charles hugh smith-Up Against Hard Limits: Food and Finance

In the first 25 years after World War II (1946-1970), an abundance of cheap oil and plentiful opportunities (low-hanging fruit) for global development led to rapid urbanization and economic growth in much of the world. As oil became more expensive and the demands for more resources by an expanding middle class rose, limits on available resources became visible. These were explored in the famous Club of Rome report, Limits to Growth (original 1972 paperback); Limits to Growth: The 30-Year Update (2004).

For roughly forty years (since the report was published in 1972), technology has pulled one magic rabbit after another out of the hat, making a mockery of the claims that there were limits on consumption and resource extraction: the green revolution and fossil-fuel fertilizers expanded food production, new supergiant oil fields and improved drilling technologies opened up vast new energy reserves, and improved technologies led to more efficient use of resources.

The success of the past four decades in pushing back looming limits has created a widespread confidence that technology can solve any apparent limits. For example, if the seas have been stripped of fish, then aquaculture will fill the desire for fresh fish. Presto-magico.

But what if the technological improvements are entering a terminal phase of diminishing returns? What if the "solutions" don't really replace what has been destroyed? For example, the ecology of the open ocean is not restored by aquaculture; rather, it is further harmed by poor aquaculture practices.

The analogy is cutting down a rain forest, which is a diverse habitat for a variety of life, and replacing it with a monoculture tree farm. Economically, the tree farm may appear superficially to have the same "value" as the forest, but this reveals the poverty of our economic models that only value what can be commoditized for human consumption in the global marketplace.

Everything that doesn't fit that definition is discounted as worthless--for example, the air in Beijing. Since it can't be monopolized, marketed and sold, it is not valued. the external cost of millions of cases of lung cancer are not included in the "cost of production."

Crops still need water and healthy soil; no amount of GMO magic or fertilizer can replace water and soil. It certainly seems the planet may be pushing up against hard limits in food production.

I see the same complacent confidence in global finance: it is widely assumed that the world's central banks can create money and credit with abandon and manipulate currencies and stock/bond markets, with no limit on their activities and no consequences that escape their control.

It seems "impossible" there could hard financial limits when credit creation is unlimited, and the central banks' ability to manipulate and control global markets also appears unlimited. But it seems to me that there is a financial ecosystem that is an analog of a natural ecosystem, and therefore there are analogous hard limits on financial engineering. That these limits are not yet visible does not mean they don't exist.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy
Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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