Phil's Blog

And another...

Jean-Philippe Bouchaud, writing in this week's Nature:

"So many accepted ideas have been proven wrong in the history of physics that physicists have grown to be critical and queasy about their own models.

Unfortunately, such healthy scientific revolutions have not yet taken hold in economics, where ideas have solidified into dogmas. These are perpetuated through the education system: students don't question formulas they can use without thinking. Although numerous physicists have been recruited by financial institutions over the past few decades, they seem to have forgotten the methodology of the natural sciences as they absorbed and regurgitated the existing economic lore.

The supposed omniscience and perfect efficacy of a free market stems from economic work done in the 1950s and 1960s, which with hindsight looks more like propaganda against communism than plausible science. In reality, markets are not efficient, humans tend to be over-focused in the short-term and blind in the long-term, and errors get amplified, ultimately leading to collective irrationality, panic and crashes. Free markets are wild markets."

Ilargi once more:

"And if you were thinking about coming up with arguments about free market capitalism, you need to realize that it no longer exists, it is a dead economic model, certainly in the US. It will never come back either. For that matter, the entire growth model is dead. Let's celebrate that. Perpetual growth is a dumb principle to use as a foundation on which to organize your society. It's not even an economic model, it's a ridiculous form of fringe religion. A sect. And all its proponenets should be forced to answer the question whether they think the laws of their religion trump the laws of physics.

Any religion based on the hope of a better life tomorrow, no matter how contorted, will attract followers, and speaking out against growth is a blasphemy in the eyes of the priests and flock of the world's largest congregation, far bigger than Christianity."

James K. Galbraith interviewed in the New York Times:

What does that say about the field of economics, which claims to be a science?

It’s an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

I think we've all got the idea now.

Economics as we know it is a dogmatic, pseudo-scientific religion and nothing more.

How scary is that?

Why did we all rush to prostrate ourselves in front of that false God?

Like a Parrot in a Flaming Tree

But like a parrot in a flaming tree
I know, it's pretty hard to see
And I'm beginning to wonder if it's time for a change

- Lyric by Phil Judd, from Split Enz's Time for a Change, on their 1975 Mental Notes album

It's not just Phil Judd wondering.

Amanda Kovattana can see the parrot:

"Huge assumptions were going down here about competition being the guiding principle of societies, not cooperation. I was beginning to see the light at the end of the tunnel.



There were no real truths, here, about human nature at all, not even economic truths. These were just ideas forced upon us and here we were going along with it, giving lip service to free market rhetoric. I longed for the day that the ideology of free market capitalism would become as abhorrent as the theory of eugenics. Given the recent financial unraveling, I may not have to wait very long.

"

So can Michael Tobis:

The current financial disaster is based on people deluding themselves that they had eliminated risk, when in fact they had coupled risk. The consequence is that small failures were avoided at the expense of big failures.

The whole setup of modern human activity makes a comparable error. There is no such thing as unlimited growth. All growing systems reach limits. The most casual understanding of exponential growth (h/t HR) makes this clear.

Either fuel supply or carbon waste are likely candidates to be the limit we hit first, but there are others. It doesn't matter. The "growth forever" idea is really "growth until it stops". If we base everything we do and everything we think on an assumption of growth, we start to build things in to protect the growth.

Much of government of the past century has been about protecting the growth. Sooner or later it is doomed to fail.

Has this just happened? Has the system reached old-fashioned bubble-popping so emphatically and so hard upon its physical limits that we will be unable to right it? Maybe, but probably not.

The problem is that righting it is not what we need to do. What we need to do is relax.

What we will inevitably try to to is rebuild the tightly coupled growth-dependent system that has spectacular failures built into its whole M.O. Realistically, some of this is unavoidable at this stage, but it's an ill-timed distraction. What we ought to do, instead, is reduce growth dependency and increase redundancy and resilience.

We need to convert to a world where less wealth gets created, and less wealth gets destroyed.

This is the relaxation scenario; it is easier on everybody, but it will take some creativity. In a perceived crisis, can we find the creativity to say, "no, we don't particularly want things to get back to normal"?

Resilience, not growth, is the goal of our time. We need to build a world where time to think and time to enjoy and time to care is valued more, where time to achieve and money to spend is valued less. Say you don't want no diamond rings and I'll be satisfied. Tell me that you want the kind of things that money just can't buy.

Trying to find sustainability in conventional economics at a time of stress is a category error if ever there was one.

