Flying Blind:
Good Morning all of you Middle Class people in the world; your King of Simple News is on the air.
We had a heck of good conversation going on over the weekend. If you didn’t read it, it’s worth a few minutes of your time.
I often refer to “the law of diminishing returns” and also “the point of no return.” In my honest opinion, I believe that the economy of the United States has reached both of these unfortunate junctures.
Let’s examine the law of diminishing returns by taking a gander at the definition of this economic law as provided by Columbia Encyclopedia:
Law of diminishing returns, in economics, is a law stating that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. Thus, for example, if more and more laborers are added to harvest a wheat field, at some point each additional laborer will add relatively less output than his predecessor did, simply because he has less and less of the fixed amount of land to work with. The principle, first thought to apply only to agriculture, was later accepted as an economic law underlying all productive enterprise. The point at which the law begins to operate is difficult to ascertain, as it varies with improved production technique and other factors. Anticipated by Anne Robert Jacques Turgot and implied by Thomas Malthus in his Essay on the Principle of Population (1798), the law first came under examination during the discussions in England on free trade and the corn laws. It is also called the law of decreasing returns and the law of variable proportions.
“Holey-moley, you mean there is a mathematically provable written law that explains what is happening to our economy?” Well…yeah, but don’t worry, physics don’t apply in Washington D.C.
At any rate, there you have it, we have been aware of this rigid law (note that I did not say theory) since 1798 and when faced with the consequences of diminishing returns we simply elect our leadership from the social science gang, who are slick talkers, but dumber than a hundred head of sheep when it comes to the exact sciences. After all, following such delusional poppycock as the law of diminishing returns could interrupt the limousine service; if you get my drift.
Next, let’s examine “the point of no return.” I don’t need to go to the encyclopedia for this one; I’ve had my share of real time experience testing this rigid law.
I’ll simplify this one with Mikeronomics. If you have four hours of fuel in an aircraft and fly away from the airport for 2 hours and 15 minutes; you ain’t going back!
In the case of the United States economy, we’ve been flying away from the airport for about 3 hours and 59 minutes.
It’s said that making an emergency landing at night is best accomplished by watching the altimeter and when one is about 500 feet above the ground, to flip on the landing light. If you don’t like what you see; turn it off. The United States, under our present leadership, will be landing in conditions that are darker than the inside of a cow.
It should be evident to everyone by now that Barrack Obama get’s up each morning and says, “*#*@!*#, this is a whole lot harder than I thought. And here I was led to believe that ol’ George was the only problem.”
Our young inexperienced president is dealing with the same two problems that George Bush dealt with; the plan for exponential growth was derailed some time back when we reached the point of no return after ignoring the law of diminishing returns for 39 years. Mr. Obama however doesn’t know a thing about economics and therefore his solution is to stay the same course and turn out the landing lights.
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The landing light should be coming on soon; at least for a short while. I’m not sure I would even turn it on if I were at the controls.
I am just about ready for show time though. I’ve paid enough for the tickets; I do not intend to miss any of this once in a lifetime event.
Exciting times, these are. -bb
Mike,
Do any economists have a clue as to what the big picture looks like? I’ve read the theories and “laws” and have yet to read anything that even remotely appears to be addressing the real economic situation. With the entire group looking at the problem in the same way as the blind men examined the elephant in the fable, what chance do the ‘deciders’ have in reaching a sensible conclusion.
Pete Murphy is focused on population, which is good and right on so far as he goes. You are focused on compound interest and exponential growth. Who is offering solutions?
Billyb,
These are in fact exciting times for those who understand what has happened to us as a nation and who have longed for REAL positive change.
The hands of the politicians may soon be forced as the exponential function goes quietly about its unstoppable work.
To help understand the power of the exponential function, in 1900 there were only 1.65 Billion humans on this planet. Today we are approaching 7 Billion!
Clyde,
The solutions have been offered for years. Malthus wrote his original thesis in 1798. Hubbert, Einstein, Tesla, all wrote forceful text warning against resource depletion for the sake of growth.
