Sunday, January 30, 2011

Razor blades and the limits of complexity

A friend of mine once remarked that if current trends continue, razor cartridges will have at least 100 blades each by the end of the century. The razor blade wars are among the most visible absurdities illustrating how the limits of complexity clash with our blind faith in the idea that more complexity will always solve our problems or improve our lives.

The race among blade manufacturers has gotten so heated that you can skip right over the now obsolete three-blade models and go directly to one with six blades on each cartridge. And for laughs, you can watch these fake commercials, one for a 7-blade razor and one for an 18-blade razor.

My friend, by the way, uses a single-blade safety razor and says he gets a better shave from it than anything else. He just had to learn how to use it correctly, he explained. And, that may be part of the reason people prefer more complex tools. Using simpler ones requires learning skills that most of us never learned because we never had to learn them. How many people below age 50 even started shaving with an old-style safety razor?

Beyond this there is the historical experience that more complexity does frequently solve problems. Food was being prepared under unsanitary conditions, and so governments began to regulate the way food is made. The air and the water were polluted, so governments added environmental agencies to regulate that pollution.

Think about how much more complex automobiles have become in the last quarter century, so much so that fewer and fewer people are able to fix those automobiles themselves. All those electronics were added to solve problems, for example, to enhance safety and comfort.

Today, the average citizen in wealthy countries is obliged to own or have access to computers and know how to use them or miss out on much of what constitutes modern life. We have access to machines that can calculate millions of times faster than we can ever hope to, that can connect us literally to a world of information, and that can allow us to communicate in an instant with people on the opposite side of the globe. And, yet how many of us even understand how those machines work, let alone how the Internet to which they are connected functions?

Our inability to understand the systems we create puts a limit on the level of complexity that is beneficial to us. Recently established and poorly understood systems can bring unwelcome surprises. Witness the financial meltdown of 2008. Up to that point many economists (who were supposedly able to understand the complex global economy) believed that the world's economic planners had mastered the business cycle and created a "Great Moderation" in its volatility and therefore consequences.

Joseph Tainter, the great historian of collapse theory, explains in his classic study, The Collapse of Complex Societies, that increased complexity incurs costs. As complexity increases, costs usually increase faster resulting in diminishing returns and then finally negative returns. (See Tainter's "Complexity, Problem Solving and Sustainable Societies" for a condensed discussion of these ideas.)

That we are a society of advanced complexity is a given. That our society is now experiencing negative returns from increasing complexity is not often discussed. For example, we use systemic pesticides--which means they flow from the inside of the plant outward--to kill and repel crop pests and thereby protect yields. But this new complexity in our food system may be the cause of Colony Collapse Disorder which is wiping out bees at such a fast rate that crops such as nuts and fruits may soon be compromised because there are not enough bees to pollinate them.

Glyphosate, known commercially as Roundup, is probably the world's most widely used herbicide. It is particularly well-known for its use with Roundup Ready crops, crops genetically-engineered to be unaffected by glyphosate applications. All this highly complex technology has the benefit of enabling a farmer to weed his or her crop chemically and thus save much labor. Now it seems that repeated applications of glyphosate to farm fields can disturb the microbial balance in the soil so much that it leads to Sudden Death Syndrome in crops. Using products to enhance yields which actually undermine the fertility of the soil is a strategy that must be categorized as having negative returns.

On the seas ocean-going factory ships have enhanced our ability to catch and process fish for human consumption. But the efficacy of such technology has led to overfishing and the collapse of many fish species. Wild fish catches have leveled off and don't look like they will turn up soon despite our advanced technology. It's another case of diminishing and probably negative returns if one considers that large predatory fish are now scarce forcing fishing boats to go after species that used to be considered too small to bother with. Genetic diversity and thus survivability among fish species are being threatened as a result.

The alternative to scaling the walls of complexity continuously would be to simplify society when the returns on complexity diminish or turn negative. One of the essential inputs for increased complexity is increased energy input, according to Tainter. Thus, peaks in fossil fuels may force global society to simplify. Why not recognize now that the solution to our problems may not involve higher degrees of complexity? Why not get ready ahead of time and make the transition less painful?

