Last week’s post on the need to check our narratives against
the evidence of history turned out to be rather more timely than I expected.
Over the weekend, following hints and nods from the Fed that the current orgy
of quantitative easing may not continue, stock and bond markets around the
globe did a swan dive. In response, with the predictability of a well-oiled
cuckoo clock, the usual claims that total economic collapse is imminent have
begun to spread across the peak oil blogosphere.
It’s only the
contemporary fixation on “perfect storms” of various imaginary kinds that leads
so many people to forget that imperfect storms can cause quite a bit of damage
all by themselves. Yet it’s the imperfect storms, the ones we can actually
expect to get in the real world, that ought to feature in predictions of the
future—if those predictions are meant to predict the future, that is, rather
than serving as inkblots onto which to project emotionally charged
fantasies, excuses for not abandoning
unsustainable but comfortable lifestyles, or what have you.
As I write these words, the slump seems to have stabilized,
but it’s a safe bet that if it resumes—and there’s reason to think that it
will—the same claims will get plenty of air time, as they did during the last
half dozen market slumps If that
happens, it’s an equally safe bet that a year from now, those who made and
circulated those predictions will once again have egg on their faces, and the
peak oil movement will have suffered another own goal, inflicted by those who
have forgotten that the ability to offer accurate predictions about an
otherwise baffling future is one of the few things that gives the peak oil
movement any claim on the attention of the rest of the world.
Mind you, worries about the state of the world economy are
far from misplaced just now. In the wake
of the 2008 crash, financial authorities in the US—first the Department of the
Treasury, backed by Congressional appropriations, and then the Federal Reserve,
backed by nothing but its own insistence that it had the right to spin the presses
as enthusiastically as it wished—flooded markets in the US and overseas with a
tsunami of money, in an attempt to forestall the contraction of the money
supply that usually follows a market crash and ushers in a recession or worse. The theory behind that exercise was outlined
by Ben Bernanke in his famous “helicopter speech” in 2002: keep the money supply from contracting in the
wake of a market crash, if necessary by dumping money out of helicopters, and
the economy will recover from the effects of the crash and return to robust
growth in short order.
That theory was put to the test, and it failed. Five years
after the 2008 crash, the global economy has not returned to robust growth.
Across America and Europe, in the teeth of quantitative easing, hard times of a
kind rarely seen since the Great Depression have become widespread. Official
claims that happy days will be here again just as soon as everybody but the
rich accepts one more round of belt-tightening (also a feature of the Great
Depression, by the way) are increasingly hard to sustain in the face of the
flat failure of current policies to bring anything but more poverty. Meanwhile, the form taken by quantitative
easing in the present case—massive purchases of worthless securities by central
banks—has national governments drowning in debt, central banks burdened with
mountains of the kind of financial paper that makes junk bonds look secure, and
no one better off except a financial industry that has become increasingly
disconnected from political and economic realities.
Thus the boom is coming down. On the 18th of this month,
Obama commented in a media interview that Bernanke had been at the Fed’s helm
“longer than he wanted,” an unsubtle way of announcing that the chairman would
not be appointed to a third term in 2014. Shortly thereafter, the Fed let it be
known that the ongoing quantitative easing program would be tapered off toward
the end of the year, and the general manager of the Bank of International
Settlements (BIS), one of the core institutions of global finance, gave a
speech noting that central banks had gone too far in spinning the presses, and
risked problems as bad as the ones quantitative easing was supposed to cure.
Markets around the world panicked, and for good reason. Most
of the cash from quantitative easing in the US and elsewhere got paid out to
large banks, on the theory that it would go to borrowers and drive another
round of economic growth. That didn’t happen, because borrowing at interest
only makes sense when growth can be expected to exceed the interest rate. Whether it’s 18-year-olds taking out student
loans to go to college, business owners issuing corporate paper to finance
expansion, or what have you, the assumption is that the return on investment
will be high enough to cover the cost of interest and still yield a profit. In
the stagnant economy of the last five years, that assumption has not fared
well, and where government guarantees didn’t distort the process—as happened
with student loans in the US, for example—the result was a dearth of new loans,
and thus a dearth of new economic activity.