The steady state economic model is a good place to start, but most people want the system that we have to go on providing the benefits that have borrowed from our childrens’ futures. Barrack Obama is simply the newest leader that promised the mathematically impossible.
There are certainly economist’s who grasp the gravity of our current situation, but I assure you they don’t have employment in the Obama cabinet any more than they had with Bush, Clinton, Bush, Reagan, Carter, etc. etc.
“There is no such thing as economics, only social science applied to economic problems.” — Kenneth Boulding
And, in that short statement Mr. Boulding has answered your question.
Mr. Boulding’s statement is perfection. We now as a nation need to change our social (perception) science of our economy (money) from one of Master/Slave to Craftsman/Tool. Money is a tool we use to accomplish! Can we (you) change? Only the mirror can answer that question.
I am not convinced that we are “flying blind.” Although no one is going to mistake “W” for a rocket scientist, his Vice President, Dick Cheney, definitely knew what was happening with our oil supply. If Cheney knew, rest assured, so did Bush. Unless we assume that administration was completely delusional, or hopelessly optimistic, they made a deliberate choice to stay the course.
I don’t know that Barak Obama has anyone with Cheney’s oil background in his cabinet, but he is a smart man and is well read. It is hard to image that he is clueless with regard to energy and other resource issues. Ditto for Clinton, George the first, and Jimmy Carter. Reagan, I doubt he had a clue, but what do you expect from an actor?
So, if they all weren’t clueless and/or delusional they probably had a plan. Could it be they understand we are toast, and they are delaying the inevitable as long as possible? They realize that the American people will; by and large, ask for their heads if they tell the truth and destroy the myth, and people’s crazy dreams? Or, the people who are pulling the strings; the bankers, would have them assassinated if they get to creative and threaten their dominance?
My guess is that it is all of the above. Plus being so terrified they are no longer capable of rational thought. Also, they may have investigated their options and realized there is no solution that wouldn’t cause society to disintegrate sooner, rather than later.
What would we do if we had the power; at least the apparent power, to change things? Keep in mind, if we knee-jerk the wrong solution, things could get ugly fast.
Realistically, I think they are looking out for #1, appeasing the powers that be, and realizing that this cancer patient has no viable treatment options. Although Dmitry Orlov suggested that we could wait for aliens arrive on the scene with a magical new technology to save us. But I don’t think he was placing too much money on that bet.
I try and try to write a comprehensible paragraph or two to express how I see a Global Grid that is splintering. Sub networks, belief systems, crystallizing, polarizing. Filtering connections, preparing for disaster, war, and some trying to morph into some form that can survive the coming disintegration.
This is as close as I get, and it is pathetic
We must also look at Thomas Hobbes view of “social contract” with the govt.
As Americans we accept our “social contract” with the Fed Govt on the ground that they will look out for our best interest and provide us with protection under the administration of law.
That US Govt is in breech of that “social contract”. The US govt had allowed financial institutions to create harmful financial products. Those financial instituions were allowed to profit from these “crimes” twice. Before and after the bailouts.
Furthermore, just the way that the Govt is running everything is clearly not in our best interest. We are clearly heading towards an unfathomable disaster. The govt is spending more and more money and taking in less and less money. Immigration has simply depressed wages for the average worker and increased the cost of housing.
Hobbes warned of a state where the concentration of wealth flows into the hands of a few.
I believe many of us feel that the “social contract” has been broken by our govt. Hence we are not obliged to follow its laws, especially when it comes to taxes.
Les mentioned a “social contract” with government. What ever contract existed was violated decades ago.
Congress has been taken over by organized crime. The scope of their thievery makes the Mafia’s crimes look like little more than misdemeanor theft.
The difference is that the Mafia simply broke the laws, Congress is more sophisticated, they re-write laws to make theft legal.
