The Faustian bargain that modern economists never mention

Historically people have shifted their belief systems in various ways. The Greeks and Romans believed in numerous gods and goddesses and attributed all kinds of powers to them. Then the great monotheistic religions came along and people began to believe in just one god, though they honored him under different names

by Dr. Gary Peters | Jan 9 2012 by Our Finite World in Energy Bulletin | Jan 11 2012

Recently, beliefs have shifted again, with people worshipping just one part of a god, the invisible hand. Thanks to Adam Smith and those who followed him, especially the current neoclassical economic theologians, we have seen such an increase in the world’s wealth and sheer numbers that it is hard to imagine life before the industrial revolution, with its shift from mostly human and animal muscle power to the energy dense fossil fuels—coal, oil, and natural gas. It is also hard to imagine that humanity could someday slide back into another age of scarcer and more expensive energy, but that is a possibility that cannot be excluded from our thinking.

The Faustian Bargain

What about the Faustian bargain? It remains deeply hidden from view because its exposure by the high priests of modern economics would force us to rethink how we live and why we live this way, as well as what we’re planning to leave for future generations. The Faustian bargain goes something like this: Thanks to the discovery and exploitation of fossil fuels, humans (really just a small minority of them) are able to live richer lives today than even the queens and kings of yore could have dreamed of.

Furthermore, we’ve used some of those finite resources to increase food supplies and to expand the human population, which provides the economic system with both more workers and more consumers, a necessity to keep the economy growing under our current economic model. The world’s population increased from 1.6 billion in 1900 to 7 billion today, and we add about 80 million more each year. Humans have quickly become the most numerous megafauna on the planet.

The other side of the bargain, the side hidden from view and never mentioned in economics texts is this: At some undetermined time in the future, one that creeps ever closer, this economic system, fed by energy and other resources at ever increasing rates at one end and spewing out waste products at rates that cannot be absorbed by Earth’s ecosystems at the other, is unsustainable. What that means is simple enough: Industrial society as we know it cannot go on as it has forever—not even close.

Our economic system must exist within Earth’s finite limits, so recent and current generations have sold their soul to the devil for temporary riches, leaving the Devil to collect his due when the system falls apart under its own weight and the four horsemen of the apocalypse ride again across the world’s landscapes. None of this will happen tomorrow or this week or this year, but our economic system is faltering at both ends.

For many, if not most, of the world’s population life may become more difficult, incomes lower, and uncertainty greater. It does not mean the end of the world, as some predict for 2012, but it will mean that future generations probably will not live like current ones. Rather than admit that the current system cannot be sustained, the affluent and powerful will do everything possible to maintain the status quo.

The Fallacy of Long-Term Economic Growth

Economic growth remains a mantra for politicians and corporate leaders, including the banksters who brought us the Great Recession. Even President Obama, like presidents before him, speaks regularly about “growing the economy.” But nothing in the real world suggests that economic growth can continue forever. Nor does much evidence support the notion that economic growth has been a good thing for either the planet or billions of its human residents. It looks more like a colossal Ponzi scheme.

One of the most optimistic supporters of modern economics and its marvels is Tim Harford, who wrote, in his bookThe Logic of Life, “The more of us there are in the world, living our logical lives, the better our chances of seeing out the next million years.” This may be the dumbest thing an economist has ever written and he shows not even the slightest understanding of the planet on which we live. Homo sapiens has only been around for about 200,000 years, so another 800,000 years at the rate we’re going seems absurd. If our population were to continue to grow at an annual rate of only 1.0 percent, slightly less than our current growth rate, then our numbers would increase to over 115 trillion in just the next thousand years. You can play with the growth rate if you wish, but you cannot escape the cold hard fact that human population growth must stop. Only economists seem to miss the fact that economic growth must stop.

Among the high priests of modern economic theology, Paul Krugman came closer than anyone to admitting that growth could not go on forever on our planet. In an Op-Ed piece in the New York Times (12-26-10) he wrote, “What the commodity markets are telling us is that we’re living in a finite world [my italics] ….” He went on to mention the possibility of peak oil production and even climate change, both of which threaten the modern economic system, but then, returning to the faithful fold, he wrote, “This won’t bring an end to economic growth….” He admitted that our lifestyles might have to change but gave no clue about where and how that might come about or where it might lead.

Economic reality and economic theology don’t fit together very well. In 1988 Edward Abbey wrote, in his bookOne Life at a Time, Please:

It should be clear to everyone by now that crude numerical growth does not solve our problems of unemployment, welfare, crime, traffic, filth, noise, squalor, the pollution of air, the corruption of our politics, the debasement of the school system (hardly worthy of the name ‘education’), and the general loss of popular control over the political process—where money, not people, is now the determining factor.

