Submitted by Brian Davey via CredoEconomics.com
,
Anyone with any sense for global economic trends ought to
be worried. The signs are everywhere of a serious deflationary
crisis.It is obvious that Chinese growth is falling. The
prices for energy and the raw materials that feed the growth
economy keep falling. The demand for Chinese exports is down too.
Stock Markets in Asia are falling, despite attempts to prop them
up. Countries are being tempted to export their problems abroad –
for example by competitive devaluation. In Europe its obvious that
a “solution” is being cobbled together for the Euro and Greek
crisis even though no one at all believes that it will work.
At the same time the policy response of “quantitative
easing” which has kept interest rates down very low has reached the
end of the road.With interest rates at or near to zero the
scope for addressing the crisis through monetary policy (low
interest rates) is exhausted. Many pundits believe that low
interest rates have not encouraged productive investment but
speculative bubbles – the creation of capacity in fields that in
the long run will not pay, or fuelled a casino style speculation,
a giant bubble of bets that could soon collapse, bringing
the global economy down with it.
So what is going on? How do we explain the
situation?
In this paper I am going to argue that there are a number of
ways of understanding and addressing what is developing into a
global crisis. The desire to make the crisis understandable can
convert into a temptation to make it seem simpler than it is. At
its most banal we have the explanations that neo liberal German
politicians are prone to – like the idea that the crisis is because
of a lack of confidence and trust and that this can be resolved (in
Europe) purely and simply by countries following the Eurozone
rules. If the confidence and trust are restored then all will be
well and the market will restore prosperity.
A more adequate story is needed than this – and it is one that
needs to focus on global trends not just in Europe but in the USA,
the so-called developing world and above all in China. This story
has a number of different plots and sub plots, not one. We need to
understand how the sub plots interweave.
The story is one of debt, competitive imbalances and an
energy crisis and all need to be told. To make the story even more
complicated we need to keep in mind too that an even more important
story, that of climate change, has to be held in our minds
too. If and when humanity has any chance of resolving
these crises it will have to resolve that one at the same time.
Will this be possible? I don’t know – what I do know is that there
is a theory, by archeologist Joseph Tainter, that humanities’
problem solving capacities are limited by complexity. A friend is
currently trying to get me to use twitter. However I am daunted by
reducing complex situations to short simple messages. Understanding
the global economy is like entering a labyrinth. As I get older I
notice that some people become famous because of the clarity in the
way that they write. What may not be noticed is that the apparent
clarity in a political economic message is often the result of
simplification. The popularity of neo-liberal economcs is like
that.
So lets look at the ways of describing the crisis. In
summary this can be described as the interrelationship between 4
processes.
(1) Structural policy stupidity – policy governance cannot cope
with the complexity of the crisis. Politicians cannot cope with
communicating complex messages to their peoples nor find the
mechanisms to cope with the complexity of the issues.
(2) Problems are also caused by uneven development between
countries and sectors which cannot be sustained without methods for
recycling purchasing power from the more competitive countries to
the less competitive ones. These imbalances become most problematic
when capital export from surplus to deficit countries slows which
happens when growth slows in the deficit countries.
(3) The crisis is both cause and effect of a rising amount of
debt – personal, corporate, state and financial sector – which has
acted as a drag on growth. As growth falls all kinds of debt become
more difficult to service so the monetary authorities have tried to
push interest rates down. Nevertheless the finance sector has
tended to become both more speculative and more predatory as there
is a “hunt for yield”. Interest rates rise when risk premiums are
imposed on distressed borrowers (including states), money making
occurs through financing arrangements based on “passing the risk
parcel” exploiting the naivety of lenders about complex financial
arrangements and by the promotion of asset price bubbles. The
bigger players are rescued during crises but the smaller players
(including tax payers and those who lose their state benefits) are
made to pay.
