methods: "gut feelings" and intuitions which are very difficult to prove or even demonstrate to someone else. One of my favorite commenters on The Oil Drum is memmel but he drives some of the other regulars crazy, because his writing style is dyslexic and his ideas while having the ring of truth sound like a shorthand grab from a much more rigorous theorem which he never gives footnotes for. Here's an excerpt from his first comment:
I'd like to add what I came up with as the warning signal of collapse of a complex system in particular ours.
You have outline the overt signals but whats missing is what the system itself does to counteract the situation.
Indeed to the point that it obfuscates its real state.

What I believe starts to happen is the system plays whats basically a grand game of musical chairs. Its no longer capable of any real growth yet its forced to fake it.

A simple example is every job in Mexico or China results in the loss of a job in the US with a dramatic reduction in costs. No new job is created yet profit margins go up. For this to work obviously demand has to remain robust for the product of the job. Rising debt loads allow this to take place. In a real expanding economy wages would have risen rapidly in Mexico and China as they demanded they purchased the goods they where making. The wage arbitrage would have dissipated rapidly.

The same of course works for resources as well as labor the economy shifts to increase profit margins as constraints arise. Its a complex system thus a tremendous amount of shifting around is possible.

It becomes difficult to discern that its really just running around in circles and nothing is happening indeed only the explosion of debt really shows the underlying system has peaked.

As you note eventually everything becomes correlated with money and thus the final signal is in the financial arena. And its pretty simple its debt.

Next its worse than that really by the time the debt load grows to horrendous levels the system is well past its peak. This is because a lot of the debt was issued based on equity valuations supported by the previous debt expansion. Ever cheaper debt aka credit serves to support previous valuation rounds making new debt safe to issue.

So given that eventually everything gets correlated with money the signal that the system is now unstable is easy to see its debt. To understand how the system can pull off such a situation you need to look into this game of musical chairs or circular economics which eventually results in trading partners allowing debt to balloon.
Everyone has to reap real benefits even as the debt bubble expands. If now it won't expand.
This is done by allowing gains to be made on each individual transaction. Eventually of course it ends with central banks forced to carry tremendous amounts of debt in one form or another. The profits are of course skimmed off and the debt load is socialized.

On can actually construct a small variant of this. Consider a village where everyone works to build houses for each other. As each villager gets his house built by the village he owes the village for the house. Assume that resources are constrained and each house costs more than the last all paid for via credit back to the village which acts as the bank. Eventually the last house is built and its ten times the cost of the first house and the village owes itself immense sums of money as notational credit. Indeed many of the villagers that had their house built first are notational multimillionaires. Then what?
Do you see what I mean? Personally I love his comments because his intuitions have for me a ring of truth but I can understand people finding them repellent. But if we try to be more rigorous, dotting the "i"s and crossing the "t"s we end up with this, quoted from an article available here (warning, it's a pdf):
The theoretical basis of the work on early-warning signals in simple models is quite strong, and the first results from more elaborate models suggest that similar signals may arise in highly complex systems (23). Nonetheless, more work is needed to find out how robust these signals are in situations in which spatial complexity, chaos and stochastic perturbations govern the dynamics. Also, detection of the patterns in real data is challenging and may lead to false positive results as well as false negatives. False negatives are situations in which a sudden transition occurred but no early-warning signals could be detected in the behaviour before the shift. This can happen for different reasons. One possibility is that the sudden shift in the system was not preceded by a gradual approach to a threshold. For instance, it may have remained at the same distance from the bifurcation point, but been driven to another stable state by a rare extreme event. Also, a shift that is simply due to a fast and permanent change of external conditions (Box 1 Figure a) cannot be detected from early-warning signals.
And so on for many more qualifying paragraphs. I think memmel is easier!

