What Happened to Self Reliance?

How often do you hear the phrase "Self Reliance" these days? I never hear it.

Apparently being self-reliant is out of style. It seems that we the people have become a nation of consumers, and consumers are not self reliant. Oil producing countries, advertisers, government, political parties, and employers, to name a few, want us to be consumers and not self reliant. They want us to spend our money and depend on them for information, compensation, energy, food, entitlements, loans, tax breaks, etc. (Likewise, the United States government consumes more than its revenue; it depends on purchases of debt by China and other countries to fund the endless overspending.) But the really ugly skeleton in the closet is our dependence on fossil fuels.

Cutting back on our energy use is critical. Leadership in this realm has been mixed at best. Many of the celebrity Americans who promote energy conservation and alternative energy don't walk their talk. Al Gore and his huge mansion are a glaring example.

Blogger and writer John Michael Greer is preparing for a future where fossil fuels are very expensive and scarce; he intends to be self reliant. He writes extensively about why and how to conserve energy. Does he walk his talk? He recently reported:

I've never owned a cell phone, a car, a microwave, a television, or most of the other conveniences so many Americans think of as essential to life. I do own a computer — it's essential to the way I make my living — and my compromise there is that I don't buy new computers; I take the old ones that would otherwise end up in a landfill, and keep them out of the ecosystem. I still use a very modest amount of grid power — our power bills run in the $30-$40 a month range — since my wife and I bought a home of our own for the first time in 2009, and we haven't yet raised the money for an off-grid system (or for several other improvements I have on the list, such as solar water heaters and composting toilets). 

Some of my food comes from a backyard organic garden; much of the remainder is from the farmer's market in season; almost none is processed and packaged, though that's as much because I have a hard time choking down standard American food products as anything else. Organic wastes, almost without exception, go into the composter out back. I don't use mainstream medicine, though that's a complex issue in its own right — I've had too many family members killed or harmed by MDs to trust my health to them, among other things. (see Comments)

His sacrifices are rather shocking to most of us in America. It's easy to say he's weird and ignore the fact that he is much more self reliant than anyone we know.

Most of the poor in this country own a cell phone and a TV. (Government programs often pay for cells phones for the poor.) Many of these same people are unhealthy, in debt, and utterly dependent on someone else's money to pay for their lifestyle. They are not self reliant and never will be.

Why am I bringing this up? Dependence weakens individuals and countries – self reliance strengthens. The US needs to be stronger to weather the storms that loom on the horizon. What if… Iran and Israel go to war. Would Israel destroy Iran's oil wells? Would Iran destroy Saudi Arabia's oil wells? The price of oil could jump to $400 – $500 a barrel. Gas prices in the US could be $16 – $20 per gallon. Heating and cooling our homes could quadruple in price. How quickly could our government adapt? How would unprepared people adapt?

Maybe self-reliant people can teach us a thing or two. What do you think?

Natural Gas Is Our Best Hope for Energy Independence

From Charles Hugh Smith at the OfTwoMinds.com blog, here's a report from Ray W., an energy consultant. It offers some hope that the United States can overcome its oil addiction, with smart planning and effective leadership. Can we do it? Time will tell.

I try to understand the key dynamics of the energy marketplace because I believe that we have reached peak oil and the modern countries are so dependent on fossils fuels. The report below seems to be very objective.

I worry that the Saudis and big oil companies have so much influence in our government that our energy policy will remain the same, until we run out of money.

Of the three main fossil fuels, natural gas is uniquely situated.

Oil is nearing peak production. To find new reserves, companies such as BP, Shell, and ExxonMobil venture into ever more hostile environments, both physical and political, spend ever higher amounts of money, and take ever greater risks. Deepwater Horizon, the oil platform that detonated and sank in the Gulf of Mexico and spewed four million barrels of crude into one of the world’s most productive fisheries, is a tame example.

For real expense and environmental risk, look at the tar sands in Canada; for political risk, look at the Niger Delta. The increasing cost of oil exploration and production will consume a larger share of GDP, just as health care does, and if we continue to expand our dependency on oil, we will continue to erode the standard of living for all but the very wealthy. The trajectory of the price of oil is structurally upward.

Coal is simply nasty. It’s advantage: it’s plentiful and therefore cheap. Otherwise, it’s a supremely destructive substance at all stages of its exploitation, from mining to transport to combustion to ash disposal.

Natural gas is far more plentiful than oil and far less environmentally destructive than coal.