Unused money in a bank’s coffers these days is about as
secure as it is in the pocket of your average eight-year-old, though, and for
most of the last five years, the world’s speculative markets were among the
standard places for banks to go and spend it.
That helped drive a series of boomlets in various kinds of speculative
paper, and pushed some market indices to all-time highs. The end of the
quantitative easing gravy train very likely means the end of that process, and
for an assortment of other fiscal gimmicks that have been surfing the waves of
cheap money pouring out of the Fed and other central banks in recent years. A
prolonged bear market is thus likely.
Could that bear market trigger a run on the investment banks
that, under the cozy illusion that they’re still too big to fail, have become
too arrogant to survive? Very
possibly. The twilight of “Helicopter
Ben” and his spin-the-presses policies also marks the end of the line for a
coterie of economists and bankers, most of them associated with Goldman Sachs,
who came to power after the 2008 crisis insisting that they knew how to fix the
broken economy. They didn’t, and they are now in the process of discovering—as
the neoconservatives found out before them—that while the American political
class has almost limitless patience with corruption and venality, it has no
tolerance at all for failure. I expect
to see a fair number of prominent figures in the nation’s financial
bureaucracies headed back to the same genteel obscurity that swallowed the
neocons, and it’s by no means unlikely that Goldman Sachs or some other big
financial firm may be allowed to crash and burn as part of the payback.
And beyond that? One way or another, the end of quantitative
easing bids fair to trigger a wave of harsh economic readjustments, government
defaults, corporate bankruptcies, and misery for all. An immense overhang of
unpayable debt is going to have to be liquidated in one way or another, and
there’s no way for that to happen without a lot of pain. That may well involve a recession harsh
enough that the D-word will probably need to be pulled out of cold storage and
used instead. Will the remaining scraps of democratic governance in Europe and
America, and the increasingly fragile peace among the world’s military powers,
survive several years of that? That’s a
good question, to which history offers mostly unencouraging answers.
Still, these deeply troubling possibilities aren’t the
things you’ll hear aired across the more apocalyptic end of the peak oil scene,
if recent declines in global stock markets continue. Rather, if experience is
any guide, we can expect a rehash of the claims that the next big economic
crisis will cause a total implosion of global financial systems, leading to a
credit collapse that will prevent farmers from buying seed for next year’s
crops, groceries from stocking their shelves, factories from producing anything
at all, and thus land us all plop in the middle of the Dark Ages in short
order.
It’s here that the issue discussed in last week’s post
becomes particularly relevant, because there’s a difference—a big one—between
the imaginary cataclysms that fill so much space on the doomward end of the
blogosphere and what actually happens. Financial history is full of markets
that imploded, economies that plunged into recession and depression, currencies
that became worthless, and all the other stage properties of current
speculations concerning total economic collapse, and it also has quite detailed
things to say about what followed each of these crises. Without too much
trouble, given access to the internet or a decently stocked library, you can
find out what happens when a highly centralized economic system comes apart at
the seams, no matter what combination of factors do the deed. The difference
between what actually happens and the whole range of current fantasies about
instant doom can be summed up in a single phrase: negative feedback.
That’s the process by which a thermostat works: when the
house gets cold, the furnace turns on and heats it back up; when the house gets
too warm, the furnace shuts down and lets it cool off. Negative feedback is one
of the basic properties of whole systems, and the more complex the system, the
more subtle, powerful, and multilayered the negative feedback loops tend to
be. The opposite process is positive
feedback, and it’s extremely rare in the real world, because systems with
positive feedback promptly destroy themselves—imagine a thermostat that
responded to rising temperatures by heating things up further until the house
burns down. Negative feedback, by contrast, is everywhere.
That’s not something you’ll see referenced in any of the
current crop of fast-crash theories, whether those fixate on financial markets,
global climate, or what have you. Nearly all those theories make sweeping
claims about some set of hypothetical positive feedback loops, while
systematically ignoring the existence of well-documented negative feedback
loops, and dismissing the evidence of history.
The traditional cry of “But it’s different this time!” serves its usual
function as an obstacle to understanding: no matter how many times a claim has
failed in the past, and no matter how many times matters have failed to follow
the predicted course, believers can always find some reason or other to insist
that this time isn’t like all the others.