I heard Tainter speak at a recent conference, and he was asked a closely linked question: Is there an historical example of a society that reduced its complexity voluntarily before it absolutely had to? He had a one-word answer: No. Will that be our answer, too?

Sunday, January 23, 2011

Is the global economy approaching an inflection point?


It's hard to make predictions, especially about the future.



During a presentation last week a questioner asked me what I thought about predictions that gasoline prices would reach $5 a gallon this summer. I offered this critique. I said that the oil prices implied by $5-a-gallon gas could probably not be attained in such a weak global economy. And, something short of that price would probably send the economy into a tailspin.

I don't foresee such an event soon, but it does seem to me that at some point high energy prices will lead to another economic decline. Perhaps there might even be a crash since the financial sector--which is even more fragile than it was in 2008 in my view--might face another crisis as a result of too much money flowing into the energy sector and therefore not enough flowing into the financial sector.

I warned everyone not to rush out and phone their brokers.

And yet, there are signs of the same kind of overheated bullishness on commodities and bearishness on bonds that we saw in the first half of 2008. And, we've seen the same kind of massive central bank easing again that preceded the commodity run-up that year.

The most recent easing has shown up in food prices as the UN food price index reached a record level earlier this month. In metals, tin rose to an all-time record. Copper prices are over $4 a pound for the first time since the 2008 run-up. Base metals in general have more than doubled since the 2008 lows. Cotton reached a new, all-time high this year and hovers near record territory. While interest rates are low by historical standards, long-term bond yields have been rising (and bond prices falling), supposedly in anticipation of further economic growth and inflation. And, of course, the consensus is that China, the great consumer of commodities, will do nothing but grow.

Could commodity prices go significantly higher? I took a stab at answering the same question in February 2008 during the last run-up in commodity prices. For a while they did climb. Could soybeans reach their old inflation-adjusted high of $61 a bushel ($12.90 in 1973 dollars)? I wondered. Could wheat vault beyond its old inflation-adjusted high of $28 ($6.35 in 1974 dollars)? In the end only oil obliged by besting the old inflation-adjusted high of $104 a barrel ($38 in 1979 dollars) to reach $147. (The Shadow Government Statistics newsletter, however, estimates that inflation has been seriously underestimated by the U.S. government and that therefore oil would have had to surpass $280 a barrel in 2008 to reach an all-time inflation-adjusted high.)

What I learned from that thought experiment is that it matters how robust the underlying financial economy is. In early 2008 the subprime loan crisis was morphing into a general credit crisis, something I recognized at the time. But I assumed that the U.S. Federal Reserve also understood this and would simply continue to flood the world with liquidity adequate to avoid a seize-up in the markets. That turned out to be an incorrect assumption. The Fed did finally realize what was happening, but acted too late to head off a financial crash.

Did the Fed and the other central banks learn their lesson in 2008? Will they pump endless amounts of liquidity into the financial markets in order to avoid another seize-up? Will that send commodity prices to the almost unimaginable levels I thought they might reach in 2008? Or, as some observers wonder, have the central banks learned the wrong lesson and will they simply find themselves helpless in the face of ongoing deleveraging (shedding of debt) that will create another credit crisis and take down the economy? Have the central banks simply created two more bubbles in Chinese real estate and commodities? Will these bubbles pop placing unstoppable downward pressure on an already crippled financial sector and lead to a panic that will crush markets worldwide?

Famed short seller Jim Chanos believes that the Chinese economy is experiencing a huge property bubble as 60 percent of the economy is now construction. He made the call last year, but hasn't changed his tune. Chanos seems to be testing the saying by economist John Maynard Keynes that "[m]arkets can remain irrational longer than you can remain solvent." Chanos did, however, apparently make some money as the Chinese stock market fell about 14 percent last year.

Blogger Nicole Foss of the Automatic Earth cautions that whatever interim steps the world's governments and central banks take, they cannot stop the shedding of debt which is now in process among households and businesses in North America and Europe. That process will overwhelm any attempts to maintain economic growth and send us into a deflationary depression before long, she believes. Australian economist Steven Keen, who was one of the few who foresaw the subprime loan debacle and the end to the U.S. real estate bubble, agrees.