Gas produces about 40% of the carbon dioxide of coal for the same kilowatt-hour of power generation. It leaves no solid waste at all, unlike coal, which leaves tremendous piles of ash that must be disposed of and that are susceptible to environmental catastrophe. The Kingston spill in 2008 deposited 5.4 million cubic yards (about four times the debris of the World Trade Centers) in the Emory and Clinch Rivers in Tennessee.

Gas contains no mercury, lead, arsenic, or other heavy metals as does coal. At pipeline quality, its combustion produces no sulfur dioxide (the main cause of acid rain) and far less nitrous oxide (the main cause of smog) than coal.

Gas is transported by pipeline, which is extremely efficient. Pipelines, being underground, are also visually and logistically unobtrusive and, despite the recent tragedy in San Bruno, California, generally safe. Far more people have been killed in coal-related accidents, not to mention aviation or automobile accidents, than have been in gas-related accidents.

Now we come to extraction, where things get more complicated.

In the past three years, the amount of natural gas produced in this country has increased 16%, from 18 to 21 trillion cubic feet. This is attributable to recent rapid advances in two drilling techniques: horizontal drilling and hydraulic fracturing. The high price of gas earlier in the decade spurred the development of these technologies, which extract gas from solid rock, rather than from conventional pooled deposits.

Extraction presents some serious environmental issues. Some gas deposits contain a fair amount of sulfur, which must be removed and disposed of. Most extracted sulfur is made into sulfuric acid for industrial purposes. Other deposits contain carbon dioxide in quantities as much as 12 percent by volume, which reduces the resource’s greenhouse gas advantage. And it takes a great deal of energy to drill for gas. The rigs generally run on diesel. The recently developed techniques for extracting gas from shale formations also consume large amounts of water. That said, gas extraction doesn’t use nearly the amount of energy or water as coal mine excavation.

Water will be the limiting factor for expanding gas production in the United States. Some shale gas producers have been working diligently to find environmentally acceptable ways to minimize the use of water, mostly through reuse. In shale gas production, the water is injected under pressure to fracture the rock, which liberates the gas.

The injected water contains several chemicals to provide for the optimal viscosity to enhance fracturing while still being liquid enough to withdraw easily. Most producers use less than a dozen chemicals, which comprise 0.5 percent of the injection stream. The very high numbers of chemicals (approaching 600) quoted in the film "Gasland" are an amalgamation of all the chemicals ever used for fracturing across the industry.

Some producers are racing to gain first-mover advantage in the shale plays, which seem to pop up every three months. These producers tend to be less cautious than others, and this is how accidents happen. But there is nothing intrinsically more hazardous or risky about drilling for gas in shale formations than drilling for conventional gas, or drilling for oil, or mining for coal.

Gas-bearing shale tends to be several thousand feet (one to two miles) below the aquifer. There is virtually no way for the gas to migrate into the aquifer except through the vertical component of the well that penetrates the water table en route to the gas resource. Gas wells, like oil wells, are encased in cement to protect the surrounding ground from seepage. Sloppy procedures can result in bad cement jobs. But this risk is present for any gas or oil well; it is not particular to shale gas.

The United States can substantially reduce oil usage and coal usage and improve carbon dioxide emissions by increasing the production and consumption of natural gas. We can reduce carbon dioxide emissions by 20% within weeks, simply by switching about 15% of coal-fired electric generation to gas-fired, using existing spare capacity in the gas-fired fleet.

There is plenty of gas to make this happen without risking huge price run-ups. Gas prices on average might move up about $1.00 per MMBtu, from the $4.00-$5.00 range to the $5.00-$6.00 range. While this would be a 20-25% increase, other costs would go down, specifically the costs of coal-caused pollution. This does not consider the future value preserved by slowing climate change. Also, increased demand would spur increased production, which would moderate such price increases.

Eventually, gas use will have to be reduced if we are to avoid the worst of climate change. Increased gas use is a transitional strategy for the next 20-30 years, to provide time for renewable energy and efficiency technologies to be developed and deployed. However, even at that point, gas would still have a role. It is the logical fuel to use to complement the intermittent nature of renewable electric generation.

Technological improvements are likely in electric storage, but electric storage is unlikely to be economical enough to span all 24 hours of the day. Gas, delivered through pipelines, is an on-demand electric generation fuel, unlike coal or oil, and can respond instantaneously as minute-to-minute consumer demand and renewable generation fluctuate.