It turns out that many parts of neo-classical economics are just plain wrong. For instance, "Daniel Kahneman received the Nobel Prize for the work he did in collaboration with Amos Tversky [showing that systematic biases prevent humans from being truly rational] , who would have no doubt shared in the prize had he been alive" (from Wikipedia article). And while the 'law' of supply and demand, predicting price movement, appears to be a reasonable description of general effects, all other things being equal, there have proven to be far too many variables that interact with poorly rational agents to affect price. It can't explain what happens, for example, to the price of oil.

So many things in economics have turned out to be beliefs rather than real laws. Many times they have been wishful thinking rather than verified phenomena. We need to consider some of these commonly held beliefs and question their validity in an attempt to find real explanations for what is going on.

Let's start with a common belief held by economists, politicians, and the general public — most everybody — that growth is always and forever a good thing. Even Paul Krugman, the latest Nobel Memorial winner believes it. You probably do too. But let's consider the boundary conditions.

We live on a finite world. Economic growth, which is defined as a percentage increase, year over year, of Gross Domestic Product (or gross world product for the whole planet), implies that mankind's footprint on the Ecos is increasing each year. We achieve this by taking more of natural resources, converting them to human-desired capital, and belching out waste products for nature to absorb. Here is an absolute fact that should be easy for everyone to understand. You cannot grow infinitely in a finite world. It is physically impossible (not to mention the psychological stress of crowding).

Growth includes growth of profit, growth of sales, growth of markets, and, to make the latter possible, growth of the population. Growth creates more jobs so that the growing population has something productive to do and an income so as to buy the growing number of goodies and fa(s)t foods. What's not to like about growth? As long as we are growing at a 'reasonable' rate all is right with the world. Right?

So much for rational agent theory. No one in their right mind can believe that growth, even at a 3 - 5% rate per year could go on forever. At a five percent growth rate, whatever is growing doubles every 14.21 years! Given a finite volume in which to grow, how long will it take to fill the volume completely? It is patently absurd for anyone to believe that growth in and of itself is a goal of economic activity.

And Robert Nadeau:

• The market system is a closed circular flow between production and consumption, with no inlets or outlets.
• Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.
• The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.
• The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.
• There are no biophysical limits to the growth of market systems.

If the environmental crisis did not exist, the fact that neoclassical economic theory provides a coherent basis for managing economic activities in market systems could be viewed as sufficient justification for its widespread applications. But because the crisis does exist, this theory can no longer be regarded as useful even in pragmatic or utilitarian terms because it fails to meet what must now be viewed as a fundamental requirement of any economic theory—the extent to which this theory allows economic activities to be coordinated in environmentally responsible ways on a worldwide scale. Because neoclassical economics does not even acknowledge the costs of environmental problems and the limits to economic growth, it constitutes one of the greatest barriers to combating climate change and other threats to the planet. It is imperative that economists devise new theories that will take all the realities of our global system into account.

And Ilargi sees it with outstanding clarity:

There is a completely unfounded and utterly irrational picture of the world being touted that claims all will be fine, and soon too. When the economy rebounds, in that familiar imaginary place that’s just around the corner beyond the horizon, the wonderful certainty of unbounded growth will dissolve all debt and make us richer than we've ever been before. All of us.

It would not be correct to call this a fantasy. It is much more. It’s religion. It’s chasing the golden calf. And it does not condone critical views and questions. Growth is such a powerful deity that taking on additional, even unlimited, debt, in order to get to the promised land tolerates no scrutiny, a principle not unlike the mind-frame of your everyday suicide-bomber.

Growth, in the eyes of its believers, knows no more limits than do the powers of any of the all-seeing ever-present gods found in the monotheistic religions, Judaism, Islam and Christianity. The faithful growth flock, after having grown from A into A+, accumulating already seemingly infinite earthly possessions, blindly follows their shiny calf along its unidirectional and one-dimensional path to more of the same. The Lord of More. And as long as no questions are ever asked, the only limits will be those imposed by another deity, Gaia.

I have a question. I would like to know why no-one ever asks what exactly is is that they wish to grow into. Where it is they want to go. We have all seen the surveys that show, without missing a beat, that the happiest people on the planet do not live in the richest communities, but in the closest knit ones. Happiness is not two and a half people in a 10000 square foot mansion with wall-size TV’s and a garage filled with vehicles modeled after rhinoceroses.

So why the heck doesn't George Bush, Gordon Brown, the members of that strange pseudo-scientific cult of "economics", and everybody else get it?

The problem is in the fundamentals, not in the detail.

We can't see the flaming parrot for the tree.