Naturally, if one makes an economic prediction without specifying a particular date, one will--like a stopped clock--be right at some point. The tricky part about prediction is always timing. So, we must not only listen to Yogi Berra when making predictions, but also perhaps William Shakespeare:
There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.*
Translation: Timing is everything!

__________________________________________________

*From Julius Caesar, Act IV, Scene III

Sunday, January 16, 2011

A dramatic shift in the peak oil discussion: "You don't have to take my word for it"

If you write about, speak about, or talk with your family, friends and co-workers about peak oil, you've almost certainly been asked: "Well, who else is saying what you're saying?"

It's wise not to rely on just one source of information. Humans are fallible creatures. Knowing that, we feel much more comfortable when we can confirm something someone tells us either directly through observation or indirectly by going to a well-vetted source. We can, for instance, easily verify whether the Empire State Building has 103 stories, either by going there and counting the stories or referring to some reputable source of information. Furthermore, whether the Empire State Building has 103 stories is not really a matter of opinion. It's either true or it isn't.

When it comes to murkier matters such as peak oil, we must admit that our perceptions and conclusions are always based on incomplete information. In such instances, humans, being social creatures, seek confirmation from others when they receive information that is new and not easily verified. They wonder, quite rightly, whether other people accept such information as correct.

Now, as we know, the mere fact that large numbers of people accept a certain conclusion is not necessarily proof of its veracity. Still, with little to go on and little time to do independent research, many people essentially resort to polling. Does my reference group, the people I hang out with most, accept a particular conclusion? Does the broader public, reflected through the media, accept it?

This confirmation strategy has worked against the peak oil movement for many years as very few highly placed people dared to utter the words "peak oil" in public--even if they believed the issue was important. That has changed rather radically in the last 12 months, and it hands peak oil activists another important rhetorical tool, namely, the phrase: "You don't have to take my word for it."

In rhetorical terms this phrase is, of course, an appeal to authority. Those who argue the peak oil case most often rely on appeals to reason. That works with some people. But others can find such argumentation tedious and difficult to follow. A shortcut for them is to check out what experts and officials are saying. Increasingly, those experts and officials are saying that peak oil is near, that it is a serious danger, and that we are unprepared for it.

Perhaps the most important announcement in this respect is the turnabout at the International Energy Agency (IEA) late last year in its 2010 World Energy Outlook. The Paris-based IEA is an intergovernmental energy research and policy organization serving its 28 member states including Australia, Canada, France, Germany, Japan, the United States, and the United Kingdom. It was formed in the wake of the 1973 Arab Oil Embargo to advise member states, most of which are oil importers, on energy policy.

Consistently optimistic in the past about future energy supplies, the IEA undertook its own field-by-field survey of oil reserves in 2008 and has become increasingly concerned about oil supplies. This year the agency explicitly discussed peak oil for the first time and proclaimed that conventional crude most likely peaked in 2006. It continues to believe unconventional oil from the tar sands, the Arctic and deepwater fields along with natural gas liquids can make up for declining conventional oil and lead to increases in world oil production for two more decades. But it warns that this is no longer a foregone conclusion without the necessary and rather large investment required.

There were earlier indications that the IEA was about to change its official views. In 2008 the chief economist of the IEA, Fatih Birol, wrote in a guest editorial in the British newspaper The Independent that "we should leave oil before it leaves us."

This turnabout is significant because the public listens much more closely to officials who change their minds than it does to those who've advocated a position consistently. The public feels that an insider who changes his or her mind about an important policy topic must have special inside knowledge that confirms the change. More important is that IEA officials are changing their minds not because it is merely fashionable to do so, but because mounting evidence has convinced them that our energy future, particularly our oil future, will not be smooth sailing.

That has been the case again and again in official circles recently. In 2005 the so-called Hirsch Report, a report about peak oil commissioned by the U.S. Department of Energy, stood practically alone as an official pronouncement about the dangers and proximity of peak oil.

But last year the U.S. military released a report raising warnings about a nearby oil supply crunch that would seriously affect military operations. "A severe energy crunch is inevitable without a massive expansion of production and refining capacity," the report said. But even in the measured language of the report there can be no mistaking that there is concern about oil production peaking worldwide. "The world would need to add roughly the equivalent of Saudi Arabia’s current production every seven years" to meet expected oil demand in 2030. I sat next to the author of that report at a meeting last summer--a peak oil meeting.