If we craft public policy to favor gas to displace coal and oil, we have to be careful not to grow complacent. Gas is not a panacea for climate change. It is still a fossil fuel. However, it is a readily available, pragmatic, interim solution as we move to renewables and efficiency over the next 20-30 years.

 

Answers to Key Questions about Putting Solar Panels on Your Roof

One Block Off the Grid's mission is to educate people on the ins and outs of going solar. Here's are 10 links that address key issues for homeowners who might be considering solar power.

 …It is easy for the average homeowner to get confused by the all of the conflicting information and technical jargon that is flying around in today’s market. Some solar installers have even used this confusion to take advantage of unsuspecting consumers…

  • The Pro’s and Con’s of Solar Energy – Curious about why solar is such a good idea for homeowners and the environment? This article lays out some important points to consider.
  • Feed-in Tariffs (”FiTs“) – What homeowners need to know about this hot new topic. Europe’s been doing it successfully for years…and it’s already landed in the US. Learn more about Oregon’s Feed in Tariff program.
  • Facts and Statistics about Solar – Learn more about the history of solar panels and what is currently happening in the industry.
  • Solar Tubes – Explains just what the heck solar tubes are and how they work.
  • Solar Panel Trackers – There isn’t much good information out there about solar trackers. This entry helps summarize the data and gives homeowners the facts needed to ask their solar installer intelligent questions.
  • Solar Inverters – Here is a simple explanation of this piece that is found in every solar array – including what it does and why it is necessary.
  • Solar Pool Heaters – Want to keep your pool warm year round? Learn more about replacing that gas-powered heater with solar collectors for your pool.
  • Solar Panel Efficiency – There is lots of inaccurate information out there about how efficient solar panels are at converting sunlight to energy. Read this page to get the real low down.
  • Solar Powered Hot Tub – You might not believe it, but we get a lot of questions from homeowners about how many solar panels it would take to power their jacuzzi. Find out here.
  • Personal Solar Estimator – Finally, an easy and highly customizable tool that allows anyone to see how much money they would save by going solar. 1BOG’s solar estimator is the best on the web and makes exploring the advantages of solar quick and easy.

If you want more information about putting solar on your roof, check out the rest of 1BOG’s solar University for everything you need to know.

Laughing and Crying about the Future of Energy

Last weekend I filled my vehicle with gasoline three times while driving almost a thousand miles to my home town. Will driving that far for a fun social event be feasible in 10 years?

The Laugh: In 1973 Art Buchwald laid the blame on the Harvard Business School.

Almost every sheik now in charge of oil policy for his country was trained at Harvard. Everything they learned there they have put into practice to the detriment of the Free World. The Harvard Business School taught the sons of Arab potentates how to sell oil, raise prices and demand outrageous profits for the black gold they have in the ground. Had these same sons been sent to the University of Alabama, Oklahoma or Texas, they would now be involved in developing football teams instead of putting the screws to everyone. (Link: http://news.google.com/newspapers?nid=2206&dat=19731220&id=SMwlAAAAIBAJ&sjid=tPMFAAAAIBAJ&pg=6000,3995298)

The Reality: Many more people want to live the good life. (Read on if you want to know why we need a breakthrough that provides clean, inexpensive energy – soon.)

Link: Common Sense in Energy Storage Investing

We live on a planet where six billion poor live in squalor and deprivation while 500 million of us enjoy relatively comfortable lives. As long as the poor didn't know that there was more to life than mere subsistence, they neither contributed to nor demanded from the global economy.

For better or worse, the information and communications technology revolution gave half of them cell phones so the cat's out of the bag and the existence of a better life is no longer a secret. For the first time in history, we live in a world where more than half of the population knows that a better life exists and they all want a small slice of the economic pie. Human nature being what it is, their first natural response will be to work harder and compete for a place at the global economic table. If that doesn't work, their second natural response is likely to be far less pleasant.

The challenge of our age is not changing our carbon footprint because every ton of coal we don't burn in developed countries will be burned somewhere else. The same holds true for oil and natural gas. The inconvenient truth is that global consumption of these energy resources will continue apace no matter what we do and if anthropogenic global warming is more than the latest in a long-string of frightening but profitable alarmist theories, it's already too late to change the future and humanity will have to do what it's done since the dawn of time – adapt.

In the final analysis, our only challenge is finding relevant scale solutions to critical shortages of water, food, energy and every imaginable commodity. Whether we like it or not, the days of plenty have already passed and we must turn our attention to eliminating waste now, because if we don't make room at the table for six billion new mouths, the only possible outcomes are catastrophic conflict and horrific environmental devastation.

