Like a grenade in a glasshouse
It’s going to hit hard and it’s going to hurt – made worse because most aren’t expecting it. They think the world is slowly returning to our modern “normal” – steadily increasing growth, with occasional annoying but manageable interruptions. After all, the global recession wasn’t so bad was it? Sure there was pain and things got shaky but Governments responded, bailed out companies, stimulated economies, got things back on track. While it’s still a bit bumpy, Greek wobbles, US debt, extreme weather, high oil and food prices etc, it’ll work out. It always does….
If only it were so. In fact we are blindly walking towards the next in a series of inevitable system-shaking and confidence-sapping crises, deluded in the belief that the worst is behind us.
Each crisis will be a little worse than the last. Each one will shake our denial a little more. This is what happens when systems hit their limits. They don’t do so smoothly, but bump up against the wall, hitting hard, then bouncing off equally hard. It is the behaviour of a system trying to break through. But if the limits are solid, as is the case with our economic system hitting the limits of the planet – defined by unchangeable physical capacity and the laws of physics, chemistry and biology – then it can’t find its way through. So eventually, when the pain of hitting the wall gets too much, it stops.
Then it will hit. Like a grenade in a glasshouse, shattering denial and delusion and leaving it like a pile of broken glass on the floor of the old economic model. Then we’ll be ready for change.
I’ve been arguing the inevitability of this moment since 2005, mostly inside the business community. Before the 2008 financial crisis hit, the idea was almost universally rejected, with a belief in the indomitable power of globalised markets to overcome all challenges and keep growth on track. Most audiences believed that while markets always wobbled, they also always recovered. My suggestion, that this level of arrogance was the hallmark of empires before they fell, landed on deaf ears. They were the masters of the universe and markets and growth would always reign supreme.
Now the response is different. The financial crisis saw many break off from the pack and start to ask the difficult questions. I now find as I tour the world speaking about The Great Disruption to community gatherings, corporate executives and policymakers, that minds are increasingly open. While not the dominant view, the previous confidence in the inevitably of growth has become shaky and the group asking the challenging questions is rapidly expanding.
As I argue in the book, the fundamental cause of what’s coming is resource constraint and environmental breakdown, which when combined with an overstretched financial system and high levels of debt puts unbearable tension into the global economy. While no one can know what event will pull the pin out of the grenade, the underlying pressures make that moment inevitable. Yes, the dominant commentary still blames each individual problem on unique circumstances, but the underlying systemic causes are clear for those who wish to look.
The continued level of denial still surprises me, especially given the pressures driving this are not esoteric and can be measured in clear economic indicators. A good example was recently published by one of the more interesting voices to join the growing chorus that we have a system-wide problem.
The legendary contrarian and fund manager Jeremy Grantham is co-founder of the Boston based firm GMO, with over $100 billion of assets under management. So this guy is a solid capitalist and market advocate, pursuing wealth for the wealthy. But he sees the data and is raising the alarm, calling this moment “one of the giant inflection points in economic history” – referring to the end of a 100-year steady decline in commodity prices.
His views were echoed by Stephen King, group chief economist at HSBC, who wrote in the FT: “After the biggest meltdown since the Great Depression, economic theory tells us that world commodity prices should not be this high. But they are and the West quickly needs to wake up to this new economic reality. Commodity prices are now permanently higher.”
Grantham provides the detail, pointing out that the 100 year trend of falling prices in the 33 most important commodities, except for oil, were wiped out with a price surge from 2002 to 2010 – a surge even greater than experienced in WW2. We have now reached what Grantham calls the Great Paradigm shift; not a price spike but a new reality. Within this new reality, Grantham says: “if we maintain our desperate focus on growth, we will run out of everything and crash.”
This is why hitting the wall is inevitable – because limits are not philosophies, they are limits. We can understand what to expect – and why the grenade will shatter the glasshouse of economic growth – by going back to how systems behave when they hit their limits. Our economic system first hit the wall in 2008 – that was when The Great Disruption began with food and oil prices hitting record highs and a credit crisis driven by reckless monetary policy pursuing growth at all costs. The resulting recession meant we backed away from those limits (bouncing off the wall), and then borrowed massive amounts of money from our children (think Greece) to try to get the economy moving again.
Now that the global economy is slowly entering a so-called “recovery”, the prices of commodities (representing our use of earth’s resources for food and materials) are on the way up, accelerated, in the case of food, by climate change. Of course if significant growth kicks in, the prices of oil, food and other commodities will surge, this time starting from near record highs. Then we will bounce back into recession and prices will back off again. Hit the wall, bounce off. Hit the wall, bounce off. Ouch.
By itself this would pose enough of a challenge to growth. But now we also have the debt we used to get the economy moving again. This debt can only be paid off with significant economic growth – but such significant growth is impossible as outlined above. So the debt itself becomes an enormous additional tension in the system, as argued by Richard Heinberg in his important forthcoming book The End of Growth. With the global economy and ecosystem now both burdened by unmanageable debt, effective global default is only a matter of time.
So we’re living in a glass house with the grenade sitting there for all to see. Who knows what will pull the pin. It could be Greece, a Chinese food crisis, peak oil or any number of other triggers. But it’s coming.
The question to ask yourself is simple. Are you ready?
Paul Gilding is a regular Climate Spectator contributor, author, climate change and sustainability consultant, and blogger. http://paulgilding.com/
Comments on this article
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I know what you mean, but we
I know what you mean, but we can not change so many thigs. For me it is just a myth. toronto home renovation
re:
It would be laughable if it didn't have the effect of driving some more people to stop contributing to society and retreating selfishly to up eco-farming. webdesigners
Really?
