The Archdruid Report - Archive

I trust my readers won’t be unduly distressed by an extended safari through the tangled jungles of the “dismal science” of economics. As suggested in several recent Archdruid Report posts, economic factors have played a massive role in putting the industrial world in its current predicament, and an even more substantial role in blocking any constructive attempt to get out of the corner into which we’ve painted ourselves. There’s an all too real sense in which, if modern industrial civilization perishes, it will be because the steps necessary for its survival weren’t cost-effective enough.

Mind you, this can be interpreted in at least two different ways, and both of them are relevant to the crisis of the industrial world. Like any other science, economics is a set of hypothetical models that reflect, with more or less exactness, the observed behavior of the world. Too often the models get confused with the reality, and understanding suffers.

In a different context, that of the physics of vacuum tubes, Philip Partner commented in his classic textbook Electronics (1950): “The theory speaks of ions, atoms, and electrons, and of collisions between them; but these are figments of the mind, props for its understanding. [...] The electron, like the atom, is a concept; it is part of a mental shorthand which we have invented to summarize our knowledge of Nature. So when we say, for example, that an electron collides with an atom, we should bear in mind that we have never seen it happen. The use of the present indicative does not turn hypothesis into fact” (p. 569). Unfortunately this level of clarity is hard to achieve and harder to maintain.

This has to be kept in mind when trying to make sense of the economic dimension of industrial civilization’s decline and fall, because both sides of the equation – the models and the reality – throw up challenges in the way of constructive action, and so do economic policies that are based on the models, and thus function at a second remove from the reality. It’s true, and will be a central theme of future posts, that current economic theory has lost touch with reality in critical ways, and a revision of some of the basic ideas of modern economics is essential if we’re to make sense of our predicament and do anything constructive in response to it. It’s equally true that government policies based on today’s misguided economic notions have become massive liabilities to societies struggling to deal with today’s crisis, and even this late in the game, changes in these policies might still do a great deal of good. Still, it’s also true that economic factors in the real world, independent of theory, impose hard limits on what can be done.

The classic example has to be the plethora of projects for “lifeboat communities” floated in recent years. The basic idea seems plausible enough at first glance: to preserve lives and knowledge through the decline and fall of the industrial age, establish a network of self-sufficient communities in isolated rural areas, equipped with the tools and technology they will need to maintain a tolerable standard of living in difficult times. The trouble comes, as it usually does, when it’s time to tot up the bill. The average lifeboat community project I’ve seen would cost well over $10 million to establish – many would cost a great deal more – and I have yet to see such a project that provides any means for its inhabitants to cover those costs and pay their bills in the years before industrial civilization goes away.

The unstated assumption seems to be that as soon as the intrepid residents of such a community move into their solar-heated cohousing units, start up the wind turbines and the methane generators, and get to work harvesting tree crops from the permacultured landscaping all around, industrial civilization will disappear in a puff of smoke and take its taxes, debts, and miscellaneous expenses with it. Pleasant though the prospect might seem, I am sorry to say that this isn’t going to happen. The residents of any lifeboat community founded today will not only have to come up somehow with the very substantial sums needed to buy the land, build the cohousing units, wind turbines and so on, and plant all that permaculture landscaping; they will also have to earn a living during the long transitional process that leads from the world we inhabit today to the conditions that will pertain at the bottom of the curve of decline. Some awareness of these difficulties may go a long way to explain why, of the great number of lifeboat communities that have been proposed over the last decade or two, the number that have actually been built can be counted on the fingers of one foot.

Economic forces constrain the future in more global ways as well. Not many people seem to have noticed, for instance, that the grim scenario traced out in the seminal 1973 study The Limits to Growth – still the most plausible map of the future ahead of us, and thus inevitably the most bitterly vilified – is driven by simple economics. As resources deplete, that study pointed out, the cost of keeping resources flowing into to the economy will increase in real terms, as more labor and capital have to be invested to extract a given amount of each resource; as pollution levels rise, in turn, the costs of mitigating their impacts on public health, agricultural productivity, and other core economic factors go up in the same way, and for the same reasons. Those costs have to be paid out of current economic output, leaving less and less for other uses, until economic output itself begins to fall and the industrial world begins its terminal decline.