(4) The crisis is the result of reaching “the limits of economic
growth” and, in particular, because of resource depletion in the
energy sector. This is less obvious because of currently low and
falling energy and commodity prices but we need to study the
experience of the energy sector over last few years, not just the
immediate situation. The immediate fall in commodity and energy
prices is a result of the onset of the crisis – a crisis which very
high and rising energy prices up until recently helped bring on.
The high energy prices have been compatible with a high level of
debt only because interest rates have been so low and because there
has been a “hunt for yield”, something that would pay more than
leaving money on deposit paying very little.
Depletion of resources in the energy and mining sector means
that it is taking more energy than before to extract energy (and
other mined resources) and this has pushed up the costs of
extraction of energy and other minerals. High energy costs act as a
drag on the growth of the economy as a whole – because energy
costs, like interest rates, enter into the production of virtually
everything else. This is particularly acute problem in the energy
sector itself as the energy sector is such a huge user of energy.
The energy companies need a high price for energy otherwise they
cannot actually make a profit. However, if energy prices are high
for too long the economy wilts.
The development of unconventional oil and gas has been possible
because quantitative easing has made a large amount of money to
Wall Street at a low interest rate and they have been “searching
for yield” – looking for somewhere to put this money to earn a high
rate of interest. This funded the voracious capital expenditure
needs of the industry with its high drilling intensity. However it
pre-supposed that prices would remain high enough for long enough
to cover costs and this has not happened. The problem is set to get
a lot worse as depletion speeds up.
So, to repeat, the best way to tell the story of this
crisis needs to relate ALL of these elements together – policy
failure, debt, imbalances, energy. Each element is causatively
connected to the others but sometimes in a time lagged way which
obscures the relationships. Together these elements are bringing
about what some observers are calling “secular
stagnation”.
“Stanley Fischer, vice-chairman of the US Federal Reserve, has
laid out the predicamentthat forecasters face.
Half way through each year, economists have had to explain why
their global growth forecasts were too optimistic, he said, and
this has happened “year after year”. While growth rates have been
falling across the world, it’s not yet clear whether this is all a
hangover from the 2008 crash or something more fundamental.”
In my view it is “something more fundamental”. It is
related to reaching the limits to growth – and this has to do with
fossil fuel and materials depletion and the end of cheap energy.
However, this does not exclude a partial truth in the other
narratives that economists are using to explain low
growth.
In the reminder of this article I run through each of these
themes in more depth.
Explanation number one: “structural policy stupidity”
First of all structural policy stupidity – all politics must be
sold in one way or another to the governed. Even autocrats strive
to govern with ideas as well as through simple fear. The rhetoric
of politicians must to some degree match the way people think about
things – that means one ingredient for successful politics is where
politicians succeed in appealing to popular illusions embodied in
“common sense”. One such popular illusion is that states have to
arrange their finances using the same principles that ordinary
households use to run their personal finances. Never mind that this
is not true – the politicians who pursue policies and use a
rhetoric that appeals to the “person in the street” viewpoint have
a head start. As a number of economists have noted these
politicians work with an ultra simple (and wrong) model of economic
reality – that if governments follow rules and don’t borrow
excessively this will inspire confidence and trust and economies
will grow, spurred on by competition. It does not matter that this
idea may actually be self defeating when an economy is slipping
into recession – the important point is that collective illusions
persist when they fulfil a collective purpose for those that hold
them. In this case a key collective purpose of “the balanced budget
illusion” is that it makes communicating with electorates so much
easier. It enables a message of “we cannot afford” and “being cruel
to be kind” to be directed against vulnerable groups who can be
more easily scapegoated.
Complex messages are not popular and don’t sell well even if
they more accurately reflect reality. Please note here that I am
saying something more than politicians are mistaken – my argument
is that ideas like the balanced budget illusion is more than “a
mistake”. It is an illusion that has a structural function in the
political process. It is not an accident that this particular theme
repeats itself in history again and again. There is no reason to
believe that once an idea has been rejected by one generation after
a bitter learning experience, that a subsequent generation that
have not been through the same learning experience will not have to
learn it the hard way all over again.
