A Depression Trajectory

As a sort of follow-up to yesterday's post, we will muse a bit on how much world GDP decline to expect to this Depression.

One assumption that we are making is that over the next twenty years or so, fossil fuels will become too expensive to use very much as... well, fuel. The world is not going to run out of oil, gas, or high quality coal - but their fuel use will mostly be limited to its highest ends (i.e., not for mass private cars, heat, or electricity). In the post-fuel hydrocarbon era, much of the remaining supply will be used for non-fuel uses such as fertiliser, plastics, and specialty chemicals.

Its a rather uncertain thing modelling collapse, but it is not unreasonable to say that hydrocarbon production may decline 90% or so in the next 20 years. That may seem outrageous, but many people like ourselves who make a study of this matter are arriving at similar conclusions. Consider this recent post at The Oil Drum. It's a bit technical, but Figure 3 is worth a thousand words.

As every schoolchild knows, or at least ought to know, the industrial economy grows or shrinks with the supply of fuel. If fuel production declines 90%, the economy will fall by a similar amount. There will be efficiency, nuclear power, solar power, hydropower, and many other ways to mitigate the loss of energy available to society - hopefully enough to keep things civilised. And once Civilisation has weaned itself off fossil fuel, economic growth just may well resume from a new, low base and at a slower rate.

We believe an energy-intensive economy such as the USA's will experience roughly a 90% decline over the next 20 years. At the end of the Depression, per-capita income is likely to be in the neighborhood of $5,000 a year in current dollars.

We suggest the Reader consider what life might be like for them on such an income, or a bit more or less - depending on their skill level. Also to consider what sort of means they would have to produce any income in a world where most people can afford very little beyond the basics of food and shelter.

It will be very difficult to hope that investment capital will produce much income. Which industries will even survive this depression? Virtually all bonds are sure to default, including government ones - either directly or through inflation. Successful investors will likely be the active, hands-on sort.

To earn income will require being involved with a surviving industry, such as agriculture. Otherwise you will need to become entrepreneurial, and hard-working. Though challenging, the changes ahead are manageable - as long as you keep a positive outlook.

Growth: Quantitative versus Qualitative

For the purposes of this discussion, Quantitative growth in business or society could be said to be just doing more of the same thing with more people and machines or whatever. Qualitative growth is doing a given task more efficiently, or developing more valuable products and services from less valuable ones.

When economies are expanding, quantitative growth will usually yield impressive growth of sales, and profits. For society as a whole, there is increased economic activity, increased tax revenue for governments, and increased income for investors and workers.

Qualitative growth tends to happen more slowly. It comes about through innovations. Sometimes it happens as continuous incremental improvement, or sometimes as flashes of inspiration.

There has been a lot of quantitative growth in the world over the last several hundred years, and especially over the last fifty. We believe this trend is transient, and largely the consequence of the exploitation of fossil fuels and mineral resources. As society glides down the slope past peak just-about-everything, quantitative growth and the economic theories which justified it will become a thing of the past.

On the other hand, qualitative growth seems to spring from the human spirit and will probably rise to the occasion of being more needed than ever as the product of the bowels of the earth are exhausted. On this count we are very optimistic. From what we have seen of ingenuity in ourselves and others, this is an inexhaustible resource.

To allow qualitative growth to become humanity's primary economic driver, several changes will have to happen to the way people look at their lives: First, they will not measure themselves by how much they consume, but rather by how well they do things. Second, they will have to let go of always wanting more and different, and instead learn to be satisfied with making the best of what they have, with only a small allowance for novelty. Third, they will have to learn to practice restraint.

It seems to be human instinct to "be fruitful and multiply." Unfortunately, the human race seems to be multiplying itself into overshoot and collapse. People need to realise that humans can either shrink their numbers gracefully, or have the natural limits of the Earth do it for them painfully. In not many years time, much of what was once termed progress will be seen to have been a swindle - an orgy of consumption and resource extermination that benefited only a tiny minority of plutocrats and left the rest with broken illusions.