Bloom Energy unveils fuel cell ‘power plant in a box’

Is this a tipping point in the quest for energy independence? Can this technology drive the oil-rich OPEC elites back to third world living? Can a natural gas-based fuel cell reduce the need for emission-belching giant coal-burning electricity generation plants?

It's easy to have unrealistic hopes for a breakthrough that could help turn around the tough economic times we are experiencing. Critics provide numerous reasons to undermine all thoughts that "this time it's different." We might be disappointed, but the Bloom Energy devices create some momentum that is much needed.

I'm old enough to remember when PCs were viewed as expensive toys, back in 1980. Apple and Commodore had introduced computers for the home. The esteemed CEO of very successful Digital Equipment Corporation, Ken Olsen, said "There is no reason for any individual to have a computer in their home.” Then the IBM PC came out, targeted for business use, and consummated the microcomputer revolution that continues today with smart phones and the Internet. In the early '80s the U.S. was in a deep recession, and the workforce productivity and technological innovation that was stimulated by the IBM-PC standard helped end the recession.

I mention the impact of the PC  as a metaphor for the current energy situation. While the Bloom Energy device may not be the holy grail, it could be the first of a number of innovations that could break the hold of OPEC on industrial societies and trigger the demise of dirty energy like coal.

Link: Bloom Energy unveils 'power plant in a box'.

Bloom Energy Corp., one of Silicon Valley's most secretive startups, unveiled on Wednesday [Feb 24] its long-awaited "power plant in a box," a collection of fuel cells that the company says can provide clean electricity to homes, office buildings – even whole villages in the developing world.

The Bloom Energy Server, a smooth metal box the size of a pickup truck, can generate electricity from multiple fuels while producing relatively few greenhouse gas emissions. With government subsidies factored in, power from the server costs less than power from the grid. Unlike other fuel cells, Bloom's is made mostly of sand, with no platinum or other precious metals thrown in as catalysts. And unlike solar panels and wind turbines, each server can produce the same amount of energy day and night for years on end, according to the company. The process is twice as efficient as burning natural gas. "This is not when the sun shines, this is not when the wind blows – this is base load, nonstop," said K.R. Sridhar, Bloom's co-founderand chief executive officer. The server, he said, could change the energy industry in much the same way that cell phones changed communications, decentralizing the generation of power.

Sridhar introduced the device, for years a subject of intense speculation within the green-tech industry, before a large and rapturous crowd of politicians, press and Silicon Valley luminaries, eager to see the first product from a company that has landed roughly $400 million in venture capital investments. Gov. Arnold Schwarzenegger hailed the server as a potential revolution. Sen. Dianne Feinstein sent the company, founded in 2001, congratulations via a video message.

More important, some of the business executives in attendance had already bought the servers, which cost $700,000 to $800,000 apiece. Bloom, based in Sunnyvale, counts among its customers the Coca-Cola Co., Cox Enterprises, FedEx Corp. and Google Inc., all of whom sent executives to speak at Wednesday's public premiere. Online marketplace eBay Inc. liked the product enough that it hosted the event at its San Jose campus, where five servers have been running since July.

Practical Solar Energy Advice for Homeowners

Gail the Actuary provides a forum for home owners with experience to offer advice to home owners who are considering solar energy additions.

The questions below were the focus for the responses.

Link: The Oil Drum

1. Is it best to work with someone who both sells and installs solar PV panels? Or is this something that people end up doing themselves, using a variety of vendors?

2. What brands/ types are best?

3. How much maintenance is required?

4. What experiences have people had who purchased solar PV, then moved to another home? Did the addition of solar PV help the resale value?

5. What have buyers experience with battery back-up been? Is a small amount worthwhile, even if a homeowner is on the grid?

6. Are there any particular issues with inverters that readers should be aware of?

7. If you have purchased solar PV, are you generally happy with it?

8. Where does one find good material to read regarding solar PV?

http://campfire.theoildrum.com/node/6123

Some interesting links from the post:

http://www.dsireusa.org/

http://www.builditsolar.com/Projects/PV/pv.htm

http://www.homepower.com/home/

http://solarprofessional.com/home/

http://www.nrel.gov/gis/solar.html

http://www.solarpathfinder.com/

http://i15.photobucket.com/albums/a400/beavercreekfarms/renewable4.jpg

http://www.outbackpower.com/

http://www.outbackpower.com/products/smartre/

http://sunelec.com/

http://zomeworks.com/products/pv-trackers/introduction

http://www.wattsun.com/

http://www.exeltech.com/pvacproduct.htm

http://www.ecodirect.com/Micro-Inverter-Solar-s/245.htm

http://www.altestore.com/store/Inverters/Grid-Tie-Off-Grid-Capable-Inverters/c561/

http://www.freewebs.com/simplesolarhomesteading/photos.htm

http://solarbuzz.com/

Can the American Lifestyle Survive the End of Cheap, Abundant Oil?