One good example of decreasing marginal returns is the switch from wood to coal in England. In the 14th century the forest were being depleted of wood and people began to switch to coal, which took more labor to obtain. By the 17th century the mines had to get deeper and deeper to obtain coal and by the 19th century new technologies such as the steam engine had to be use to pump water from the mines, thus increasing marginal cost and decreasing marginal returns. Today, we can see the same thing happening with oil. In the 1930s, oil was easy to find in the United States and the return on energy was 100 kilojoules output for each kilojoule input. Today we are only getting between 11-18 Kilojoules output for each kilojoule input ( http://www.eclipsenow.org/archives/4208 ). How long will it be before this number is negative? Dr. Hubert and I think not long.
One of the more important areas in which we are experiencing decreasing marginal returns is in agriculture. According to Richard Manning, in the 1940s, a typical farm in the United States produced 2.3 calories of energy for each calorie burned. By 1974, the rate decrease to about 1:1 and it is more likely even lower today ( http://www.harpers.org/archive/2004/02/0079915 ). What I find startling is, we may have a few alternative energy sources for heat , light and transportation, but how will we be able to feed more than 6 billion people without oil? Will this be possible with organic farming? How will the food be transported to those who need it?
Greg,
Every president since Nixon is well aware of the oil situation. If Barrack Obama isn’t aware of our energy situation, he certainly should not be our president.
United we could have stood; divided between two failed political parties we fell.
Hotrod,
Good information and right on point. Most people in the pretend world view oil as being nice, but not necessary. Sure.
In the real world there is no replacement for oil, gas and coal on the planet due to the second law of thermodynamics.
Therefore, as you stated, who will feed 6 billion people?
hotrodinoh, I have seen similar numbers for oil EROEI from several sources. I haven’t heard of anyone trying to dispute them.
Agriculture will be interesting. Apparently the actual growing only consumes about 20% of the energy used in food production.. About 40% of that is for fertilizer and irrigation. Side bar - the fertilizer is produced using Natural Gas which won’t peak globally for another 5-15 years. The pesticides, herbicides and fungicides are another story, they are all oil based and oil has already peaked.
This leaves 80% of the cost of “food production” in transportation, processing, packaging, marketing and preparation in the home. I have not seen a energy breakdown on these individual components.
As for feeding 6 billion people without fossil fuels, some organic farmers claim they get the same, if not better, yields than “conventional farming”. That said, it can take years, or longer, to rebuild depleted soil to where you can organically produce crops with the same yield as you get with fossil fuel inputs.
If we had decades to prepare, maybe we could feed 6 billion with organic techniques. However, we seem to have let that opportunity slip away.
The simple fact is; the earth cannot sustain 6-7 billion souls. Attempting to come up with ways of initially feeding these numbers, and then for evermore, is self defeating; an effort that we cannot win in the end, when the concept of our finte planet comes into play. We will either have to aggressively handle this issue ourselves (we won’t) or Mother Nature will handle it for us. We can count on this. In the mean time quality for all (us and the environment) will continue to deteriorate at ever increasing levels. -bb
Greg, I agree that one may get the same yield with organic growing and as you point out it takes a long time to get a field ready. However, how do we produce and transport the amount of organic material needed for large-scale farming? I read somewhere that it would take 17 tons of manure per acre per year to grow grain organically. That’s a lot of sH@t and will take a lot of energy to move. Most other biomasses would be even bulkier.
Billyb, I think you answered the 64 thousand dollar question, when you said, “The earth cannot sustain 6-7 billions souls.” Although, I believe it will be a combination of humans and Mother Nature reducing the population to a sustainable level. Because when people get hungry, there is bound to be wars. Barring some major technological breakthrough and governments that actually try to address real problems, things do not look good. I sure don’t think governments will help and being we live in an finite world, I don’t think science will be able to solve the problems because it is just too late.
A number of writers think the carrying capacity of the planet without fossil fuels is between 750 million and 1.2 billion - that’s global population.
That was approximately the population prior to our large scale use of fossil fuels.
Even if we could theoretically support 6 billion people with organic farming techniques, we would need to solve at least three problems. One, most people have no knowledge or skills to farm organically. Two, people aren’t living where the food would be grown. And three, the cost of migrating that many people and building new infrastructure where we need it will likely be unaffordable.