One of the sayings of the management theorist Stafford Beer was
that “the purpose of a system is what it does”. I really like this
because it cuts through all the rhetorical justifications and
excuses. If a system like the Eurozone is ruining its less
competitive members in favour of the more competitive ones then
this is the purpose of the system. Were it not the purpose of the
system most powerful players in it would change it.
In this regard the very structure of the Eurozone has proved
ideal for putting the banking and financial elite of Europe out of
reach of democratic political processes. The currency is managed at
a level out of the reach of any one state with the finances of each
state disciplined by a set of rules that enforces close to a
balanced budget. Given the inevitable crises each government that
becomes vulnerable then has to cede more and more economic policy
to financial interests who are free to impose neo-liberal policies
like privatisation quasi automatically. The “coup” against Greece
was a design feature of the Euro and delivers the primacy of
finance over any pretence of democratic politics.
Given the complexity of eurozone governance, in which every
state is supposed to have a say and decisions must be passed back
to all of these governments, it seems as if governance requires a
set of rules that governments adhere to, otherwise there would be
endless re-negotiations for each new situation, and for each state,
that would go on forever. In an
interviewin the
New StatesmanYanis Varoufakis explained this when he
described the viewpoint of Wolfgang Schaueble.
“Schäuble was consistent throughout. His view was ‘I’m not
discussing the programme – this was accepted by the previous
government and we can’t possibly allow an election to change
anything. Because we have elections all the time, there are 19 of
us, if every time there was an election and something changed, the
contracts between us wouldn’t mean anything.’”
If you think about it this is not only a recipe for the negation
of democracy it is the negation of any kind of economic policy
discussion or policy variability. A common currency zone cannot
work in these circumstances because it is paralysed by its
complexity into ever being unable to adapt its economic policy. The
default is then to a neo-liberal assumption of a balanced budget
(or budget surplus, free market rules and privatisation). All it
can do is to follow a set of pre-determined rules. In this case the
policy that destroys economies like that of Greece appears as the
price paid to avoid endless renegotiations.
The problem for the Eurozone and the global economy is that
this is leading to a massive deflation….or maybe from an elite
viewpoint this is not so negative. Maybe this is not “policy
stupidity” but a cunning plan???
In a massive crisis in which only the super elite are rescued
and everyone else ruined there would be a further massive
concentration of wealth and power. Perhaps members of the super
elite – the 1% of the 1% – think in this way. Or maybe I am
paranoid.
Explanation number two – too much debt
Some economists think that that somehow debt doesn’t matter
since, supposedly, debt transfers purchasing power from debtors to
creditors who will spent it instead so debt is not supposed to
affect “aggregate demand”. Alas this misunderstands the mechanisms
of bank credit creation. In order for money creation and demand
expansion to occur in the current system there is a requirement
that more bank credit creation – i.e. more borrowing from banks –
takes place. If individuals and companies are maxed out (“peak
debt”) and if they are reluctant to take on more debt then
aggregate demand cannot be increased. In fact, even if the central
bank pumps out more money through “quantitative easing” this will
do little or nothing to increase demand. The central bank will
create money to buy bonds from banks but the money created and paid
over will remain unused by the banks and the velocity of
circulation will fall. The single demand expansion influence is
that interest rates are lower and this is supposed to encourage
investment – something that does not happen if the conditions for
expansion do not otherwise exist. What happens instead is that
money goes into speculation.
Meanwhile if companies and individuals are maxed out they will
be making an effort to pay back their debts to the banks. When this
happens money is destroyed and goes out of circulation. More
particularly chain reactions from defaults and collapsing
confidence destroys the trust and confidence on which the financial
system works and leads to massive deflation. Now this situation of
collapsing purchasing power in the private economy could in theory
be balanced out by government spending leading to the governments
running deficits – but that’s against the eurozone rules.