It happens that I’ve
been doing plenty of thinking about negative feedback recently, because I’ve
fielded yet another flurry of claims that my theory of catabolic collapse must
be false because it doesn’t allow for the large-scale crises that we’re
evidently about to experience. Mind you, I have no objection to having my
theory critiqued, but it would be helpful if those who did so took the time to
learn a little about the theory they think they’re critiquing. In point of
fact—I encourage doubters to read a
PDF of the original essay—the theory of catabolic collapse not only
assumes but requires large-scale crises. What it explains is why those crises
aren’t followed by a plunge into oblivion but by stabilization and partial
recovery.
The reason is negative feedback. A civilization on the way
down normally has much more capital—buildings, infrastructure, knowledge,
population, and everything else a macroeconomist would put under this
label—than it can afford to maintain. Crisis solves this problem by wrecking a
great deal of excess capital, so that it no longer requires maintenance, and
resources that had been maintaining it can be put to more immediate needs. In
addition, much of the wrecked capital can be stripped for raw materials,
cutting expenditures further. Since civilizations in decline are by and large
desperately short of uncommitted resources, and are also normally squeezed by
rising costs for resource extraction, both these windfalls make it possible for
a crumbling society to buy time and stave off collapse for at least a little
longer; that’s what drives the stairstep process of crisis, stabilization,
partial recovery, and renewed crisis that shows up in the last centuries of
every historically documented civilization.
That sequence is so reliable that Arnold Toynbee could
argue, with no shortage of evidence, that there are usually three and a half
rounds of it in the fall of any civilization—the last half-cycle being the
final crisis from which the recovery is somebody else’s business. Our civilization, by the way, has already
been through its first cycle, the global crisis of 1914-1954 that saw Europe
stripped of its once-vast colonial empires and turned into a battleground
between American and Russian successor states.
We’re just about due for the second, which will likely be at least as
traumatic as the first; the third, if our civilization follows the usual
pattern, should hit a battered and impoverished industrial world sometime in
the 22nd century, and the final collapse will follow maybe fifty to a hundred years
after that.
Now of course there are plenty of people these days
insisting that industrial civilization can’t possibly take that long to fall,
just as there are plenty of people who insist that it can’t fall at all. In
both cases, the arguments normally rest on the blindness to negative feedback
discussed above. Consider the currently popular notion, critiqued in one
of last month’s posts, that humanity will go extinct by 2030 due to
runaway climate change. The logic here follows the pattern I sketched out
earlier—extreme claims about hypothetical positive feedback loops, combined
with selective blindness to well-documented negative feedback loops that have put
an end to greenhouse events in the past, propped up with the inevitable claim
that the modest details that distinguish the present situation from similar
events in the past mean that the lessons of the past don’t count.
Current rhetoric aside, greenhouse events driven by
extremely rapid CO2 releases are anything but rare in Earth’s history. The
usual culprits are large-scale volcanic releases of greenhouse gases,
which boosted CO2 levels in the
atmosphere up above 1200 ppm—that’s four times current levels—and thus drove
what geologists, not normally an excitable bunch, call “super-greenhouse
events.” If massive CO2 releases into
the atmosphere were going to exterminate life on Earth, these would have done
the trick—and super-greenhouse events have happened many times already, just
within the small share of the planet’s history that geologists have enough
evidence to study.
What stops it? Negative feedback. The most important of the
many negative feedback loops that counter greenhouse events is the shutdown of
the thermohaline circulation, the engine that drives the world’s ocean
currents. The thermohaline circulation also puts oxygen into the deep oceans,
and when it shuts down, you get an oceanic anoxic
event. Ocean waters below 50
meters or so run out of oxygen and become incapable of supporting life, and the
rain of carbon-rich organic materials from the sunlit levels of the ocean,
which normally supports a galaxy of deepwater ecosystems, falls instead to the
bottom of the sea, taking all its carbon with it. It’s an extremely effective
way of sucking excess carbon out of the biosphere: around 70% of all known petroleum reserves,
along with thick belts of carbon-rich black shale found over much of the world,
were laid down in a handful of oceanic anoxic events in the Jurassic and
Cretaceous periods.
