Musings Report #31 8-4-13 The Limits of "Growth" and Growth
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A Note of Apology
The period July 15 - August 18 is a rare confluence of pressing duties and projects that have put me in survival mode. I have no time to respond to emails, I can barely post something quick on the blog and read my email before dashing off to real-world tasks. My apologies for the constraints and silence imposed by this workload. This is the trade-off of being self-employed and operating multiple enterprises: the ability to schedule time to write books depends on doing double work as required.
The Limits of "Growth" and Growth
The endless growth of consumption is the foundation of our economy and way of life. Consuming more is not just presumed to better life; it is essential to fueling the economy and rising prosperity. In other words, a decline in consumption is a double heresy, for not only does it imply a reduction in the standard of living, it means the economy slumps into contraction/recession.
Consumption is easy to understand: we consume it, it's gone: oil, for example. In some cases, the product can be recycled (with an input of energy) into new products, for example, steel and aluminium. In other cases, what we consume is renewed, as long as we haven't destroyed the ecosystem that gives rise to the renewable resource: forests and fish, for example. If we destroy the habitat or ecosystem, then the consumption is final: it's gone for good.
Theoretically, renewable resources like wood, ocean fish, fresh water, solar, tidal, wind and geothermal energy do not run out. In practice, what matters is the rate of renewal versus the rate of consumption. If we consume the resource at a faster rate than the renew-rate, we will exhaust what was renewable at a lower rate of consumption. Fresh-water aquifers are a good example of this principle.
The scale of things also matters. Renewable energy makes up about 3% of all energy consumed in the U.S. It will take a long time at current trends to reach even 10% alt energy, much less 30%.
This brings us to the Limits of "Growth"--the quotes indicate that I mean the growth of consumption, as opposed to growth as expansion. Our knowledge can grow, for example, as can our self-attainment, with little consumed in the process.
The seminal book The Limits of Growth (1972) extrapolated the growth of consumption and concluded the world would soon run into resource limits, i.e. the supply of stuff to consume would eventually limit our extraction and consumption of those resources.
This would doom the current version of Global Capitalism 1.0, which is based on ever-rising consumption.
Ironically, perhaps, the discovery of the planet's last supergiant conventional-oil fields extended the lifespan of Global Capitalism 1.0 by about forty years. Now that the output from these fields is declining, new technologies are enabling the extraction of unconventional oil. From an energy standpoint, there is nothing standing in the way of higher energy consumption other than cost.
Unconventional oil is not cheap to locate, extract or refine. This means it uses more energy (and thus money) to get it out of the ground and into a useful form. What's been consumed is the cheap oil. Replacing oil with coal and natural gas has built-in costs (liquefying solids or gas).
But the most rudimentary conservation efforts--the truly low-hanging fruit--allow the economy to produce the same value of goods and services with less energy. So higher costs for energy are not unbearable as long as the percentage of energy consumed to make goods and services keeps declining.
So what limits to "growth" still matter? Fresh water, for one; it can be supplemented by desalination of seawater, but this consumes a staggering quantity of energy, so there are limits on desalination.
Many ocean fisheries are in collapse due to ocean fishing. Unlimited money and energy have enabled this stripmining of the seas. Aquaculture can replace some part of the harvest, but aquaculture generates unintended consequences such as pollution and degradation of the wild fisheries' gene pool.
Unless biotechnology generates a scalable alternative to potash and oil-based fertilizers, there may be hard limits on mass-scale fertilizer-dependent agriculture.
But let's assume all these physical limits can be surmounted or substitutes found by new technologies. There is still a limit on growth of consumption: paid work.
Consuming takes money, of course. The foundation of Global Capitalism 1.0 (and all previous versions) is that the surplus reaped by the extraction and processing of resources (that are then turned into goods and services) is distributed via wages, i.e. paid work.
The rise of software, robotics and networked machine intelligence are fast eroding the need for human labor to generate economically valuable work.