In the end we have to make decisions about our lives based on hunches and intuitions as much as anything. It doesn't hurt to have some solid theoretical backup but that can be wrong too! I guess my gut feeling is that a collapse of the US economy is not far off: maybe one or two years. How that will play out in Australia is much more difficult to say as we are tied very closely to the Chinese and Japanese economies and how they will fair is open to question, seeing both are very export oriented at a time when the importing economies, namely the USA and the Eurozone are wobbling badly. And as at my public lecture in October 2008, I stated Australia was importing 1/3 of its oil needs and that proportion has remained the same (choose Australia from the drop-down menu to display).

Monday, September 20, 2010

Right actions, right thoughts

What is right action for us doom-and-gloomers? I'm caught up in our local Transition Town group. Sure, it's what some people want and it gives us members mutual support, plus we may be getting a big community garden and orchard going at the bottom of the town. But I have mixed feelings about, it in the sense that I can't see it being The Whole Answer to the problems coming towards us and I'm still copping it as well from a few people, accused of being too negative in a more general sense.

I guess my last post on the Aussie housing bubble was guaranteed to upset a lot of folk and was a typical snarky comment on things as they are now — I admit it was negative although I think it was a necessary corrective. But I think it's a good time to give a background on what I think is right action, which must first of all spring from right thoughts. And this implies a lot of what is going on amongst the chattering classes is wrong thoughts leading to wrong actions.

Why can't we just save the world by recycling plastic, buying an electric car and growing our own vegies? Why can't we do all this while making politicians pass good laws restricting pollution, exploitation and simultaneously saving the whales, while working for strong international covenants to stop those developing economies making things worse by letting their big populations to buy in to the consumer dream?

This is what I'd label the standard left-wing program save-the-world program.

The standard right-wing save-the-world program is a little different but we need to mention it too. The world is fine as long as I and my significant others are doing well! Those pesky foreigners trying to grab our stuff? Nuke 'em! Drug addicts? Kill 'em all — except for my son of course, for whom I've just paid thousands to spring from a prison in India after he was caught trying to smuggle some ganga back to Australia. The Chinese are all sub-human — except for George, with whom I go to watch Collingwood playing each week. And all these pollution laws — an evil impost on business! Except for the ones which stop the spraying of pesticides in those areas where our honey producing subsidiary has seen profits cave in over the past few years.

The right-wing is easy to mock: after all, these types always depend upon the left-wingers working for them to keep the show on the road. It's only on a few points that they can stick to their convictions. This also leads on to another not-much-mentioned paradox (to be discussed some other time): how come left-wingers and right-wingers end up building very similar societies?

But I'm more interested in the illusions of the left because they underpin a lot of what goes on in politics. Why can't we legislate to fix our problems with Peak Oil/Climate Change? Surely if everyone made a big effort to conserve, we wouldn't have a problem — right? We could all drive a Toyota Prius and presto! This is where the explanation gets tricky because it's counter-intuitive. When we make more efficient use of a resource it simply makes it available to more people, so consumption rises rather than falls. This is known as Jevons Paradox. This only applies to increases in technical efficiency of course — it's still possible to tax or otherwise restrict the availability of say, oil, in order to reduce its use. But can we restrict our use in Australia and tell the Chinese and the Indians they can't use it too? Of course you can run on and imagine some United Nations action that might force the nations of the world to restrict consumption if you put aside how utterly unlikely this is. But if it were possible, would this solve the problem of Peak Oil and carbon dioxide induced climate change? How could it, when at best, it might slow down (slightly), the rate of use of oil and coal, but the oil and coal would still get used anyway, just over a few more decades and it is still unrenewable and still adds CO2 to the atmosphere.

The fact is, the toothpaste is out of the tube. We (by which I mean the human race) will go on using oil until we can't — same with coal. You may swear off it (as far as you can, given that everything we use in day to day life has a fossil fuel component) but in the end it will all get used up anyway, irrespective of your decisions. So what if it takes fifty years longer to disappear, than if we continue to fly like mad moths around the planet? The effect will be virtually the same. Electric cars? Where does the electricity come from? From solar panels you say? How much embodied energy do they contain? You see, there is no escape. We can't have a complex industrial civilisation based on extracting sunshine from cucumbers to quote Jonathan Swift . We may entertain fantasies of a world where doves alight on the shoulders of young people dancing round the maypole at harvest time in Kabul, as well as in Korumburra, before everyone jumps on their bicycles to go back to the town hall for an election of councilors followed by a hoedown to a string band, but let's not confuse ourselves even further with these idle fantasies.