The American military was not the only defense establishment that got interested in peak oil in 2010. The German military commissioned a report, leaked to the media, assessing the dangers of world peak oil production. Parts of the British government including the Ministry of Defense huddled in meetings last year about peak oil. The content of the meetings remains secret. But their existence sent a minor shock wave through the British public who had been consistently told by high government officials not to worry about peak oil.

A private report put together by some major industry players in Britain was also released last year. The group called itself the Industry Taskforce on Peak Oil and Energy Security. The message couldn't have been more blunt: "Our message to government and businesses is clear. Act now."

Even the solidly cornucopian U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, saw a crack develop in its otherwise optimistic veneer. A presentation by an EIA employee unearthed by a French newspaper cast doubt on whether oil supplies could meet demand in this decade. The author was suddenly transferred away from his post--previously planned, the agency said--and the media was shut out from further contact with him.

Leading executives from the oil industry are also weighing in on peak oil. According to Thierry Desmarest, chairman of the French oil giant Total, "The problem of peak oil remains. In our opinion, it will be very difficult to raise oil production worldwide above 95 million barrels a day, which is 10 percent more than today." He added that oil could peak in about 10 years.

Chevron executives haven't been quite as explicit. At least since 2005, however, they've been saying that the era of cheap oil is over, and even translated that idea into an ongoing public relations campaign on television and elsewhere with the slogan "Will you join us?"

Former Talisman Energy CEO Jim Buckee has also been sounding the peak oil alarm for some time. A former Shell chairman, Lord Oxburgh, said in 2007 that he believes oil supplies will be tight in the long term and that a peak within 20 years would not surprise him.

I saw a presentation at the 2008 ASPO-USA peak oil conference by the consultant who models future oil supplies for Toyota. One would expect auto manufacturers to be perennially bullish on oil supplies. His conclusion: Peak between 2017 and 2023 (slide 46).

And, finally there has been for some time a peak oil caucus in the U.S. House of Representatives led by Roscoe Barlett (R-Maryland) that has been a bipartisan voice for concerns about peak oil.

No longer do peak oil activists stand alone on a stage when they deliver presentations about our unfolding energy difficulties. With all of these prominent voices and institutions behind them, activists can now confidently say, "You don't have to take my word for it." That simple phrase can be quite effective in helping to persuade the broad public when it is followed by the growing list of government and industry voices now talking about peak oil.

Sunday, January 09, 2011

The extremely leisurely pace of American democracy and the urgency of our predicament

Winston Churchill once remarked that "[t]he United States invariably does the right thing, after having exhausted every other alternative." The assumption behind that remark is that there will be time to do the right thing after all alternatives have been exhausted. This assumption is especially troubling when it comes to addressing such issues as peak oil and climate change.

It is worthwhile to look back a bit and see why Churchill came to his famous conclusion. One issue that threatened the stability of the United States from its founding was slavery. The first attempt to smooth over differences was in the U.S. Constitution. Slaves would be counted as three-fifths of a person for the purposes of determining the number of representatives from each state. Also, the importation of slaves could be prohibited after 1808. That arrangement worked until 1820 when the balance between slave states and free states became a point of fierce contention as the union expanded. Slaveholders did not want to see the federal legislature controlled by representatives from free states. The Missouri Compromise maintained that balance for the time. There was the Compromise of 1850 and then in 1854 the Kansas-Nebraska Act, both attempts to calm sectional tensions. And, of course, finally the American Civil War (1861-65) ended a 70-year experiment with compromise over slavery.

I recite this history because it is emblematic of how slowly American democracy moves on critical, even existential matters. Many women had worked hard for the abolition of slavery and in the aftermath of the Civil War expected to attain the right to vote along with former slaves. But the 15th Amendment failed to mention women. And, it took another 50 years for women to receive the right to vote.

It took another 95 years from the passing of the 15th Amendment guaranteeing the right to vote to all citizens regardless of "race, color or condition of previous servitude" until African-Americans received in fact what they had been given in law by that amendment. The Voting Rights Act of 1965 finally made it possible for African-Americans in the South to exercise their franchise.