John Michael Greer's essay A Gesture from the Invisible Hand explains why the end of cheap, abundant fossil fuels undermines the economies of the societies that are dependent on oil. This is really bad news for the "civilized" countries — and why denial from our leaders is the norm. Excerpts below.

This "peak oil" aftermath theme also explains why debt is accelerating and China is becoming a dominant economic power.

Link: The Archdruid Report: A Gesture from the Invisible Hand

It’s common, for example, to hear well-intentioned people insist that the market, as a matter of course, will respond to restricted fossil fuel production by channeling investment funds either in more effective means of producing fossil fuels, on the one hand, or new energy sources on the other. The logic seems impeccable at first glance: as the price of oil, for example, goes up, the profit to be made by bringing more oil or oil substitutes onto the market goes up as well; investors eager to maximize their profits will therefore pour money into ventures producing oil and oil substitutes, and production will rise accordingly until the price comes back down.

Energy is one of those places: in some ways, the most important of all. Energy is not simply one commodity among others; it is the ur-commodity, the foundation for all economic activity. It follows laws of its own – the laws of thermodynamics, notably – which are not the same as the laws of economics, and when the two sets of laws come into conflict, the laws of thermodynamics win every time.

This is necessary because energy doesn't follow the ordinary rules of economic exchange. Most other commodities still exist after they've been exchanged for something else, and this makes exchanges reversible; for example, if you sell gold to buy marble, you can normally turn around and sell marble to buy gold. The invisible hand works here; if marble is in short supply, those who have gold and want marble may have to offer more gold for their choice of building materials, but the marble quarries will be working overtime to balance things out.

Energy is different. Once you turn the energy content of a few million bushels of grain into a pyramid, say, by using the grain to feed workers who cut and haul the stones, that energy is gone, and you cannot turn the pyramid back into grain; all you can do is wait until the next harvest. If that harvest fails, and the stored energy in the granaries has already been turned into pyramids, neither the market economy of goods and services or the abstract system of distributing goods and services can make up for it. Nor, of course, can you send an extra ten thousand workers into the fields if you don't have the grain to keep them alive.

The arrival of geological limits to increasing fossil fuel production places a burden on the economy, because the cost in energy, labor, and materials (rather than money) to extract fossil fuels does not depend on market forces. On average, it goes up over time, as easily accessible reserves are depleted and have to be replaced by those more difficult and costly to extract. Improved efficiencies and new technologies can counter that to a limited extent, but both these face the familiar problem of diminishing returns as the laws of thermodynamics, and other physical laws, come into play.

As a society nears the geological limits to production, in other words, a steadily growing fraction of its total supply of energy, resources, and labor have to be devoted to the task of bringing in the energy that keeps the entire economy moving.This percentage may be small at first, but it's effectively a tax in kind on every productive economic activity, and as it grows it makes productive economic activity less profitable. The process by which money produces more money consumes next to no energy, by contrast, and so financial investments don't lose ground due to rising energy costs.

This makes financial investments, on average, relatively more profitable than investing in the kinds of economic activity that use energy to produce nonfinancial goods and services. The higher the burden imposed by energy costs, the more sweeping the disparity becomes; the result, of course, is that individuals trying to maximize their own economic gains move their money out of investments in the productive economy of goods and services, and into the paper economy of finance.

Ironically, this happens just as a perpetually expanding money supply driven by mass borrowing at interest has become an anachronism unsuited to the new economic reality of energy contraction. It also guarantees that any attempt to limit the financial sphere of the economy will face mass opposition, not only from financiers, but from millions of ordinary citizens whose dream of a comfortable retirement depends on the hope that financial investments will outperform the faltering economy of goods and services. Meanwhile, just as the economy most needs massive reinvestment in productive capacity to retool itself for the very different world defined by contracting energy supplies, investment money seeking higher returns flees the productive economy for the realm of abstract paper wealth.

