2010: The Year For Making Contact
Another year. Another decade. Older, wiser and on an unchanged trajectory. Though it may not feel like it, 2010 puts us 5 years beyond the technical annual peak in world crude oil production. 2005 was also the inaugural year of this website - devoted generally to exploring the details, constraints and opportunities accompanying energy depletion. Just behind oil's apex was credit's peak, and as energy and debt have been the two primary drivers of economic growth, GDP won't be far behind in declining from all time highs, though it has been temporarily supported by sovereign debt infusions masking public/private credit decline. Though I suspect 2010 will be a watershed year for many in dealing with reality, a new year also allows for some self-reflection, and perhaps a reassessment of purpose and tactics, both as individuals and as a culture. The below essay is a short summary on where we are, what brought us here, and some resolutions for the coming year.
As I write this the mercury on our thermometer drops below -18 F. I sip imported coffee and pasteurized cream in a room made toasty warm with a combination of ancient sunlight (propane), old sunlight (wood) and today's sunlight (south facing windows). I write these words on a portable computer and bounce them 2000 miles up into the sky where they get beamed back down to our Gaia server so that strangers (and some friends) around the planet can read them. And I've yet to have breakfast, which will be something tasty, fresh from our electrical refrigerator. My 3 dogs and 4 cats are sprawled in myriad ways around the couch and floor, patiently waiting for their kibble. I peer out the window to watch my girlfriend feeding and watering her 4 horses, with hay harvested and stacked by complex tractors and water pulled up from 250 feet via electricity. Nick Drake is playing on my Ipod shuffle connected to a Bose Wave and the first Saturday of 2010 has begun, with things I have become accustomed to, and enjoy. Convenience, comfort and novelty on demand.
We did not always live like this, and for the majority, such high throughput will probably not be possible a generation hence, proximately due to many causes but ultimately for lack of energy gain. Centuries ago, the discovery of new lands and new fuels combined with the passage of time and humans gradually honed in on the natural sociopolitical system for a cooperative/competitive/curious species with access to a huge stored surplus - what some now refer to as turbo capitalism. Energy has been the primary driver of economic growth - take away energy, and technology, productivity and growth melt away. Fossil fuels allow us to run myriad processes at 2-3 cents per kWh input (w/oil at $75) whereas human labor globally costs over $10 per kWh (and considerably higher in the USA). Without this immense stable labor subsidy everything will change, from our international trade networks to our local food, water, heat and medicine delivery systems and most of the components in between.
Everything did in fact start to change in the 1970s, as US energy per capita consumption peaked, real wages peaked, US oil production peaked, and we started to use debt (spatial and temporal reallocation of real wealth) to increasingly supplement energy's role in current growth. Urged on by socially acceptable excess consumption via advertising, borrowing from the future also became socially acceptable, and the linkages between real capital (natural, built, human and social) and financial markers for this real wealth became blurred. I should clarify: I believe we have plenty of energy, resources, technology and materials for this many or more humans for a generation or so to come, just not at current levels of consumption, aspiration, and the perceived extant (digital) wealth.
Source: GDP -Bureau Labor Statistics, Debt - Aggregate household, financial, corporate and government. Source: Fed Reserve Standards Board 2009
If we lived in a society of 100% reserve requirements (no leveraged money), then oil's peak would have come later, and implied higher oil prices pretty much right after the peak. As it stands, though, debt pulled allocations of energy and other resources from the periphery and future towards the present and center - thus the 'peak affordability' engendered by the ongoing credit collapse will run its course first. It is important to understand we are not close to running out of available energy or resources, even for this many billions. But it is very clear (to me at least) that the amount of energy flow rates (and accompanying non-energy inputs like water) are not enough to service/maintain the accumulated financial claims in this system, especially given that a large % of energy inputs have been spent long ago (marginal EROI is overstated). It is likely if not inevitable that the claims extant in current system will cause currency reform which in turn has implications for all sorts of interdependent systems based on just-in-time inventories and global trade. (*I define currency reform as a cessation of accepting one (or numerous) currencies as international means of payment, resulting in issuance of new currencies which may or may not honor prior claims - and the more they honor prior claims the shorter lasting they will be.)