Footnote:

Radio New Zealand has produced an excellent documentary series, EnzOlogy, about Split Enz. A live performance of Time for a Change appears at the end of part 10. (Warning, 98MB download.) Wonderful. The original album version is featured in part 2.

Don't say we weren't warned

    "Where finance is concerned, the basic implication of peak oil is pretty stark: an end to industrial expansion (i.e. "growth"). All the alternatives to oil will not keep the industrial economies expanding -- they can only slow down a contraction, and only marginally so. The trouble with this picture is that finance is a system that uses paper markers to represent the hope and expectation for the expansion of wealth. These markers are currencies, stocks, bonds, option contracts, derivatives plays, and other certificates that are traded in open markets. If there is no longer any hope of increased wealth in the world, then all those tradable paper markers become losers. Their value unwinds and imagined piles of wealth evaporate into thin air.

     The unwinding process depends on the psychology of the people who own these certificates. If they do not understand the global oil situation and its implications, then they will continue to hope for and expect expanded wealth, and thus continue to regard their paper certificates as credible markers of value. And that is largely the case at the moment, since most of the playas in the financial markets are not paying attention to the peak oil story, or don't believe it is for real.

     Two special and transient circumstances are now propping up the financial markets. One is that for practical purposes the world is virtually at peak, meaning this is an extra-special time of strange behavior (like the point in the apogee of a steep sub orbital flight in which passengers become momentarily weightless). Supply and demand for oil are only beginning to go out of whack (that is, demand just barely exceeding supply). Even at this early stage, the oil markets themselves are showing stress, as hoarding behavior sets in and induces wider swings of price volatility. But these swings in oil prices -- such as the one we're in right now, where prices have crashed 20 percent since the panic buying (hoarding) of June and July -- send false signals to the financial playas. The main false signal is that all is well on the global oil scene...there's no real supply problem...and hence no threat to the continuing expansion of industrial production and its associated wealth-generating activities. This signal just tells the playas to buy more paper markers. Thus, the stock market goes up.

     The second special and transient circumstance is that so much wealth has already accumulated along the way to peak, that financial markets take on a life of their own -- as existing wealth "invests" itself in more paper markers hoping and expecting to "grow" into even more wealth. The problem here is that existing wealth is actually being squandered, since the paper markers will only lose value as the hopes and expectations vested in them dissolve in disappointment. But we haven't quite reached that point yet.

     In simply bidding the markets up, the system has spun off even more gobs of presumed wealth. Some of this "liquidity" -- say, in the checking accounts of people who work for Goldman Sachs -- has found its way into Manhattan condominiums, or Aspen McMansions, and filtered through the system to everyone from the lawyers who write up the pre-nuptial agreements to the guys who sell the furniture to the people who drive the delivery trucks that bring it to the door, to the men laying tiles in the new bathrooms.

     The basic insanity of a system that presumes vastly increased wealth where none will occur, has led to further distortions in finance. The most obvious one is the so-called housing bubble. The misplaced extreme expectation in the ever-increasing value of paper wealth, led to the hijacking of mortgages by financial playas who bundled them into odd lots of tradable debt (promises to pay) and used them to leverage abstruse bets (hedges) on the behavior of other kinds of paper markers (currencies, interest rate differentials, commodity prices) -- very profitably as long as all playas believed that industrial societies that run all oil would continue to grow, to produce more wealth. The level of abstraction in these rackets -- their distance from the reality of productive activity --is self-evident.

      But they were so successful that the profligate creation of ever more mortgages became an increasingly reckless and irresponsible enterprise. Contracts were made with house-buyers who had no record of credit worthiness and often no real proof of income. Contracts were made on terms (interest payments) that were deceptive, even ruinously false, for the house-buyers. The reckless reassignment of lending risk into ever more abstract layers of deferred obligation, and the ease of credit that ensued, allowed millions of ordinary people to acquire real property on unrealistic terms, which had the affect of bidding up the price of houses that these owners will eventually have to surrender for nonpayment.

      That process is now underway. The reckless creation of mortgages had the further effect of stealing demand for house-building from the future. So many new houses were built and then sold to people who will probably have to surrender them, and then so many more beyond that were built in the expectation and hope that reckless mortgage creation would continue forever, that there is now a massive over-supply of total existing houses while the pool of suckers for new ruinous mortgages has shrunk to zero.

      Similar excesses in all the other lending and debt sectors, including "non-performing" credit card obligations and government deficits, will also unwind and thunder through the system.

