The growth stall hints at an unspeakable truth, much as it was out of the question that the Soviet Central Statistical Directorate (TsSU) would publish accurate figures detailing the negligible rates of growth that characterized the last decades of the Soviet Union.
By 1987, whistleblowers Grigory Khannin and Vasily Selyunin had already spilled the beans on the TsSU. They reported that official statistics had overstated the Soviet national income in 1985, compared to the base level of 1928, by a factor of almost thirteen times. Peter J. Boettke summed up the “malpractice of economics measurement” nicely in Why Perestroika Failed. Referring to the overstated economic growth, he wrote, “In fact, the whole peculiar art of Soviet economic management amounted to the production, and distribution of this illusion.”13
US growth rates have now dwindled to the range actually experienced in the Soviet economy in its final years. But the production and distribution of the illusion that the United States is continuing to recover toward a long-term average of 3.27 percent GDP growth is a major preoccupation of the political establishment.
If you have a family to support and look forward to some comfort in retirement, you are one of the principal targets of the elaborate pretense that the US economy is growing as before. The wizards in Washington want you to run out to the mall to buy lots of junk you don’t need. The last thing they want is for you to save your money, much less buy gold, as you might be well advised to do if you realize how close this exhausted system is to collapse.
Better late than never, you should prepare for the Breaking Point. The American easy chair today is floating on the biggest ocean of red ink in the history of the earth, with total credit market debt of $59.4 trillion, as of March 31, 2014. The middle class is being reduced to poverty.
The causes and consequences of the slow-motion secular growth stall that began in the 1970s have grown clearer over the decades. The futility of attempting to base prosperity upon bubbles stimulated by the inflation of fiat money by the Federal Reserve was underscored when the US economy almost collapsed along with Lehman Brothers in 2008. Trillions of dollars of inflated wealth were wiped away and trillions more were funneled into bailouts of big banks, Wall Street investment houses, and two-thirds of the auto industry.
What happens if, as now appears likely, the postmodern economy is destined to revert more emphatically to a declining state because of radically falling returns on the energy investments required to obtain new hydrocarbon fuels? What would this mean? Here are some possible implications:
1. A continued plunge of EROEI from one hundred to one in 1930, to thirty-seven to one in 1990, to fifteen to one in 2010, and just ten to one by 2020 implies that middle-class living standards and debt levels in advanced economies like the United States are unsustainable.
2. This suggests that collapse will prove to be a long-term process, not merely an episodic tribulation.
3. You can expect “the world of day-to-day realities and that of make-believe well-being” to increasingly part ways—to steal Mikhail Gorbachev’s characterization of the last days of the Soviet Union. Every effort will be made to infatuate you with bogus statistics supposedly indicative of robust economic growth.
4. As Kenneth Boulding suggested, an all-but-inevitable consequence of the growth stall is an increasing, relentless effort by special interests to make government an institution for redistributing income away from the weak and toward the powerful.14
5. Upward mobility will decline as government legislates greater prosperity for the powerful. Incumbent firms will tend to enjoy greater artificial economies-to-scale so over time they will tend to capture greater market share so long as they enjoy political protection from startups.
6. Continued production from legacy fields opened during periods of greater EROEI suggests a gradual falloff of hydrocarbon energy inputs. But the overlay of cyclical movements over a secular decline imply the reverse of the picture of economic growth described by Henri Pirenne. Rather than “an inclined plane,” it would resemble “a staircase”—every step of which is liable to fall abruptly rather than rise “above that which precedes it.” Recoveries from cyclical downturns will continue to disappoint expectations informed by the modern experience of rapid 3.25 percent growth in advanced economies.
7. Dimitri Orlov suggests that the timing of collapse can be estimated by determining when a significant drop in energy consumption took place. He says you can then calculate how long the “collapse clock” is yet to tick by dividing the total wealth of a country’s people by the economic shortfall of the economy. The gag will continue until the government “has managed to strip citizens completely of everything they have.”15
8. Eventually, there will be a Breaking Point, the inevitable crisis foreseen by F. A. Hayek—a collapse or “rapid decline in social-political complexity,” as described by Joseph A. Tainter. Tainter points out in The Collapse of Complex Societies that what “may be a catastrophe to administrators” need not be to others. People who have the opportunity or ability to produce their own food resources may avoid this catastrophe.16 In 1980’s “The Role of Climate in Affecting Energy Demand/Supply,” MacKay and Allsopp point out that Europe and North America then used about 17 percent of their total energy for food production (while developing countries currently use 30 percent to 60 percent of their energy in food systems).17 A collapse in net energy availability would therefore presumably be a disaster for hundreds of millions or billions of people with uncertain access to food.
9. Institutional transformation at, or subsequent to, the Breaking Point is likely to be a tangled process, shrouded in make-believe continuity, confusion, and lies.