Today, 24 years later, virtually every word of Abbey’s statement is truer than ever, yet politicians and economic theologians continue to preach that if we can just grow the economy (local, state, national, and world) then all will be well again. You need not look far or deeply to see how wrong they are and what price we’ll pay when the Devil comes looking for our collective souls.

Among economists, Herman Daly is one of the few who has tried to reveal the Faustian bargain for what it really is, as is apparent in this statement from a Dec. 26 article, Rio+20 Needs to Address the Downsides of Growth:

Even though economies are still growing, and still put growth in first place, it is no longer economic growth, at least in wealthy countries, but has become uneconomic growth. In other words, the environmental and social costs of increased production are growing faster than the benefits, increasing “illth” faster than wealth, thereby making us poorer, not richer. We hide the uneconomic nature of growth from ourselves by faulty national accounting because growth is our panacea, indeed our idol, and we are very afraid of the idea of a steady-state economy. The increasing illth is evident in exploding financial debt, in biodiversity loss, and in destruction of natural services, most notably climate regulation.

As a geographer, I look for signs in my local cultural landscape that look ominous, from potholes in streets to for sale and/or for lease signs strewn around our city like leaves after a storm. Ours is a small city, with about 30,000 residents, yet our city manager, in an end-of-the-year report, pointed out that we would need some $80,000,000 to repair our current infrastructure, a figure out of all proportion to our physical and residential size. That amounts to nearly $2,700 for each man, woman, and child. He also pointed out that our city is operating with below necessary numbers of police, fire, and emergency responders. The potholes will get larger in 2012 and beyond.

Though these and other problems are widely distributed across the nation, I think the infrastructure issue alone is symbolic. The U.S. is becoming a “pothole culture,” one in which the pothole is a symbol of our inability to accomplish all kinds of things any more. (See recent New York Times article.) Other nations are on their way as well.

Despite the continued whirring of the world economy, most people here and elsewhere are not getting anywhere and are feeling jilted by the system they’ve depended on for decades because they thought it could be sustained forever. It cannot, but that doesn’t mean life cannot go on, it means, instead, that we need to move in new directions, but we won’t do that until we understand what is making so many people so unhappy. We need to realize that instead of believing bigger is better we need to decide to favor better over bigger, quality over quantity, less over more.

Two examples illustrate the point that the world economy has exceeded both Earth’s ability to provide ever more inputs and its ability to absorb and purify excessive wastes. Crude oil is a good example of the first; carbon emissions and global warming good examples of the second. Both were mentioned by Krugman, but he provided no details about how we might deal with either issue, nor did he say how economic growth would continue without confronting these and numerous other raw material and waste issues.

First Example of Limits to Economic Growth: Crude Oil

Given that most Americans have a knowledge of history that doesn’t go back much over a month or two, it is no surprise that they cannot conceive of a time without cars, gasoline (preferably cheap), and a pattern of settlement that requires the use of both—our modern suburban landscape. For many years the U.S. was the world’s largest producer of crude oil and the largest exporter of it as well. In 1970, however, our oil extraction reached a peak and then started down hill. We became an importer of oil and today import more oil than any other nation, even though we still produce lots of oil and our extraction has been increasing in recent years.

Since about 2005 the world’s extraction of crude oil has been almost flat, despite prices that rose at one point to around $147 per barrel. Though we may not know for a while whether the world has reached its peak oil production or not, we do know that it will. In the meantime we know that traditional oil fields are getting more and more difficult to find, are harder to get to, and will be more expensive to develop. Alternative sources of oil, such as the Athabascan tar sands, are abundant but also expensive to develop and environmentally undesirable. Substitutes for gasoline, such as corn ethanol, are not only nonsensical from either an environmental or an economic viewpoint, they are also diverting food from humans (mostly via animals) to SUVs, driving food prices upward.

Figure 1 below, by mathematician Tom Murphy on his Do the Math blog, in post called, The Future Needs and Attitude Adjustment, provides a deeper historical perspective on oil production and industrial societies.

Figure 1: Image by Tom Murphy. Original caption: "On the long view, the fossil fuel age is a blip, with a down side mirroring the (more fun) up side."

You don’t need any knowledge of either deep history or the unpredictable future to get the point of this graph (unless, of course, you are an economist). Like Earth itself, the supply of crude oil is finite, even if we don’t know exactly how much is there, where it all is, or how much of it we can ultimately recover. Though we can tweak this curve, argue about its shape, and nibble along its edges, the basic fact remains: World oil extraction will reach a peak, probably sooner rather than later. After that, extraction will decline, though along what kind of curve we don’t know for sure. Just as the Stone Age did not end because of a lack of stones, the oil age will not end because of a lack of oil. Rather, it will end because what is left of the oil supply will at some point cost far more than it is worth; it will take more energy to extract it than we would get from it.