      Meanwhile, the false signal from the oil markets that has been broadcasting for eight weeks will come offline and a new signal will come on as prices go back up. The pause in bidding for future oil induced by the panic over-buying of the summer will end. The heating season is here. It's 40 degrees out in upstate New York this morning and the furnace is cranking. The Chinese and the Indians and even the people in France have not stopped using oil, even if Americans have put their Winnebagos up on blocks for the season.

     As the price of oil goes back up, the financial markets will get a new signal that running industrial societies has just gotten more expensive again. That will dampen hopes and expectations for increased wealth from these societies. Meanwhile, the air will be coming out of millions of mortgages, and the loss of value will spread among playas holding these bundles of mortgage debt (i.e. promises that money spent on houses is being paid back, which it won't be). At the same time the houses themselves will lose value as the pool of potential buyers shrinks to nothing. That is, the inflated value (high price) of these assets will deflate.

     As this occurs, there will be far fewer wage-earners putting up additional houses, fewer furniture sales, fewer trips by delivery truck drivers and fewer tile-jobs in the McBathrooms.

     This is why I view the fall melt-up of the stock markets as a swan dive. We're at the apogee now, just as the world is at the apogee of its oil production. I confess, I thought the reality of our economic predicament would be recognized by the playas and their markets sooner than it has. It turns out the the chief luxury of the final cheap oil blowout has been the artificial support of unrealistic hopes and expectations."

James Howard Kunstler, "Swan Dive", October 9, 2006

Hats off to Alex Smith on the Radio Ecoshock podcast for the link.

Taxing..

Wrong Numbers, episode 200,000,000,000

150 Barrels

Exploitable oil reserves in the ground amount to about 150 barrels for every man, woman, and child now living and all their future descendants.

So, simple arithmetic tells us that if we all fueled our oil addictions by using a mere 5 gallons a week, it would all be gone in 20 years.

Not to mention the untold damage that would do to our planet's ecosystems and climate.

Which leads to the big question:

How much should we consume now and how much should we leave for future generations?

And the other big question:

Why is the above question so completely taboo and unthinkable that it is never ever aired (except by quirky folk like Nate and myself)?

Quote of the Year

I know it's only half way through, but this one's going to take some beating.

Euan Mearns, writing in a comment on The Oil Drum the other day:

The focus is on KSA [Kingdom of Saudi Arabia] today because the OECD + others have gone there cap in hand begging for more oil to combat global warming.

I couldn't have put it better myself. Priceless!

More Babies

Swan and cygnets, Worcester to Birmingham canal, tonight.

Update, May 17th:

I spotted mummy swan tonight with her 8 cygnets on the canal.

Photos Copyright © 2008 Phil Randal

Flash, Bang!

Photo taken from my window just before 9pm tonight. Worcester cathedral is on the lower left. Click on pic to enlarge.

Copyright © 2008 Phil Randal

PeregrineCam

Worcester's Glover's Needle (aka St Andrew's church spire - the spire is all that remains after the church was demolished in the 1940s) is now home to a pair of nesting Peregrine falcons.

So far two chicks have hatched, with mum and dad taking turns on the nest.

The webcam image below is from the City of Worcester's Peregrine Cam page.

The image is updated every 10 seconds (refresh manually here, or go to the webcam page for automatic refresh)..

Feeding time tonight:

Supper time, Wednesday May 7

Pathetic Prats, Presidents and Prime Ministers Alike

“I am announcing a new national goal: to stop the growth of U.S. greenhouse gas emissions by 2025.”

So, what he’s actually announced is the US Government’s intention to continually increase greenhouse gas emissions until 2025.

A crime against humanity.

Joe Romm puts it better than I can.

Gordon Brown:

Infinite growth is a physical impossibility, Gordon, get over it!

Hats off to Keith Farnish for spotting this gem and demolishing it.

"Next time you hear Gordon Brown mention the environment, climate change or anything else vaguely green, just ignore him: he is just another cretin who thinks that money is more important than life."

Snowmen

"Global temperatures for 2008 will be slightly cooler than last year as a result of the cold La Nina current in the Pacific, UN meteorologists have said", the BBC reported on Friday. As if to emphasize this, most of the United Kingdom was covered with a good sprinkling of snow today.

Snowmen near the river Severn (click on pic to enlarge).

Photo Copyright © 2008 Phil Randal

Milkbar's Open!

When I was a kid, many more moons ago than I'd care to admit, my dad used to take our family out into the countryside at weekends for picnics in the midst of nature, miles from civilisation. Whenever we saw sights like the above there was a universal cry of "milkbar's open!" from children and parents alike.