One intriguing detail of this scenario is that it has already affected the first major oil producer to reach peak oil — yes, that would be the United States. It's unlikely to be accidental that in the wake of its own 1972 production peak, the American economy has followed exactly this trajectory of massive disinvestment in the productive economy and massive expansion of the paper economy of finance. Plenty of other factors played a role in that process, no doubt, but I suspect that the unsteady but inexorable rise in energy costs over the last forty years or so may have had much more to do with the gutting of the American economy than most people suspect.

If this is correct, now that petroleum production has encountered the same limits globally that put it into a decline here in the United States, the same pattern of disinvestment in the production of goods and services coupled with metastatic expansion of the financial sector may show up on a much broader scale. There are limits to how far it can go, of course, not least because financiers and retirees alike are fond of consumer goods now and then, but those limits have not been reached yet, not by a long shot. It's all too easy to foresee a future in which industry, agriculture, and every other sector of the economy that produces goods and services suffer from chronic underinvestment, energy costs continue rising, and collapsing infrastructure becomes a dominant factor in daily life, while the Wall Street Journal (printed in Shanghai by then) announces the emergence of the first half dozen quadrillionaires in the derivatives-of-derivatives-of-derivatives market.

Perhaps the most important limit in the way of such a rush toward economic absurdity is the simple fact that not every economy uses the individual decisions of investors pursuing private gain to allocate investment capital. It may not be accidental that quite a few of the world's most successful economies just now, with China well in the lead, make their investment decisions based at least in part on political, military, and strategic grounds, while the nation that preens itself most proudly on its market economy — yes, that would be the United States again — is lurching from one economic debacle to another.

Energy and the Future of the Invisible Hand

John Michael Greer makes some sobering observations about our energy future. Excerpts below. This is not fun reading.

Link: The Archdruid Report: A Gesture from the Invisible Hand

It’s been a long road, but we’ve finally reached the point in these essays at which it’s possible to start talking about some of the consequences of the primary economic fact of our time, the arrival of geological limits to increasing fossil fuel production. That’s as challenging a topic to discuss as it will be to live through, because it cannot be understood effectively from within the presuppositions that structure most of today’s economic thinking.

It’s common, for example, to hear well-intentioned people insist that the market, as a matter of course, will respond to restricted fossil fuel production by channeling investment funds either in more effective means of producing fossil fuels, on the one hand, or new energy sources on the other. The logic seems impeccable at first glance: as the price of oil, for example, goes up, the profit to be made by bringing more oil or oil substitutes onto the market goes up as well; investors eager to maximize their profits will therefore pour money into ventures producing oil and oil substitutes, and production will rise accordingly until the price comes back down.

That’s the logic of the invisible hand, first made famous by Adam Smith in The Wealth of Nations more than two centuries ago, and still central to most mainstream ideas of market economics. That logic owes much of its influence to the fact that in many cases, markets do in fact behave this way. Like any rule governing complex systems, though, it is far from foolproof, and it needs to be balanced by an awareness of the places where it fails to work.

Energy is one of those places: in some ways, the most important of all. Energy is not simply one commodity among others; it is the ur-commodity, the foundation for all economic activity. It follows laws of its own – the laws of thermodynamics, notably – which are not the same as the laws of economics, and when the two sets of laws come into conflict, the laws of thermodynamics win every time.

Consider an agrarian civilization that runs on sunlight, as every human society did until the rise of industrialism some three centuries ago. In energetic terms, part of the annual influx of solar energy is collected via agriculture, stored in the form of grain, and transformed into mechanical energy by feeding the grain to human laborers and draft animals. It's an efficient and resilient system, and under suitable conditions it can deploy astonishing amounts of energy; the Great Pyramid is one of the more obvious pieces of evidence for this fact.

Such civilizations normally develop thriving market economies in which a wide range of goods and services are exchanged. They also normally develop intricate social abstractions that manage the distribution of these goods and services, as well as the primary wealth that comes through agriculture from the sun, among their citizens. Both these, however, depend on the continued energy flow from sun to fields to granaries to human and animal labor forces. If something interrupts this flow — say, a failure of the harvest — the only option that allows for collective survival is to have enough solar energy stored in the granaries to take up the slack.

This is necessary because energy doesn't follow the ordinary rules of economic exchange. Most other commodities still exist after they've been exchanged for something else, and this makes exchanges reversible; for example, if you sell gold to buy marble, you can normally turn around and sell marble to buy gold. The invisible hand works here; if marble is in short supply, those who have gold and want marble may have to offer more gold for their choice of building materials, but the marble quarries will be working overtime to balance things out.