Explanation number three – global imbalances/failing mechanisms
to recycle purchasing power
Another explanation for current stagnation is the breakdown of
mechanisms for dealing with international trade and financial
imbalances. In his book
The Global MinotaurYanis Varoufakis, describes the history
of the post war economy by focusing on the story of how trade and
financial imbalances were managed – particularly the imbalances
between the USA and the rest of the world, but also imbalances in
the Eurozone. As he explains, unless there is a mechanism for
recycling surpluses from countries in trade surplus back to
countries in trade deficit then purchasing power drains away from
the deficit countries who are put in a deflationary squeeze as is
happening to Greece currently. In the initial period after world
war two the USA was dominant in the global economy and was in trade
surplus to the rest of the world. It used the financial flows into
America that were generated by its surplus of exports over imports
by investing back into the rebuilding of countries like Germany and
Japan and more generally into the American design for the postwar
economy as bulwark against communism. The recycling of surpluses
back into deficit countries kept the boom going. But you won’t
catch Germany recycling its surpluses back into Greece now.
The answer to an export surplus in one country which occurs over
and against import surpluses in other countries is for the
countries with the export surplus to use the money that they earn
in capital export back to the deficit countries. They invest in
those countries. However, that implies that there is something in
the deficit countries that is an attractive focus for investment.
It implies that those countries are growing – which brings the
argument round full circle. For decades the USA was the largest
economy in the world and a growing economy. This meant that when
the US first went into what was to be a long running trade deficit
it was still worth Germans, Japanese or Chinese parking their
dollar earnings as deposits into Wall Street banks or using them to
lend to the US government. The dollars earned by Germany, Japan and
later by China could be invested in the US economy or they could be
used to buy oil. This was also because, by agreement with countries
like Saudi Arabia, oil had to be purchased in dollars. This
arrangement partly broke down however when Wall Street crashed in
2007 – in large part because it was operating a criminal business
model. Loans were made to people who it was known would never be
able to pay them back and packaged up with other assets and then
sold on across the world to pension funds and other financial
institutions who picked up the risk parcel, misled by ratings
agencies. The ratings agencies were paid to say that the “toxic
trash” was AAA grade.
Turning the finance explanation upside down
So, to come back to the story – yes the current problems are due
to too much debt. Yes, mechanisms for recycling global financial
flows arising out of trade imbalances no longer work so well after
Wall Street and other banksters in London and Frankfurt are seen to
be run by crooks….but one can argue that these two phenomena are
also the result of the failure to grow, as much as the cause. You
can turn at least a part of the argument on its head.
What I mean by that is that a rising amount of debt in general
and troubled debt in particular is not just a cause of faltering
growth – the faltering growth is a cause of the increasing amount
of troubled debt.
Debt is not usually seen to be a problem for companies and
individuals where their income is rising and sufficiently secure
for people to pay the interest. It is when people find that their
real income is stagnating or falling that more debt becomes
distressed debt and distressed debt becomes the lender business
model. Prudential lending pays in a growing economy with growing
investment opportunities – but the temptation to resort to
predatory lending occurs when there is an awareness of, even a
decision to exploit, the desperation of people in trouble. This
becomes part of the model. What happens when a country, or a
company, or an individual, cannot pay? The answer is that the
interest rate that they are supposed to pay for any new credit
rises dramatically because they are now supposed to pay the lender
“a risk premium”. This is the last stage of a process of debt
accumulation. When a debt pyramid comes crashing down it does so
because, just before it crashes, debt servicing costs get
dramatically worse as “risk premiums” are loaded onto
borrowers.
This “risk premium” might lead one to suppose that lenders
actually are tolerating a higher level of risk for which they must
be compensated – however this is only partly true for the biggest
players. When the biggest players are deemed “too big to fail” they
get backed by politicians so the “risk” is taken off – that is,
after all, what happened to the German and French banks that lent
to Greece. The deal stitched up by the IMF and the ECB meant that
they got bailed out and the debt loaded onto the Greek people. So
while risk premiums allow banks to increase their take the real
risks do not rise commensurately.