Machines have been displacing human labor since the 1800s, and new demands for human labor arose to absorb the surplus of workers. The largest employment sector in 1900, for example, was domestic service: maids, manservants, etc. As mechanizing agriculture required less human labor, people were hired by the expanding upper-middle class to take care of homes that grew larger and more complex.
Nowadays, the largest sectors are service: retail, restaurant/leisure, healthcare, etc. It has been presumed that both low-skill and high-skill services are impervious to the sort of mechanization which radically reduced human labor in agriculture and manufacturing. But digital technologies are moving up and down the labor food chain, replacing low-skill workers in low-margin industries and high-skilled labor in high-margin sectors.
Whatever work can be traded (i.e. done anywhere) is being outsourced to locales with much cheaper labor costs.
These trends are visible in the U.S., where full-time employment is eroding in favor of part-time and flextime jobs. In Europe, structural unemployment is rising: there are not enough jobs for everyone who needs one to access "the good life" of rising consumption.
For a variety of reasons (urbanization, healthcare costs, etc.), the cost of human labor is rising everywhere. This includes China. The solution to higher labor costs has been to move production to places with lower labor costs, but at some point it's cheaper to simply automate the production and dispense with all the uncertainties and costs associated with moving production around the world. The exception is work that can be transferred overseas for essentially free, i.e. the minimal cost of digitally transmitting the input and output.
The structurally high cost of labor inhibits the expansion of labor-intensive sectors. Since it costs about $25-30,000 a year to legally hire a domestic worker paid minimum wage, very few households can afford domestics.
If there is any possible way to automate or mechanize the work, it's cheaper to do that rather than hire a costly (and potentially troublesome) human worker. This is why author Jeremy Rifkin declared "the end of work." Even if there are few visible limits on resources to consume, there are limits on the model of distributing surplus via wages.
Eventually this will require a new method of providing meaning and the means to survive. We can create make-work jobs (for example, requiring all gasoline be pumped by a paid worker rather than customers), but this isn't actually making best use of available labor--it's taxing a service and distributing the taxes to make-work laborers. This is one solution, but eventually it runs into the taxable income limit: as the number of full-time people paid enough to pay substantial taxes declines, the surplus that can be skimmed off labor declines, too.
Paying people for make-work is a waste not just of their labor but of the surplus generated by the economy. We need a new conceptual framework other than market-based paid work, and I suspect that such a concept will be based on distinguishing between the ever-higher-cost "growth" of consumption and other forms of growth that consume very little. These would be intrinsically less costly and less consumer-driven. What would cause such a system to arise? That's a topic for a future Musings.
Market Musings
The U.S. stock markets hit new highs, and as per last week's Musings, it seems the S&P 500 exceeded the round-number 1700 as expected. The bull market is historically long in tooth, so it's not terribly compelling to bet on more gains heading into Sept/Oct, nor is betting for a major decline all that attractive until there is some persuasive technical evidence that the multi-year uptrend is topping out.
The trends that defined the year so far--the fall of the yen and the rise of the Japanese Nikkei stock index, the long decline and potential bottoming in gold/silver, the slow ascent of the price of oil, rising U.S. corporate profits while sales stagnate, the calming of Eurozone crises, the slowing of China--seem to have largely run their courses. What trends will dominate the remaining five months of the year are not yet visible, at least to me.
In short, cash is a position if there are no compelling trades in sight.
The best thing that happened to me this week
Though I risk being pie-centric here, the peach pie was the best thing that happened--sharing the bounty was fun, and the product (the pie) was delicious.
From Left Field
Energy Products: Return on Investment Is Already Too Low (via John D.) "our economy’s overall energy return on investment is already too low to maintain the economic system we are accustomed to."
China behind the hype: Revenge of the Mistresses (via Steve K.) "When I visited China in September, I wrote that I heard a new meme from Chinese businesspeople whom I met: 'Make your money and get out.' More than ever, I heard a lack of confidence in the Chinese economic model."
"Nothing in this world undermines financial judgement more than the sight of your neighbor getting rich." attributed to J.P. Morgan, 1907
Thanks for reading--
charles