We are roughly where I thought we’d be 5 years past peak (technically still on a plateau) – we're replacing oil with lower BTU alternatives (biofuels, NGPLs), increasing environmental externalities, and obfuscating resource depletion with financial witch-hunts. On the demand side we're still trying to maintain the façade that everything is normal - and there continues to be a concerted effort among the icons of society to borrow and legislate our way back to just before the social precipice. We have shorter attention spans, shorter interest in things academic and more interest in things practical. I, like many people, misjudged government and central bank efforts to keep things afloat in the near term, and this could well continue for a while. Ignorance is bliss and all that. But we now require around $10 of new debt to generate each new $ of GDP. And the next time oil goes above $100 let along $150 or $200, this will be financed only with more and more debt. We are faced with, barring an unforeseen white swan, an untenable situation.
Given this backdrop and without further preamble, let me share my own thinking about 2010 in the form of my personal resolutions given my perspective on the world, and society. You may notice a general theme throughout the list.
Top 10 resolutions for 2010:
10. Despite the seeming profound nature of our circumstances and growing social malaise, we are alive at one of the most amazing thresholds for our species. Despite growing issues with both democracy and capitalism, few periods of human history show evidence of as much freedom, energy, art, and choice as we now have globally. It's important to step back from the trees and look at and enjoy such a forest each and every day. Resolution #10 Live, love and experience, with one eye (but not both), on the greater good. Be goofy, creative, flexible, and don't take things too seriously.
9.Friends and former clients are increasingly asking me about the markets, where I’m putting my money, and how to capitalize on the upcoming energy/credit descent trends while at same time protecting their capital. By and large they all focus on the Dow (or SP500) as a barometer of health and success of our country and global systemic health in general. I think this era is over. We are in the liminal space where perceptions of what defines wealth are shifting, and amassed financial digits are going to be a giant headache to protect in the year(s) before currency reform. The balls in the sovereign credit pinball machine will soon become blurry from fast movement - Greece, Portugal, Spain, Italy, Japan, Australia, ???? - and who knows who else before the balls disappear or the game goes tilt. Inflation, deflation, rule changes, and too many claims vs. real assets will require one to be incredibly nimble, both in the markets, and in translating abstract markers into real capital, even a portion of it, in a timely fashion.
Personally I moved 1/2 of my (small) assets out of the market in Jan of 2009 and am moving another 1/2 out next week. It's not that I think stock markets are going down, but that they've now become a lagging, not a leading indicator -the currency markets until their eventual terminus- will be the tail wagging the financial dog. Equity wealth/share prices no longer represent the fair game that I once understood, a game that since its inception has been subsidized by energy surplus but now to an increasing extent by abstractions. Given that governments are pursuing the sovereign-for-public/private debt switcheroo, I think financial armageddon will eventually first occur in the currency/bond markets, not in stocks (though I would expect they would soon follow). A first step towards mental clarity is to stop equating the SP500 and the Dow as metrics of health of our system, something I (and many others), frequently do. Those that do so, and bring their own financial health along for the ride are going to be disappointed and ultimately left holding the bag. As my advisor Bob says, we as a culture have been overly focused on pursuing the pot of gold and in the process have lost sight of the rainbow.
Resolution #9 Stop getting sucked into viewing or even caring about where the SP500 or DJIA are. As a marker of our progress it has really lost its relevance. The currency markets will be a much less noisy signal as to health of financial system.
8. A natural further step in this direction would be to stop measuring one's net worth solely by financial assets and to gradually (or quickly) embark on a diversification plan. Stocks, bonds, commodities, cash, even gold will have outsized risk for perceived reward. This is not to say I relish poverty or wouldn't turn down a $1 million lottery ticket winner or gift, but that digital wealth is not only at risk of taking a haircut (or clean shave) in a currency reset, but it also is only a temporary proxy for the things we really need and want- we've just become conditioned to compete and measure our net worth in digits as opposed to friends, skills, activities and goods.
