Tuesday, 14 August 2012

Blowing in the Wind

Blowing in the Wind
Richard Heinberg
Economic contraction and social claustrophobia

The social dimensions of the end of growth are coming into clearer focus with each passing month—from last year’s Occupy uprisings, to the recent NATO demonstrations in Chicago, to mass demonstrations in Spain, and on and on. Also clearer is the desperate strategy of the powerful, which consists primarily of the militarization of the police and the criminalization of dissent.
Yet what else besides unrest and revolt is to be expected from soaring youth unemployment rates, falling living standards, and still-increasing levels of economic inequality?
By now it is also becoming clearer that the social impacts of contraction serve as a reinforcing feedback to the economy, worsening the debt crisis. A revealing phrase is being used to describe Europe’s financial mess: “the street has taken control.” As people express fears about the future of the euro by taking their money out of banks, the banks weaken and demand more backstops from governments, which have to run even bigger deficits in order to provide bailouts. Further, as people lose faith that government can address economic problems, they stop paying taxes—as is happening in Greece—thus making government even less effective.
Lack of social cohesion is itself a cost to the economy. It’s hard to make a formal economy work at top speed if it is being sabotaged, or if a significant proportion of its output has to go toward keeping people from deserting it in favor of a growing informal economy of black markets, subsistence, and barter.
War is a timeworn solution to economic problems. Surplus young males are kept off the streets; idle manufacturing capacity is engaged; dissent can be ruthlessly swept aside. But in our current global circumstances war is itself becoming increasingly costly, and the US (which is typically at the center of any international conflict du jour) is extremely war-weary. Apart from threats and counter-threats over Iran’s nuclear program, there are few signs yet that strategies of desperation are about to be deployed on a broad scale. But with economic tensions nearing the breaking point geopolitical rivalries could escalate very quickly.

To most commentators, the current economic dilemma appears to have emerged solely from problems within the global financial system. But, as I argued in The End of Growth, there are deeper and—in the long run—much more important factors at work. The economy requires ever-widening streams of resources in order to grow, and many key resources are becoming more expensive to produce. This is particularly true with regard to energy resources, especially oil.
So are higher oil prices on the way? Not necessarily. As the economy tanks, that will cut demand for oil and the price will fall below the new-supply break-even level; when that happens, companies will cancel or delay new projects (as they did in late 2008 when the per-barrel price fell to $40). But if, for the moment, the economic news looks good, demand will grow and oil prices must inevitably return to levels that justify new supply. And those price levels are just high enough to begin undermining economic growth, as a spate of recent economic research has shown.
So whether the latest financial news is giddy or dismal, whether oil prices are up or down, in either case the game of growing the economy by increasing the production of affordable transport fuel is now officially over. Previously, we enjoyed both a growing economy and low fuel prices, with the latter feeding the former; now we see “cheap” oil only when the economy is in a tailspin of demand destruction.
In The End of Growth I argued that the direct financial costs of environmental disasters (principally, droughts and floods, together with large-scale industrial accidents) are rising to the point where they will soon overwhelm economies and make growth impossible. I cited the Haitian earthquake, the Deepwater Horizon catastrophe in the Gulf of Mexico, extensive wildfires in Russia, and deadly floods in Pakistan, all occurring in 2010; the monetary costs to the global economy that year (as figured by the insurance industry) totaled $250 billion. The 2011 total was undoubtedly much higher due to the Japanese earthquake, tsunami, and nuclear meltdowns, which by themselves caused roughly $1 trillion in damage (I have yet to see a final figure that takes into account other catastrophic events last year).
While episodic catastrophes get people’s attention, slower, deeper, and more pervasive environmental changes are far more costly over the long run. We are disturbing deep, immense systems—the global ocean and the global climate. Just this past month came two especially worrisome studies about the ocean.
In the first, research by teams of Australian and US scientists showed there has been a massive reduction in the amount of Antarctic Bottom Water off the coast of Antarctica. This is the densest water in the world ocean, and it is gradually disappearing and being replaced by less dense water. The sinking of dense water around Antarctica plays an important role in the global pattern of ocean currents, which in turn has a strong influence on climate. Moreover, the Southern Ocean stores more heat and carbon dioxide produced by human activities than any other oceanic region, helping slow the rate of climate change. As the Antarctic Bottom Water disappears, with it goes one of Earth’s primary climate buffers.
The second, by Australian scientists from the Commonwealth Scientific and Industrial Research Organization (CSIRO) and Lawrence Livermore National Laboratory, showed a clear change in salinity in the world’s oceans, signaling acceleration in the global rainfall and evaporation cycle. The authors of the study determined that the water cycle strengthened by four per cent between 1950 and 2000, twice the response projected by current-generation global climate models. The upshot: “arid regions have become drier and high rainfall regions have become wetter in response to observed global warming,” and we can expect much more of the same.