The temptation to borrow under increasingly unfavourable
conditions is not like borrowing to invest or to buy an asset with
the secure expectation of a rising income. As debt increases the
business model for lenders becomes more and more making money with
distressed debt, vulture funds, passing the risk parcel and toxic
trash. It occurs because borrowing states, institutions and
individuals resort to what becomes a kind of gambling considered as
a last resort, as an attempt at a way out of a desperate situation.
That’s one of the ideas of Prospect Theory. Normally people are
risk averse, they don’t risk what little they still have if they
have anything left – however they do gamble when all of their other
options seem hopeless anyway. Underlying all of this is that the
rising incomes are no longer there. By way of contrast the
institutions lending are not taking real risks because they have
friends in very high places.
Turning the imbalance argument around
One can turn the idea about imbalances the other way round too.
In one way of looking at the situation it seems that growth falters
because the mechanisms to handle imbalances by recycling surpluses
break down. No doubt there is truth in this but you can turn that
idea round – i.e. it is when growth falters that the mechanisms to
handle imbalances by recycling surpluses dry up. As we have argued
the way to recycle surpluses is through capital export – the
purchasing power flows back to the deficit countries not as money
to purchase their goods as imports into the surplus countries but
rather as money to buy into the industries and economies of the
deficit countries, as investment. But who is going to invest into a
stagnant or contracting economy?
Look what happened to the German privatisation of East Germany.
The institution that was entrusted to sell off East German
industry, the Treuehand, made a big loss. How could that be? When
the East German economy was merged with the West German economy it
was at the rate of one East German mark for one West German mark.
This was an early lesson of what would happen in the eurozone
except that it all happened inside Germany itself. The East Germans
could not compete after reunification, just like the Greeks cannot
compete now. So most East German businesses were making huge
losses. However, if you want to sell off companies then you have to
sell them as going concerns. You have to keep them going before you
sell them….which often meant making huge losses. What they got for
the sale of these companies never covered these losses.
Wolfgang Schaueble knows this – he was involved. They will not
make any money selling Greek assets either. When the Austrian
Railways considered a takeover of the Greek railways they said they
would only do this if the Greek railways were given away. Unless
Greece is growing and prospering there will be very little capital
export into Greece to actually buy privatised assets.
So, to summarise the argument so far: slowing growth can be
explained by increasing debt reaching its limits and the breakdown
of mechanisms to even imbalances by recycling purchasing power from
surplus to deficit countries. On the other hand the fact that debt
is reaching its limits and surplus recycling limits are breaking
down can be explained by slowing growth. Both are true in both
directions of causation and what we are seeing here is a “vicious
cycle” in operation.
Explanation number four – the energy crisis
Now let’s add the fourth way of looking at the issues. Let us
start by making a distinction between growth of production and
growth of production capacity. Growth of production can occur if
there is spare capacity in an economy in the form of unemployed
resources which can be brought back into utilisation – but for
growth to be long term there must be a growth of the capacity of an
economy.
This depends upon expenditure in capital formation – the
creation of buildings, equipment and infrastructure. Capital
formation is an energy intensive business because infrastructure,
buildings and equipment require energy in their production – plus
they require an energy throughput for their utilisation. The point
about energy is that it is required for every good or service
purchased. Even a haircut requires electric light or warmth in the
barbers shop and to run electric clippers. Anything that enters
into the production of all goods and services is a cost of
production that all share. So if the cost of energy rises so does
the cost of producing everything.
The nearest comparable example of a cost that enters into the
production of all goods and services is interest rates. Virtually
all individuals and companies must borrow so the interest rate
enters into the cost of all production and into many everyday
living expenses too. You can argue therefore that the real reason
that interest rates have been driven down so low by central bankers
is that energy costs have been so high. It is has not been possible
for the economy to sustain BOTH high interest rates AND the higher
energy prices. This is the reason for the stagnation.