Of course it — that is, industrial civilisation — will end, and maybe quite soon. Nature will impose upon us the discipline we can't impose on ourselves. Our problem is not to save the World, but to save ourselves. By all means aim for a low carbon lifestyle, because pretty soon we will be living one anyway whether our politics is anarcho-syndicalist or slightly to the right of Ghengis Khan. Our issues will revolve around dealing with the consequences of a declining world industrial civilisation, not fixing its underpinnings.

The Heroic Materialist project is over, for all kinds of reasons. For a start, capital in the form of debt is in the process of vanishing, which is rushing us towards an economic collapse after which large-scale capital intensive projects will simply be impossible. Want to solve the energy crisis by building a nuclear fusion power station? Sure, hold a few fundraisers in your town and build one at the end of your street. Because that is about the level of economic co-operation we can expect to see in the future. The only projects which get done will be on a small scale, except in countries which can't maintain security, where we can expect large scale marauding warlord lead armies who will swiftly reduce the territories they prey upon to sparsely populated wastelands in any case.

I don't expect anything like that in Australia. We may have quite serious civil conflict if the industrial system's dispossessed citizens are victimised —always a possibility when a narrow, suspicious world-view amongst the elites replaces the boundless optimism of a time of growth. But a collapse of society I don't foresee. Instead I see the gloomy crumbling of individuals who are unprepared for the changes we are going to have to face, to be a followed by a new generation who accept the world they find as a given and get on with inventing their lives and their own goals and meanings. Some will be happy, some unhappy, but it was ever thus. Our task as the transitional generation is to smooth the way, cutting the suffering which will be inevitable while making the way clear for the next generation to find their own direction.

This will mean letting go of inappropriate dreams and plans as much as anything — at a federal level, dreams such as turning Afghanistan into suburbia and building the high speed rail link down the eastern seaboard of Australia. At the state level, we need to stop pretending we can go on living in our cities as if consumables such as oil, water and electricity are in infinite supply. And at the personal level, fantasies of a leisured retirement with overseas cruises will be snatched away.

On the other hand we will have a return of the natural world, which will no longer be under the extreme pressure industrial civilisation has been placing on it. We will eat more healthy food, get more exercise and use our wits to build viable communities rather than manipulate symbols on screens. Our lives will be in our hands, not those of "experts". For a short period, until a new system solidifies (as they always do), the world will be ours to mould in the image we think best.

Tuesday, September 14, 2010

Cruising along in our Aussie cloud of unknowing

Ah, Australian exceptionalism! Could there ever be a more persistent yet fragile weed? Will a cold winter wind ever arise breaking those delicate fronds? Or will it be the relentless heat of summer which shrivels them to wisps of brown? No doubt we shall find out in due course.

In the meantime those guardians of our prosperity, the banks, are hard at work spreading the Love. Consider this, from, which tells of yet more loosening of the purse strings helping feed our insane housing bubble (Bubble? It's demand lead isn't it? Another example of just how blessed, virtuous and better than everywhere else this great country is! Everyone wants to live here! In our endless good-news Aussie paradise!).

And these august Aussie banks, bastions of goodness and competence, would never, never tell fibs would they? Well, that mean man Steve Keen thinks they do. Have a look at what his digging has found out here about what the Commonwealth Bank has cooked up to suck in those overseas investors.

How thin our world view really is. Just because 95% of the population believes a particular delusion (witchcraft, the Earth being flat, endless rising real estate value) doesn't make it any truer. It just makes the bust when it comes that much more miserable.

Oh, check out Mish's take on it too.

Edit: David Llewellyn-Smith at Henry Thornton's pulls apart the Commonwealth's scheme even further. He also links to this blast in The Australian's business section. And Steve Keen weighs in again here.