Lambs, Holme Lacy, this morning (click on pic to enlarge).

Photo Copyright © 2008 Phil Randal

Jevons' Prius Revisited

Yesterday was budget day here in Old Blighty, with Alastair Darling's budget being yet another totally predictable disaster for the environment. Once again, it proves that he who worships at the altar of "economic growth" can never produce policies resembling any form of rational behaviour.

So it was interesting to see the newspapers' commentaries on the greenness (or not) of this monument to politicians' follies.

My eyes caught this feature in the Daily Mail, comparing 4x4 family with Prius family, which brought a chuckle to my lips.

At around 4000 miles per annum, assuming the most greedy Merc petrol 4x4 (400g CO2 per km), they'll produce around 4000 * 1.6 * 400 = 2560kg CO2 per annum.

At around 22000 miles per annum in a Prius (100g CO2 per km), they'll produce around 22000 * 1.6 * 100 = 3520kg CO2 per annum. Their high mileage answers the question I asked in my Jevons' Prius post last year.

That's 37.5% more CO2 than the 4x4 family.

So, who are the green ones, then?

Christmas Day

Worcester Cathedral tower, bathed in an orange light from the setting sun, today.

Inside, the cathedral was littered with snaking cables and floodnights, remnants of yesterday's televised Midnight Mass.

A reminder of this summer's floods.

Xmas sunset.

Photos Copyright © 2007 Phil Randal

Pounded

The BBC reports that the British pound has fallen to an all time low against the Euro, down to just €1.376 today in quiet Christmas Eve trading. They note that "Britain's record trade deficit has also helped push down the value of sterling", but don't tell us why we have such balance of payments woes.

Hasn't Gordon Brown been the saviour of the British Economy, after all?

"The fundamentals of the British economy are, and remain, sound ... we stand able to weather the global financial storms and to respond where necessary," Brown said last week.

Others are not so sure.

Reuters reported on Thursday that "the current account deficit hit a record high of 20 billion pounds in the third quarter, equivalent to 5.7 percent of gross domestic product", and that "the huge rise in the Q3 current account deficit is likely to put further pressure on sterling in the medium-term and is a result of a big rise in the deficit on income as well as trade in goods."

The Times thunders that "claims by Gordon Brown and Alistair Darling this week that the economy is fundamentally sound and well placed to ride out worsening world conditions were badly undermined yesterday by a spate of bleak official figures."

Well, yes, we knew that, and?

"The severe deterioration in the balance of payments was driven by a combination of a record £22.6 billion trade deficit in Q3, with an abrupt shift in Britain's investment income from abroad."

Oh, we've built our economy on the shifting sands of funny money? How foolish!

The Telegraph chimes in too, but says little more of interest.

So what's lacking in all their analysis?

Oil.

The Oil Depletion Analysis Centre's Doug Low, writing at The Oil Drum, reminds us that these articles do not mention anything about energy imports with regard to the UK’s atrocious balance of payments deficit. "According to the latest DBERR statistics (UK govt, 29 Nov 2007) the UK was a serious net importer of oil and oil products for quarter three (see column H in the Quarter and Month tabs). No wonder we hit a record deficit. Except that the UK’s oil and gas production is now headed south big time, and with it our net imports, and trade deficit, will grow."

"At the Energy Institute’s oil depletion conference in London last month, November, I concluded my talk on UK oil and gas production / depletion with a brief mention of the UK current account deficit and where it was headed due to increased imports of oil and gas. After my talk, an economist / financial analyst in the audience said that growing oil and gas imports would not present a financial problem for the UK because ‘the City’ (the financial services sector based in London) brought in so much money it dwarfed the amount of money we would have to spend on energy imports – all is well, don’t worry. The financial services sector is in meltdown, and those with oil / gas are unlikely give it to us for free / on the cheap."

The Telegraph also told us that the Office of National Statistics "also calculated that the shortfalls [current account deficit] in previous months had been even bigger than previously thought".

Low explains why: "DBERR (the former DTI) re-adjusted its oil statistics for most of 2007 in November. Previously, it showed the UK being a net oil exporter, the readjustment made us a net oil importer, especially in the third quarter."

UK oil production peaked in 1999. It's now running at about half the 1999 peak level.

And, according to ODAC, the UK became a net importer of oil in 2006.

The IEA and EIA forecast that this would happen in 2007.

And with our oil production declining at 8% per annum, things can only get worse.

Save Frosty!