Knowing this, the prudent course would be to wean ourselves from this energy source as soon as possible, in order to treat our addiction before it is too late. However, we live in one of the most competitive periods in world history. Not only do Americans not want to be parted from their cars but millions of Chinese, Indians, and others are lining up to get their first taste of “the freedom of the road.” That is one of the reasons why, despite a sagging world economy and lower crude oil consumption in the U.S. in recent years, the price of crude oil has hovered around $100 per barrel through most of 2011 ($98.83 on Dec. 31).

Second Example of Limits to Economic Growth: Carbon Emissions and Global Warming

Burning fossil fuels to provide energy at the input end of our economic system results in a combination of outputs or waste products that cannot be removed or neutralized quickly enough by our ocean and atmosphere. That leads to an increasing amount of gases and particulates gathering in both, changing the chemistry of both the ocean and our atmosphere. Among the gases is carbon dioxide, a greenhouse gas that we know plays a role in how Earth’s atmosphere is warmed. Adding more carbon dioxide to our atmosphere is analogous to turning our heater up a little—we get more heat.

We know that the carbon dioxide content of the atmosphere has gone from about 280 parts per million around 1850 to 390 parts per million in 2011, an increase of just over 39 percent. Though we did not discover how to measure the atmospheric content of carbon dioxide directly before the mid-1950s, we do have a careful record of what it has been doing since then, as shown in Figure 2 below (from Wikipedia):

Figure 2. The Keeling Curve of atmospheric CO2 concentrations measured at the Mauna Loa Observatory. (From Wikipedia)

It is hard to miss the upward trend in the carbon dioxide content of the atmosphere since 1958. Few scientists would identify a source for this trend outside of humans and our burning of fossil fuels. Figure 3 below shows how much more carbon dioxide humans are adding each year through the burning of fossil fuels, setting a new record for emissions in 2010 (source):

Figure 3. Greenhouse Gas image from Yahoo News

It also shows the major contributors, China and the U.S. The failure of the U.S. to lead the world toward an economic system less dependent on fossil fuels is monumental. Modeling shows that rising carbon dioxide emissions can be expected to lead to global warming.

Conclusions

Though causes and effects may be difficult to connect, the outbreak of protests around the world in 2011 doesn’t seem coincidental. From the Arab Spring, to Greece and other European countries, to the Occupy Wall Street movement in the U.S., and even to demonstrations in Russia, people have taken to the streets to protest governments, corporations, and policies that are affecting their lives in negative ways. TIME magazine in 2011 chose “The Protestor” as its person of the year.

The are several reasons for people to be angry and upset. High oil prices and more extreme weather conditions have been driving food prices upward and high gas prices act as a tax on consumers, slowing modern economies. In addition, in the U.S. awareness has grown that most of the gains of economic growth are going to the top one percent (or less) of the population. Figure 4 below from Mother Jones (“It’s the Inequality, Stupid,” by Dave Gilson and Carolyn Perot, March/April 2011) says all one needs to know about inequality in the U.S. today.

Figure 4. Average Income Per Family Distributed by Income Group. (From Mother Jones)

Figure 5 below from the Congressional Budget Office shows how things have changed for different income groups in recent decades in the U.S. Citizens who are not in the top 1% are coming out very much worse than those at the top, whether they realize it or not.

Figure 5.

Even as nations continue to prop up banks and the Fed plays games with trillions of dollars, the general feeling seems to be that the “pothole culture” or its equivalent is spreading, that the benefits of what economic growth there is are not being shared equitably, and that many places cannot even maintain what they have in terms of infrastructure. Frustration is widespread, and much of it seems connected to what may be first signs that our modern industrial economy is breaking down. An analogy might be those first tiny pools of oil that you start to see under your car, warning you softly that things may be going wrong.

Unless humanity recognizes the bargain we’ve made with the Devil, and soon, we’ll saddle ourselves or posterity with paying the Devil his due. We cannot treat our current addiction to fossil fuels and economic growth until we admit we have them. Perhaps the best advice I’ve seen lately came from John Greer, who wrote:

Right now, as the limits to growth tighten around us like a noose and an economy geared to perpetual expansion shudders and cracks in the throes of decline, one of the things that’s needed most is the willingness, in a time of gathering darkness, to locate what lamps can still be found, and light them.

Is anyone out there listening? You can bet the Devil is!

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