Energy is different. Once you turn the energy content of a few million bushels of grain into a pyramid, say, by using the grain to feed workers who cut and haul the stones, that energy is gone, and you cannot turn the pyramid back into grain; all you can do is wait until the next harvest. If that harvest fails, and the stored energy in the granaries has already been turned into pyramids, neither the market economy of goods and services or the abstract system of distributing goods and services can make up for it. Nor, of course, can you send an extra ten thousand workers into the fields if you don't have the grain to keep them alive.

The peoples of agrarian civilizations generally understood this. It's part of the tragedy of the modern world that most people nowadays do not, even though our situation is not all that different from theirs. We're just as dependent on energy inputs from nature, though ours include vast quantities of prehistoric sunlight, in the form of fossil fuels, as well as current solar energy in various forms; we've built atop that foundation our own kind of markets to exchange goods and services; and our abstract system for managing the distribution of goods and services — money — is as heavily wrapped in mythology as anything in the archaic civilizations of the past.

The particular form taken by money in the modern world has certain effects, however, not found in ancient systems. In the old agrarian civilizations, wealth consisted primarily of farmland and its products. The amount of farmland in a kingdom might increase slightly through warfare or investment in canal systems, though it might equally decrease if a war went badly or canals got wrecked by sandstorms; everybody hoped when the seed grain went into the fields that the result would be a bumper crop, but no one imagined that the grain stockpiled in the granaries would somehow multiply itself over time. Nowadays, by contrast, it's assumed as a matter of course that money ought automatically to produce more money.

That habit of thought has its roots in the three centuries of explosive economic growth that followed the birth of the industrial age. In an expanding economy, the amount of money in circulation needs to expand fast enough to roughly match the expansion in the range of goods and services for sale; when this fails to occur, the shortfall drives up interest rates (the cost of using money) and can cause economic contractions. This was a serious and recurring problem in the late 19th century, and led the reformers of the Progressive era to reshape industrial economies in ways that permitted the money supply to expand over time to match the expectation of growth. Once again, the invisible hand was at work, with some help from legislators: a demand for more money eventually give rise to a system that produced more money.

It's been pointed out by a number of commentators in the peak oil blogosphere that the most popular method for expanding the money supply — the transformation of borrowing at interest from an occasional bad habit of the imprudent to the foundation of modern economic life — has outlived its usefulness once an expanding economy driven by increasing fossil fuel production gives way to a contracting economy limited by decreasing fossil fuel production. This is quite true in an abstract sense, but there's a trap in the way of putting that sensible realization into practice.

The arrival of geological limits to increasing fossil fuel production places a burden on the economy, because the cost in energy, labor, and materials (rather than money) to extract fossil fuels does not depend on market forces. On average, it goes up over time, as easily accessible reserves are depleted and have to be replaced by those more difficult and costly to extract. Improved efficiencies and new technologies can counter that to a limited extent, but both these face the familiar problem of diminishing returns as the laws of thermodynamics, and other physical laws, come into play.

As a society nears the geological limits to production, in other words, a steadily growing fraction of its total supply of energy, resources, and labor have to be devoted to the task of bringing in the energy that keeps the entire economy moving. This percentage may be small at first, but it's effectively a tax in kind on every productive economic activity, and as it grows it makes productive economic activity less profitable. The process by which money produces more money consumes next to no energy, by contrast, and so financial investments don't lose ground due to rising energy costs.

This makes financial investments, on average, relatively more profitable than investing in the kinds of economic activity that use energy to produce nonfinancial goods and services. The higher the burden imposed by energy costs, the more sweeping the disparity becomes; the result, of course, is that individuals trying to maximize their own economic gains move their money out of investments in the productive economy of goods and services, and into the paper economy of finance.

Ironically, this happens just as a perpetually expanding money supply driven by mass borrowing at interest has become an anachronism unsuited to the new economic reality of energy contraction. It also guarantees that any attempt to limit the financial sphere of the economy will face mass opposition, not only from financiers, but from millions of ordinary citizens whose dream of a comfortable retirement depends on the hope that financial investments will outperform the faltering economy of goods and services. Meanwhile, just as the economy most needs massive reinvestment in productive capacity to retool itself for the very different world defined by contracting energy supplies, investment money seeking higher returns flees the productive economy for the realm of abstract paper wealth.