A complementary resolution to de-emphasizing financial capital is to increase emphasis on human and social capital. Of the 100 or so houses within 3 miles of where I live, I have only met 3 families. I intend on taking produce from our root cellar, and perhaps some baked goods or such, and meet real people in my area in the coming weeks. Very new concept for me. My numerous contacts and friends on the ether are of the highest quality, understand the things I am interested in and am studying, and are very bright. But they will not be my neighbors in the future. It's time to meet that train halfway. Many non-linear synergies can be collected using resources close to home.
Resolution #8 Continue to diversify away from financial assets. Portfolio objective by year end: 25% financial capital, 25% natural/built capital, 25% human capital and 25% social capital (I may be there already in reality, it is the mindset/perception of such that I want to change). I realize that it will be virtually impossible for the very wealthy to maintain their perceived relative fitness lead over their human conspecifics using this strategy - you can't easily or quickly translate $10 million into social or human capital.
7. Despite the bloom being off the scientific/academic rose since I first started, I will jump the last few hoops and finish my PhD. Though I recognize the only people that will likely care are my parents, my girlfriend's parents, and other people with PhDs, my procrastination has started to bother me (in the form of repeated weird dreams, etc.) I also would like to educate young people, and being affiliated with a university requires such a marker.
Resolution #7 Finish PhD.
Understanding that ‘resolutions’ are essentially attempts at neocortical suppression of limbic/reptilian impulses (and therefore can only be partially effective), let me label the preceding resolutions as ‘absolute’ and the following as mere ‘intentions’.
6. I am addicted to the internet – in systems language the internet represents an attractor with some positive externalities (knowledge, data, synthesis) and some negative (habituation, shorter attention span, steeper discount rates). In reality, I am not ‘addicted’ to a computer nor the Google per se, but the act of receiving perpetual unexpected reward. In my opinion, the concepts of unexpected reward and neural habituation are probably the largest impediments to positive social change. We are a culture of prevalent novelty and stimulation options- education and behavioral change with respect to resource depletion are in general low stimulation options that create feelings akin to physical withdrawal if other options are still available.
Each time we use energy and create material throughput, there is a debit on the supply side resource ledger and a credit (liability) to the externality. But what is left out of the sustainability equation is a debit on the demand side, our plastic neural template. These debits play a large role in future resource throughput. If one would spend the same embodied energy on a barn as an all-terrain vehicle, not only would the ATV continue to require energy (fuel) in the future, but the neural high water marks engendered by the excitement and unexpected reward of driving at break-neck speeds through changing wilderness scenes would virtually guarantee higher minimum thresholds for 'unexpected' sensations in the future, themselves highly correlated with resource throughput in our current culture. These would manifest as desires, cravings and 'wantings' that barring social pressure would seem entirely normal. (If a barn and ATV fail to make this point, consider a pairing such as cocaine and wine.) In effect through our own behavior and choices we create mental chinese finger traps that narrow the options of our own future actions.
Once (and if) we look at our human socio-economic system as more akin to a human ecosystem, there are certain lines in the sand that must be drawn. Beneficial attractors need to be stabilized, maintained and/or amplified. Negative attractors would need to be dampened or phased out fairly quickly. It is an open question whether such attractors, from a societal perspective, should be tinkered with until there is a viable bridge to Plan B as I will discuss below. However from the perspective of the individual, changing one's ‘attractor’ portfolio probably can’t happen soon enough, once recognition of the benefits is internalized. So many of the problems we face are symptoms of our realities and expectations for the future being ‘tricked’ by concentrated stimuli that our ancestors brains were not sensitized nor prepared for.
The preponderance of environmentalists and others interested in sustainability focus entirely on the actual footprint of the energy and resources we use. I intend to find a way to articulate the future impact of past decisions/purchases as well. Furthermore, given the particular life I have lived, I am interested in an n=1 sense if I can reverse the neural grooves that a high information, world travel, internet, stimulative lifestyle have created over the years. In order to do this, of course, I have to give up many of the same things that allowed me to come to these conclusions - ergo find more balance.