Oceanographers aren’t sure yet of the mechanism that shuts
off the thermohaline circulation, but it doesn’t require the steamy
temperatures of the Mesozoic to do it. At least one massive oceanic anoxic
event happened in the Ordovician period, in the middle of a glaciation, and
there’s tolerably good evidence that a brief shutdown was responsible for the
thousand-year-long Younger Dryas cold period at the end of the last ice age.
Not that long ago, global warming researchers were warning about the
possibility of a shutdown of the thermohaline circulation in the near future,
and measurements of deepwater formation have not been encouraging to believers
in business as usual.
Meanwhile, other patterns of negative feedback are already
under way. Across much of the tropical
world, increased CO2 levels in the atmosphere are helping to drive bush
encroachment—the rapid spread of thorny shrubs and trees across former
grasslands. Western media coverage so
far has fixated on the
plight of cheetahs—is there any environmental
issue we can’t reduce to sentimentality about cute animals?—but the other side
of the picture is that shrubs and trees soak up much more carbon than
grasslands, and in many areas, the shrubs involved in bush encroachment make
cattle raising impossible, cutting into another source of greenhouse gases.
Meanwhile, the depletion of fossil fuels imposes its own form of negative
feedback; as petroleum geologists have been pointing out for quite a while now,
there
aren’t enough economically recoverable fossil fuels in the world to
justify even the IPCC’s relatively unapocalyptic predictions of climate change.
Apply the same logic to the economic convulsions I mentioned
earlier and the same results follow. The reason a financial collapse won’t
result in bare grocery shelves, deserted factories, fallow fields, and mass
death is, again, negative feedback. The world’s political, economic, and
military officials have plenty of options for preventing such an outcome, most
of them thoroughly tested in previous economic breakdowns, and so these
officials aren’t exactly likely to respond to crisis by wringing their hands
and saying, “Oh, whatever shall we do?”
For that matter, ordinary people caught in previous periods of extreme
economic crisis have proven perfectly able to jerry-rig whatever arrangements
might be necessary to stay fed and provided with other necessities.
Whether the crisis is contained by federal loan guarantees
and bank nationalizations that keep farms, factories, and stores supplied with
the credit they need, by the repudiation of debts and the issuance of a new
currency, by martial law and the government seizure of unused acreage, or by
ordinary citizens cobbling together new systems of exchange in a hurry, as
happened in Argentina, Russia, and other places where the economy suddenly went
to pieces, the crisis will be contained.
The negative feedback here is provided by the simple facts that people
are willing to do almost anything to put food on the table, governments are
willing to do even more to stay in power, and in hundreds of previous crises,
their actions have proven more than sufficient to stop the positive feedback
loops of economic crisis in their tracks, and stabilize the situation at some
level.
None of this means the crisis will be easy to get through,
nor does it mean that the world that emerges once the rubble stops bouncing and
the dust settles will be anything like as prosperous, as comfortable, or as
familiar as the one we have today. That’s true of all three of the situations
I’ve sketched out in this post. While the next round of crisis along the arc of
industrial civilization’s decline and fall will likely be over by 2070 of so,
living through the interval between then and now will probably have more than a
little in common with living through the First World War, the waves of
political and social crises that followed it, the Great Depression, and the
rise of fascism, followed by the Second World War and its aftermath—and this
time the United States is unlikely to be sheltered from the worst impacts of
crisis, as it was between 1914 and 1954.
In the same way, the negative feedback loops that counter
greenhouse events in the Earth’s biosphere don’t prevent drastic climate
swings, with all the agricultural problems and extreme weather events that
those imply; they simply prevent those swings from going indefinitely, and
impose reverse swings that could be just as damaging. If the thermohaline circulation
shuts down, in particular, there’s a very real possibility that the world could
be whipsawed by extreme weather in both directions—too hot for a few more
decades, and then too cold for the next millennium—as happened around the
beginning of the Younger Dryas period 12,800 years ago. Our species survived
then, and on several other similar occasions, and the Earth as a whole has been through
even more drastic climate shifts many times; still, it’s a sufficiently harsh
prospect for those of us who may have to live through it that anything that can
be done to prevent it is well worth doing.