Now it’s easy to insist, if you ignore the economic dimension, that a society facing this sort of crisis can save itself by launching a massive program to build nuclear reactors, solar thermal power plants, algal biodiesel, or what have you, and of course this sort of claim has seen endless rehashing over the last couple of decades. The problem is that massive programs of this sort pile additional demands on an already faltering economy. Any such program has to be paid for, after all, and by this I don’t mean that money has to be found for it; in today’s mostly hallucinatory economic climate, conjuring money out of thin air is easy enough. No, it has to be paid out of current economic output, which is much less flexible, and already has to cover the rising costs of resource depletion and pollution. This is the trap hidden in the limits to growth; once those limits begin to bite, the spare economic capacity that would be needed to build one’s way out of trouble no longer exists.

Thus there are limits hardwired into our situation by the inflexible realities that surround us, and we have already strayed far enough over those limits that the payback will inevitably be harsh. At the same time, other forces pushing us in the same direction are a product of economic misunderstandings, and in the way these misunderstandings are reflected in public policy. Those could conceivably be changed in time to matter.

Resource depletion and pollution, the driving forces behind the Limits to Growth scenario, are particularly vexed issues in today’s economic thought. As we’ve seen, both of these factors impose costs, potentially drastic ones, on the economy. Under current economic arrangements, however, those costs are not charged to the people who benefit from the activities in question. The owner of an oil well gets the economic benefits of pumping oil out of the ground, but does not have to pay for the impact today’s extraction will have on tomorrow’s economy. (For many years, in fact, government policies in most of the world’s industrial nations have actually rewarded oil well owners for accelerating the depletion of this nonrenewable resource and imposing massive costs on the future.) In the same way, the owner of a smokestack that dumps pollution into the atmosphere gets the economic benefits of whatever activity produces the pollution, but does not have to pay for the costs incurred as a result of the pollution. This asymmetry has at least two results. First and most obviously, neither the oil well owner nor the smokestack owner has any incentive to decrease the negative impacts of his or her activities. Still, the second and in some ways more important result is that the long-term economic burdens of depletion and pollution are not included in measures of the relative economic costs and benefits of the well or the smokestack.

The result is a massive distortion in our understanding of the realities that shape our lives. It’s generally not considered a viable business plan – outside of the financial industry, that is – to make large profits in the short term by running up debts so large the business will have to declare bankruptcy in the not too distant future. Yet this is exactly what an economic system that ignores the cumulative costs of resource depletion and pollution mitigation is doing, and on an even larger scale. The future costs of extracting resources from depleted reserves and mitigating the impacts of a polluted environment have the same effect as the future costs of debt service on excessive borrowing; they buy temporary prosperity in the near future at the cost of impoverishment or collapse further down the road.

Garret Hardin’s famous essay “The Tragedy of the Commons” addressed this issue some years back. Hardin showed that in a situation where the benefits from exploiting a resource went to individuals, but the costs were spread throughout the community, individuals intent on maximizing their own individual benefit would overexploit the resource and suffer drastic losses in the longer run. His logic was impeccable, and there are plenty of real-world examples of resource exhaustion driven by this very process, but it has been pointed out by his critics with equal relevance that resources held in common have in fact been managed sustainably in countless cases around the world and throughout history. The question that has to be asked is where the difference comes in.

This is where the divide pointed up earlier in this essay – the gap between economic realities and the models our society uses to understand them and predict their effects – comes into play. Hardin was quite correct that when individuals got the benefits of resource exploitation without paying their fair share of the costs to the community, exhaustion of the resource follows. Those societies that have managed resources in common successfully, in turn, found ways to make those who gained the benefits of resource exploitation pay a commensurate share of the costs. The collective understanding of economics in these societies, in other words, and the social policies that shaped economic behavior, took the tragedy of the commons into account and adjusted the customs and laws governing economic exchanges accordingly.

As we make the transition from what I’ve called the abundance economies of the first half of the industrial age to the scarcity industrialism of the near and middle future, it’s entirely possible that such adjustments could be put into place in our own societies. The accumulated burdens of past mistakes weigh heavily enough on the future that changes of this sort won’t stave off a great deal of trouble and suffering, but it’s entirely possible that a shift to saner policies backed by more realistic economic ideas could cushion the descent into the deindustrial age, and make it easier to allocate resources to projects that will actually do some good, instead of pursuing policies which – like nearly all the economic policies currently in place in the industrial world – will simply make matters worse.