Most energy intensive of all is investment in the energy and
mining sector. The amount of energy required to tap and process
energy is rising as it becomes harder to find, extract, process and
transport oil, gas and coal from smaller, deeper, more remote, and
harder to tap geological sources.
Slowing growth of global productive capacity is the result of
the global economy running up against ecological system limits.
This is particularly apparent in the climate crisis and the costs
that occur as a result of this but, more immediately too, in the
economics of extracting fossil fuels. The long run trend is towards
rising energy costs which acts as a drag upon the growth of the
productive capacity of the global economic system. The most energy
intensive sector of all is the energy sector itself. We can see
that if we compare the amount of energy used per hour of human
activity in the energy and mining sector compared to the amount of
energy used per hour of human activity in other economic sectors.
(This is the so called exosomatic metabolic rate). These figures
are for Catalonia in 2005 because the academics who have studied
this issue are mainly at the University of Barcelona but one can
expect comparable figures in other places. The rates are 2,000
Megajoules per hour of human activity devoted to energy and mining.
This compares to 2.8 Megajoules per hour outside of paid work in
households, 75 Megajoules per hour in services and government, 331
Megajoules per hour in the building and manufacturing sector (not
including energy and mining) and 175 MJ/h in agriculture. As a
matter of fact 11% of the energy throughput of society was taken by
the energy sector itself – even though only 0.0945% of the time of
everyone in Catalonia was devoted to energy and mining.
With energy and mining being the most energy intensive sector
one would expect the impact of rising energy costs to be felt
initially and most powerfully in the energy and mining sector
itself. This has indeed been the case. In a presentation by Steve
Kopits of the Douglas Westwood Consultancy he shows this graph
(CAGR = compound annual growth rate).
As can be seen the capital expenditure required per barrel of
oil in the exploration and production sector has increased
enormously. To extract oil is requiring greater and greater amounts
of investment in exploration and production.
We can see very clearly what is happening if we look at the
statistics for fracking for shale oil in the USA. The fact that the
US oil and gas industry has had to resort to fracking is a sign
that American oil and gas fields are highly depleted and near to
exhaustion. As an analyst called Arthur Berman puts it, fracking is
the “retirement party” of the oil and gas industry. It is not a new
beginning. As a matter of fact the USA, Russia and Saudi Arabia
almost produce an identical amount of oil but look at the
difference in the way that they produce it:
USA = 11.7 MMBl/d, 35,669 wells, 297 million feet
Russia = 10.9 MMbls/d, 8688 wells, 83 million feet
Saudi Arabia = 11.4 MMBls/d, 399 wells, 3 million
feet[2]
In order to extract a roughly equivalent amount of oil the US
industry has to drill almost 100 times the footage in wells and
drill 90 times the number of wells. It is obvious that that will
require an enormous amount of energy to get out an equivalent
amount of oil (and gas) and that the cost will be a lot higher. But
is this investment actually profitable? The answer is that it is
only profitable at higher and higher oil prices. Different oil and
gas companies require different prices to break even but, according
to Kopits most of the oil companies require an oil price of at
least $100 for new investment in conventional oil production to be
profitable. High prices are needed in the unconventional sector too
and most of the fracking companies in the USA have not been making
money for several years. In the last year the price has fallen even
lower.
So how come that they are still around? How come they have
not gone bust? There are several kinds of reply to this.
Firstly, in economics things happen if people take a view
of the future in which they believe that they will be profitable –
even if subsequent experience shows this not to be the
case.No one can know the future exactly so every
investment is to some degree a gamble. A whole economic sector can
share the same gamble and invest on the assumption that they will
make money even if this turns out not to the case – and indeed they
can be encouraged to. An oil sector drilling 90 times the number of
wells and 100 times the footage is going to be immensely profitable
for the companies selling and/or hiring out the drilling rigs,
pipelines, tankers and other equipment. As the saying goes – in a
gold rush sell shovels. A coalition can form around illusions that
are profitable to some powerful players who make a lot of money
even while others lose. A vested interest coalition pursuing a
delusion is called a Granfalloon. It is important to realise that
it is in the interests of the Granfalloon to keep on hyping their
message in order to keep the money flowing. (This does not mean
that the members of a Granfalloon are intentionally misleading – it
means that there is an element of confirmation bias in the way that
they interpret and describe things. We all do this to some degree –
it is very difficult not to select and interpret available
information in a way that confirms ones existing preconceptions,
one’s faiths).