It is true that the American federal system was designed specifically to encourage slow, deliberate action. It is far easier to stop something in the U.S. Congress than it is to get anything approved. While the long wait for voting rights for women and African-Americans was a blot on the American historical record and exceedingly damaging and painful to those it affected, neither issue ultimately destroyed the country.

While the Civil War still holds the record for the number of American deaths in a war, that number might end up looking small even as a percentage of the population (2 percent) compared to the number of Americans who will suffer and die in one way or another because of peak oil, climate change, and myriad other environmental threats that now beset us. The problem is that these Americans don't die from immediately discernible causes such as gunshot wounds. Rather their suffering will often only be indirectly and circuitously related to environmental threats and resource depletion. Therefore, it will be difficult for those hit hardest to coalesce into an effective voting block, especially since the fossil fuel and other lobbies have worked hard to confuse them about the resource and environmental issues of our age.

I recently watched the film The American President again. I was struck that this movie released in 1995 took climate change as a given, something the audience would readily accept as an important issue that needed to be addressed promptly. Here we are 16 years later, and only now is the U.S. Environmental Protection Agency (EPA) taking the first baby steps toward regulating greenhouse gas emissions pursuant to a Supreme Court ruling that affirmed its power to do so. Even so a new hoard of climate change deniers in Congress propose to stop the EPA from exercising that authority. (I doubt that they will be able to do so for now.)

In addition, Americans seem to have somehow accepted that oil at $90 a barrel means nothing in particular. This is true even though a decade ago oil at $30 or $40 a barrel was thought to be potent enough to crush the economy. Perhaps we have adapted to these higher prices. But there seems to be no urgency to move the economy away from oil dependence even though the warnings of peak oil activists have been largely borne out.

When will the American democratic machinery actually begin to react to the twin crises of oil depletion and climate change? When there is a calamity directly attributable to one or the other or both, that's when. There are two problems with this approach.

First, it may not be clear that some future crisis is peak oil- and/or climate change-induced. How much of the Hurricane Katrina disaster can be attributed to climate change? No one knows. The damage done to New Orleans is certainly very much what had been foretold by climate modelers as hurricanes intensify and sea levels rise. But even the destruction of a large American city failed to catalyze any action on climate change.

Record high oil prices certainly had something to do with the economic meltdown of 2008. After all, nearly every recession since 1970 has been preceded by a spike in oil prices. But the focus so far has all been on finance. And, little has been done to address the world's oil dependency since 2008.

Second, the damage inflicted on the country and the world by waiting for a discernible crisis clearly linked to peak oil and/or climate change will far exceed the costs of prevention. Imagine what the 2008 financial crisis might have looked like if the country had already largely electrified its transportation system using renewable energy sources. The crisis would certainly still have been bad, but not nearly so ominous and devastating as tight oil supplies made it. And those tight supplies continue to hamper recovery, threatening a second downturn.

Finally, it's worth noting that national emergencies tend to elicit temporary emergency measures that are rarely revoked, some of which may fly in the face of democratic processes. The attacks of September 11, 2001 have spawned a whole raft of such measures, many obviously illegal and unconstitutional, but which the public sustains because it does not understand the true nature of our predicament.

How many more ill-conceived and heavy-handed measures can we expect when the death toll is not 3,000, but 300,000 or 3,000,000--all because we and other nations failed to address adequately peak oil- and climate change-related problems before they became too big to ignore.

Those who block progress on these critical issues in Congress believe--just as those who held slaves and those who opposed women's suffrage--that what they are doing will not bring down the whole system around them. And, they tacitly believe that if they are in the wrong, there will be plenty of time to address peak oil and climate change through compromise in the future.

But, while slaves and women may be made to wait by the hand of oppression, nature recognizes no such limit. Our social divisions may be held at bay for long periods while we work out our differences. When it comes to energy depletion and climate change, it is nature that will prevail in enforcing its will on us without regard to legislative or lobbyist timetables.

Sunday, January 02, 2011

The electric car fetish

In lieu of my regular weekly post, I'm referring readers to my latest column on Scitizen entitled "The Electric Car Fetish." Here is the teaser:

Many automobile enthusiasts believe that the electric car is the wave of the future that will help save the environment while expanding the availability of private transport to the world's growing middle class. They are likely wrong on both counts....Read more.