Nor will this effect be countered, as suggested by the well-intentioned people mentioned toward the beginning of this essay, by a flood of investment money going into energy production and bringing the cost of energy back down. Producing energy takes energy, and thus is just as subject to rising energy costs as any other productive activity; even as the price of oil goes up, the costs of extracting it or making some substitute for it rise in tandem and make investments in oil production or replacement no more lucrative than any other part of the productive economy. Oil that has already been extracted from the ground may be a good investment, and financial paper speculating on the future price of oil will likely be an excellent one, but neither of these help increase the supply of oil, or any oil substitute, flowing into the economy.

One intriguing detail of this scenario is that it has already affected the first major oil producer to reach peak oil — yes, that would be the United States. It's unlikely to be accidental that in the wake of its own 1972 production peak, the American economy has followed exactly this trajectory of massive disinvestment in the productive economy and massive expansion of the paper economy of finance. Plenty of other factors played a role in that process, no doubt, but I suspect that the unsteady but inexorable rise in energy costs over the last forty years or so may have had much more to do with the gutting of the American economy than most people suspect.

If this is correct, now that petroleum production has encountered the same limits globally that put it into a decline here in the United States, the same pattern of disinvestment in the production of goods and services coupled with metastatic expansion of the financial sector may show up on a much broader scale. There are limits to how far it can go, of course, not least because financiers and retirees alike are fond of consumer goods now and then, but those limits have not been reached yet, not by a long shot. It's all too easy to foresee a future in which industry, agriculture, and every other sector of the economy that produces goods and services suffer from chronic underinvestment, energy costs continue rising, and collapsing infrastructure becomes a dominant factor in daily life, while the Wall Street Journal (printed in Shanghai by then) announces the emergence of the first half dozen quadrillionaires in the derivatives-of-derivatives-of-derivatives market.

Perhaps the most important limit in the way of such a rush toward economic absurdity is the simple fact that not every economy uses the individual decisions of investors pursuing private gain to allocate investment capital. It may not be accidental that quite a few of the world's most successful economies just now, with China well in the lead, make their investment decisions based at least in part on political, military, and strategic grounds, while the nation that preens itself most proudly on its market economy — yes, that would be the United States again — is lurching from one economic debacle to another.

It is unfortunately also the case that many of the nations that have extracted their investment decisions from the hands of a self-terminating market system are not exactly noted for their delicate care for human rights. If that proves to be the wave of the future — and it may be worth noting that Oswald Spengler, among others, predicted that outcome — then the invisible hand may end up giving us all the finger.

Money Is Not Real Wealth

John Michael Greer continues to eviscerate conventional economic thinking in his series on economics. Excerpts below.

Link: The Archdruid Report: The Metastasis of Money.

If economists took a wider view of the history of their discipline than they generally do, they might have noticed that what most of them consider a fundamental feature of all economies worth studying – the centrality of money – is actually a unique feature of an economic era defined by cheap abundant energy. Since the fossil fuels that made that era possible are being extracted at a pace many times the rate at which new supplies are being discovered, current assumptions about the role of money in society may be in for a series of unexpected revisions.

In an ironic way, this process of revision may be fostered by the antics of the world’s industrial nations as they try to forestall the Great Recession by spending money they don’t have. The economic crisis that gripped the world in 2008 was primarily driven by a drastic mismatch between money and wealth. When the price of a rundown suburban house zoomed from $75,000 to $575,000, for example, the change marked a distortion in the yardstick rather than any actual increase in the wealth being measured. That distortion caused every economic decision based on it – for example, a buyer’s willingness to go over his head into debt to buy the house, or a bank’s willingness to lend money on the basis of imaginary equity – to suffer similar distortions. Now that the yardsticks have snapped back to something like their proper length, the results of the distortion have to be cleared out of the economy if the amount of money in the system is once again to reflect the actual amount of wealth.

Yet this is exactly what governments and businesses are doing their level best to forestall. Governments are scrambling to prop up economic activity at a pace the real wealth of their societies can no longer support; banks and businesses are doing everything in their power to divert attention from the fact that a great many of the financial assets propping up their balance sheets were never worth anything in the first place and now, if possible, are worth even less. Both are doing so by the simple expedient of spending money they don’t have. As government deficits worldwide spin out of control and the total notional value of the world’s derivatives market climbs steadily above one quadrillion dollars, the decoupling of money from wealth is even more extreme than it was at the height of the real estate bubble.