Secondly, at this time with interest rates very low there
have been very few places where businesses in the finance sector
can make much money. There is a temptation to make money
on a gamble and the oil and gas industry has been a place for Wall
Street to make another gamble. This is especially the case as the
collateral for the industry is in the ground. However, when the
sub-prime mortgage boom went bust after 2007 banks were left with a
lot of houses. Shifting them was not so easy – finding a use for
the assets of insolvent fracking companies is likely to prove even
more of a problem. How many banks have the expertise to run
fracking companies?
Thirdly in economics things happen with a time
lag.Even if companies are making a loss they do not
immediately go bust. They and their creditors may take the view
that the unfavourable conditions are temporary and more credit may
be extended to bridge them over what are assumed to be temporary
hard times. If oil and gas prices have fallen they may still be
able to sell at a higher price because they have insured themselves
by selling their oil and gas already on the futures market. To
respond to soon would be to lay off workers, and break up teams
that would be difficult to reassemble. The temptation is to hang
on, assume that difficulties are temporary and to tell the world
that there are no problems, that everything is just fine, that the
latest technologies make it possible to produce at a profit at even
lower prices. If one looks at the figure however this does not
appear to be what is happening. That part of the oil and gas
pursuing new development, and particularly in countries where
depletion is already advanced, are caught in a dilemma that
unconventional oil and gas is expensive oil and gas – and the
market cannot be made to pay these high prices over a long enough
period to make the development of their part of the industry
profitable.
In conclusion
The story thus described is one in which the world economy
could be heading into a massive economic meltdown.The
authors of the famous
Limits to Growth, writing in 1972, thought it likely that
unless humanity could adjust to the limits that there would be an
overshoot and collapse sometime in the future. The crisis of
2007-2008 gave a preliminary taste of what that kind of collapse
might look like. The after shocks in the Eurozone and what has been
happening in Greece likewise give us a picture of what the future
might be like for all of us.
What this does not mean however is that there will be some
general realisation, some mass epiphany or “Aha” moment when
everyone realises in a blinding flash of insight that humanity has
reached the limits of growth. There are also limits to the extent
to which people change their basic faiths about the
world.Such flashes of insight about their real situation
do sometimes happen when people are thrown into troubled times and
circumstances that challenge all that they believe. However, even
then most people are reluctant to abandon their faiths as that
could leave them even more disorientated and fearful – living in a
world that suddenly appears a lot less secure, and facing a future
that is a lot less rosy, than they previously believed.
Most mainstream economists and politicians will continue to
believe that the task at hand is “get growth going again” and, in
the vast tangle of connected events, will privilege those
connections and processes for their mental attention that confirm
their viewpoint on what is wrong, the other people who are
responsible for what has gone wrong – and what must be done to
remove these people.To drum up support for themselves
elite politicians of this type will no doubt identify favourite
scapegoats and enemies to demonise.
The worst futures
would be where these kind of politicians get a mass following,
sponsored financially by the elite, and lead emerging fascist
movements.
The best of all futures
would be where these kind of political leaders drift into
irrelevance because a popular majority gravitate to those who have
positive community level responses of sharing, mutual aid and
re-localisation connected to ecological design – and link this to a
new approach to politics that supports the transformation at the
base of society. This would go together with a new politics of
finance to replace the debt based money system and a new politics
of energy that keeps the carbon in the ground. A politics of this
type would not be about “getting growth going again”. It would be
about creating economic arrangements that create security for
communities while conserving resource use.
This would involve a revival of the commons and a
solidarity economy, making growth unnecessary for a good
life.