10. After the Breaking Point, depending on how far energy inputs fall, there could be a dramatic drop in the carrying capacity of the temperate economies. As Tim Morgan points out in Life after Growth, most work in today’s economy is powered by exogenous sources. Morgan writes, “Of the energy—a term coterminous with ‘work’—consumed in Western developed societies, well over 99% comes from exogenous sources, and probably less than 0.7% from human labor.” He concludes, “A sharp decline in EROEI could bomb societies back into the pre-industrial age. . . . The reality is that energy is completely central to all forms of activity, so the threat posed by a sharp decline in net energy availability extends into every aspect of the economy, and will affect supplies of food and water, access to other resources, and structures of government and law.”18
11. I would expect governments to become less democratic in form as well as substance. Remember, industrial democracy emerged after the Industrial Revolution to complement the organization of power at a large scale. As government institutions devolve, the poor, being a much larger percentage of the whole, will be reimagined with much less income redistribution.
12. State-sponsored old age pension systems are likely to collapse post–Breaking Point.
13. Fiat currencies will likely be replaced with money based on gold and/or silver, perhaps in competition or in conjunction with some crypto-currencies like Bitcoin.
14. The heavily regulated corporatist economy is likely to give way to a more free entrepreneurial economy, post–Breaking Point, as governments will lack the resources to bribe electorates and reward crony capitalists.
15. I expect a proliferation of sovereignties with governments organized on a smaller scale. This will permit a more entrepreneurial stance by the leaders of city-states and microsovereignties, much as the late Lee Kwan Yew devised new options in governance that made Singapore one of the richer jurisdictions in the world, without becoming what Jane Jacobs construed as a “monstrous hybrid.”
16. As net energy availability from hydrocarbons declines, the importance of solar energy conversion, by plant photosynthesis and direct radiation, will grow. Under those conditions, one would expect higher living standards in upland regions of the tropics where the impact of the climate requires less energy-intensive remediation. According to MacKay and Allsopp, more than one-third of
all energy consumed in industrialized North America and about one-half of the energy consumed in Europe is used to heat homes and commercial buildings in winter and, to a lesser extent, cool them in the summer.19
17. An interesting question is how enormous amounts of computing power now available will shape the evolution of the stationary, declining state in the future. With luck, perhaps it can help expand the percentage of the population who can live well to as much as a talented tenth.
These are some of the issues that are better thought through now than later when it may be too late. And you may need to keep your eyes open for a Mad Max look-alike in your neighborhood.
Notes
1 Pirenne, “Stages in the Social History of Capitalism,” in Class, Status and Power, ed. Richard Bendix and Seymour Martin Lipset (Glencoe: Free Press, 1953), 507–8.
2 See Hellier, Henry, Labour, Science and Technology in France, 1500–1620 (Cambridge: Cambridge University Press, 1996), 14.
3 Homer, Sidney, and Richard Sylia, A History of Interest Rates, 4th ed. (Hoboken, NJ: 2005), 73.
4 http://www.merriam-webster.com/dictionary/simony.
5 Pirenne, “Stages in the Social History of Capitalism,” 501–2.
6 Ibid., 502.
7 Ibid., 516.
8 https://www.washingtonpost.com/opinions/peter-thiel-thinking-too-highly-of-higher-ed/2014/11/21/f6758fba-70d4-11e4-893f-86bd390a3340_story.html?utm_term=.4c3a37f87a5e.
9 Hugh-Smith, Charles, “How Economies Collapse: Systemic Friction and Debt Are Self-Liquidating,” Zero Hedge, August 5, 2014.
10 http://www.alternet.org/fail-400-billion-military-jet-cant-fly-cloudy-weather.
11 Balakrishnan, Gopal, “Speculations on the Stationary State,” http://arcade.stanford.edu/occasion/speculations-stationary-state.
12 http://www.pressreader.com/ireland/irish-independent/20150630/282699045781010/TextView.
13 Boettke, Peter, Why Perestroika Failed: The Politics and Economics of Socialist Transformation (London: Routledge, 1993), 4.
14 Boulding, Kenneth, “The Shadow of the Stationary State,” in The No-Growth Society, ed. Mancur Olson and Hans Landsberg (New York: W. W. Norton, 1973), 92, 95.
15 Orlov, Dmitry, “How to Time Collapses,” ClubOrlov, February 4, 2014, http://cluborlov.blogspot.com/2014/02/how-to-time-collapses.html.
16 Tainter, Joseph A., The Collapse of Complex Societies (Cambridge: Cambridge University Press, 1990), 198.
17 McKay, G. A., and T. Allsopp, “The Role of Climate in Affecting Energy Demand/Supply,” in Interactions of Energy and Climate, ed. W. Bach, J. Pankrath, and J. Williams (Dordrecht, Holland: D. Reidel, 1980), 53–72.
18 Morgan, Life after Growth, 68–69.
19 Jager, Jill, “Scope 27 Climate Impact Assessment,” http://www.scopenvironment.org/downloadpubs/scope27/chapter09.html.