Resolution #6 Reduce/change the attractors in my life that pull me in to unsustainable activities with positive feedback loops. This includes the internet, sugar (has now been proven to be a gateway drug (Hoebel 2005,2008,2009)), and cell phone, etc. Amplify beneficial attractors like exercise, meditation, rest. No brainer.
5. In retrospect it was some composite of naivety and ego (and if 100% ego then also 100% self-deception) that made me believe efforts at broadcasting the truth about resource depletion via analysis and discussion would naturally combine with human goodwill and via the snowball effect, result in behavioral and policy change. I now am of the suspicion that calling further attention to the real elephant - our massive debt overhang in relation to social claims - may actually have unintended negative consequences. (not at the level of theoildrum, but at the level of CNN, CNBC, etc.) I should add that mitigation efforts in 2010 are a bit different than in 2004-5 (when I started speaking/writing about these issues).
If people en masse are repeatedly told the emperor has no clothes, it may result in people actually understanding that the emperor has no clothes, which would lickety split result in what effectually would be a societal run on the bank. In other words, I now at least acknowledge the possibility that winning the cognitive game of pin the tail on the donkey might ultimately make one a donkey. If we’re to seriously critique the wardrobe of the emperor, we'd better have explicit plans and options for a whole new wardrobe to articulate, otherwise perhaps being quiet and working on said plans is a better idea.
Resolution #5 Unless I'm just talking among friends, I will no longer articulate our societal problems without offering some action plan. There are of course no blanket 'solutions', but there are many suggestions for action that are far better than our default trajectory. I basically realized there is more to this whole thing than the truth. The truth has to come with a plan.
4. As a corollary to #6 and #5, I am stepping down from editor to contributor on theoildrum, something long intended and promised to family. Co-running this ship for several years has been a great experience. My relationship with this band of brothers (and a few sisters) will continue going forward but as colleague rather than choreographer. I'm not ready to step off of the analytical merry-go-round altogether just yet, only ride it at a slower pace and focus on the bigger picture. The energy data highlighted and discussed here, especially in the archives, is of significant societal value.
3. I intend to not allow myself to get paralyzed/distracted by coming details of what will appear to be 3 standard deviation macro-events in 2010 given the basic fact that our financial system itself rests precariously above 5 sigma. I'm sure smart and curious people will continue to suss out further details on debt jubilee, which credit demographics will lose the most relative status after currency reform, refined details on the externalities of human commerce, the various technological improvements that may potentially slow the decline from energy apex, and the correlations of the various changing variables impacting our economic system. All this is important and relevant but, in my opinion, the image taking shape on our socio-economic tapestry is relatively clear. As such, the quest for more and more information and refined datapoints can also be addictive. I suspect 2010 will delineate for some a recognition that personal altruistic self-expression on the internet will have crossed into an unproductive state. I intend to maintain balance and perspective in the face of this risk. Resolution #3 Don't get bogged down on details when events materialize - stay aware of the bigger picture.
2. Resolution #2 - to be determined....
1. Resolution #1 I'll reserve the right based on new information or new insights, to change my resolutions. (remnant of Catholic upbringing.)
That's my list, now known to whoever may read this missive, meaning I've made a social contract of sorts which have higher chances of succeeding than mumblings to oneself. (I'll try to honestly score myself a year hence)
We live in special times. Change is needed and will eventually, as always, arrive. Growth is possible but only under unlikely assumptions. Hopefully we can use our remaining highest quality energy and resources towards building something more stable. We have the technology and resources but lack the political will and perhaps the human nature. Technology based 'solutions' should be used more like a crutch than a machete, in my opinion.
Of all the possible futures we face, maintaining social stability and tilting people towards their positive potential, not as producers and consumers of things, but as humans living with each other within limits as much as possible, may perhaps buy us time for something more ambitious. The biggest potential trump card, in both directions, will be human reaction to events and cultural change.
Happy New Year - 2010 - the year to go out and make contact.* (*and in writing this, I am 1/2 day behind.)