Acknowledgments
If you studied the history of the thank-you note in publishing, you would be disappointed. There is not much to go on. If you are enough of a bibliophile to own first editions published in centuries before the industrial period—or even early in it—you will find few (or no) acknowledgments. The earliest I can find record of is Li Qingzhao’s (1084–1155) “Thanking note to revered Chong Li,” appended to her volume of Song dynasty poems. I don’t know whether this hints that the Chinese were more polite than Western cultures and thus felt an earlier need to acknowledge intellectual debts. Or perhaps it is merely an artifact of my somewhat erratic research methods. I tried to outsmart the search algorithms on Google and DuckDuckGo well enough to get a hint of “what is what” about book acknowledgments. That brought me to Li Qingzhao.
I do know that Adam Smith did not append acknowledgments to An Inquiry into the Nature and the Causes of the Wealth of Nations (1776). He launched right in with “Introduction and Plan of the Work.” This made him the object of criticism in the last century. The late free-market theorist Murray Rothbard saw Smith’s lack of acknowledgments as indicative of plagiarism:
Even in an age that had fewer citations or footnotes than our own, Adam Smith was a shameless plagiarist, acknowledging little or nothing and stealing large chunks, for example, from Cantillon. Far worse was Smith’s complete failure to cite or acknowledge his beloved mentor Francis Hutcheson, from whom he derived most of his ideas as well as the organization of his economic and moral philosophy lectures. Smith indeed wrote in a private letter to the University of Glasgow of the “never-to-be-forgotten Dr. Hutcheson,” but apparently amnesia conveniently struck Adam Smith when it came time to writing the Wealth of Nations for the general public.1
As unlikely as it may seem that future generations of intellectual historians will toil over The Breaking Point, seeking to deconstruct the numerous influences that informed my thinking, I have hoped to make that unnecessary by footnoting the text and, further, with the more general acknowledgments I spell out here. Firstly, I want to thank Bill Bonner, who graciously penned a foreword to this book, for a lifetime of stimulating conversation. We witnessed the gaudy decline of the American political economy from the privileged perspective of Baby Boomers. And through the subversive device of inventing our own work, we found ourselves in positions to think independently about what has gone amiss. The Breaking Point gives my take on it.
I was encouraged in that direction by a stint as graduate student at the Institute for Renaissance Studies, where one fine afternoon, a guest lecturer holding forth on synderesis made the telling point that one could no more understand the Renaissance knowing no theology than he or she could understand the modern world knowing no economics. My determination to understand was doubled at that moment. Bill Bonner and I shared decades of conversation in the struggle to decipher the determining factors that seem to have deflected the future from the positive trajectory we expected a lifetime ago.
I also want to thank Peter Thiel for generously sharing ideas in numerous brainstorming sessions over the past five and a half years. I have been stimulated by our discussions, and perhaps unrealistically, I had hoped that he might fill the void left by the death of Lord Rees-Mogg. I distinctly miss being able explore and share ideas with a sympathetic and well-informed freethinker. William was a polymath who knew a lot about a lot of things. Peter is too. But he is a busy billionaire with too many calls on his attention to spontaneously take calls from me whenever some idea strikes my fancy. Still, he has been very generous with his time, for which I thank him. In particular, Peter drew my attention back to the haunting forward vision in Atlas Shrugged.
“You may know society is doomed when you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal, not in goods, but in favors; when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you; [and] when you see corruption being rewarded and honesty becoming a self-sacrifice.” Ayn Rand wrote that without seeing a single redacted email about Uranium One and the Clinton Foundation.
I owe a debt of thanks for many creative suggestions to Charles Delvalle, Aaron De Hoog, Heath King, and my colleague and partner in Newsmax, Chris Ruddy. Chris has given me more than one forum to develop my ideas. I appreciate his friendship. I also owe thanks to Mary Glenn and her whole editorial team for laboring over the various drafts of the text.
Several innocent parties, who had no idea they were contributing to The Breaking Point, nevertheless did. Simon Mitton at the Cambridge University Press contributed his wisdom in the form of Mitton’s Law—the caution that for every equation in a book, its readership will be halved. You can add your thanks to mine for the fact that there are no equations in The Breaking Point. The not-so-dumb blonde Morgan Fairchild helped introduce me to the corrupt culture of Florida’s sugar barons—a tutorial that came in handy in drafting chapter 14. Jim Rodgers also confirmed and amplified my alarm about the unsustainable nature of the financialized debt economy.
I particul
arly want to thank Dr. Habibullo Abdussamatov, head of the Space Research Laboratory at the Pulkovo Observatory of the Russian Academy of Sciences for his encouragement. Courtesy of Peter Thiel, Dr. Abdussamatov visited the United States, and we were able to spend five stimulating hours discussing the fraud that alleges the earth is threatened by human-caused global warming. John Casey, author of Dark Winter: How the Sun Is Causing a 30-Year Cold Spell, graciously read chapters 10 through 12. I thank him. Of course neither Dr. Abdussamatov nor John Casey bear responsibility for any mischaracterizations of solar physics or the geoid that may remain in the text. I also thank Dr. Al Sears for helping educate me on the shortcomings of mainstream sick care. Thinking independently is a gamey proposition. It is exciting to talk to others who are not in thrall to various rackets that inform public opinion in the twenty-first century.
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