I guess Mike Strasse also has a well defendable fortress in preparation for the oncoming energy wars ! Be prepared for a razed earth policy - thats what history teaches us.
truly ready
Starving "roving bands of outlaws" can't walk very far or fast..... It's a well documented fact that starving refugees in conflict zones walked right past fields laden with food, no energy to even jump over the fence as they headed for refugee camps.
Peak Everything!
Heinberg & Martenson are now joined by Gilding in passing on the message! I have been reading Richard Heinberg's message for many years now, and yes people! It is happening! We hit the "wall" recently when oil got to $149, and look what happened then! The world is still reeling from that financial shock. Keep up the great work Paul!
www.wernertheinert.com.au & www.ursulatheinert.com.au
No one is really ready, but we're heading in that direction...
@Mike Stasse, good on you for your preparations, but I doubt any of us can claim to truly be "ready."
Consider your property being taken over -- by either roving bands of outlaws, or an outlaw government. There may be nothing you can really do about such things, but it is good to not be too smug about being ready -- there are lots of "unknown unknowns" out there!
We've done a lot of the things you're doing, with one addition: we're on a smallish island. It's big enough for a hospital, but too small to support big-box stores. It costs ~$40 to make a round-trip off the island, which means fellow islanders will go to each other for goods and services, rather than to Mall*Wart.
Are you doing anything socially to prepare? Networking with neighbours, teaching classes, etc.? People of like mind are going to need each other.
Best of luck -- you and I will need it only a bit less than those who are totally unprepared!
Not yet
Whats missing for me in this article, is the way in which higher food and oil prices impacted on those who hold the least wealth.
in developing countries there were demonstrations and riots prior to the GFC, because food was no longer affordable.
Also the article takes no account of the impact new technologies will continue to have, like geothermal plants in Indonesia replacing diesel generators or the possibility of solar thermal in Australia, that will allow communities to evolve beyond peak oil.
Perhaps when we discuss these issues, a broader view could be taken, rather than focusing on the demise of our own obtuse lifestyles. Australia is after all a net exporter of food and in any worst case scenario i think it has to be shown that we would still be far better off than most.
In the SW of W.A, dairy farms are going bust beacuse they cant get enough for their milk. This demonstrates our remarkable affluence that we can "shut down" an industry that supplies a basic human nessessity, yet globally speaking for many people having access to land, materials, livestock is an impossible dream.
The point being that we In Australia have a lot of resources (not rocks) to call on in tough times that simply don't exist in many other places and morally i think we should be most concerned withnot only our own plight, but with all humanity and our earths ecosystems in their entirety.
Predictions come true
For many years those following peak oil stories have read of the predictions of what the onset of peak oil would be like.
Well it is uncanny how accurate they have been, even to the date of peak crude oil. Kenneth Defreyes predicted May 2005 and lo and behold oil production stopped increasing just a couple of months before that.
The International Energy Authority says it was 2006. The predictions were for volatile oil prices; well we have certainly seen that. The predictions were for growth to be very difficult to generate or would fail completely, before starting to decline.
The predictions say that growth is not possible without increased energy. Energy production is close to its limits, therfore growth is at its limits.
Without growth we cannot pay back our debts. Surprise, surprise, how many countries cannot pay back their debts ?
Welcome to the post peak oil world.
Do I feel lucky?
Or as Clint Eastwood said in Dirty Harry (1971), "...you've got to ask yourself one question: Do I feel lucky? Well, do ya, punk?"
The Club of Rome were 100% right
Have you read "Limits to Growth"? Exactly what fallacies are we talking about here?
The oil shocks of the 70's and 80's were politically driven. This one is driven by Geology. Fact is Saudi Arabia is incapable of making up the loss of oil production caused by the Lybian conflict, SA has obviously peaked out. Worse, its oil is now so sour with Sulphur it has to be treated before filling tankers for fear they would corrode and sink....
If food prices are driven up by " illogical use of arable land to make bio-fuels", exactly why do you think this is happening? Peak Oil maybe?
I suggest you educate yourself on the three E's (Economy/Energy/Environment) the sum total of which will be a perfect storm, just as predicted by, you guessed it... the Club of Rome! Start here http://www.chrismartenson.com/crashcourse
Scare tactics
Same old! New slogans! Grenade in a glasshouse forsooth! Hit the wall, bounce off! Indeed?. This article, devoid of science, statistics and history continues to play on the violin's one remaining string: D for Disaster. Gilding is infamous for his selective use of emotive generalisations, of which this piece is an excellent example. The result is a mix of the Limits to Growth fallacy of the Club of Rome and the "Greed is good" quote from the Wall Street film. The new paradigm - not a price spike but a new reality? Jeremy Grantham is obviously too young to remember the first and second oil shocks from OPEC in the 1970s. If food prices are being driven up, it's because of the illogical use of arable land to make bio-fuels. And what's this about Greece's problems being due to borrowing massive amounts of money from OUR children? Greece, like Italy sponsors chronic corruption, political and industrial fraud, public service nepotism and feather-bedding and massive tax evasion. Most Australians have no conception of the extent of the 'black' economy in Mediterranean countries. The simplicity of Gilding's analysis with quotes taken out of context and built on assertions supported by prejudice, is simply breath-taking. It would be laughable if it didn't have the effect of driving some more people to stop contributing to society and retreating selfishly to up eco-farming.
are you ready?
I dont believe this thesis that says that we're running into physical limits, except in certain localities. You said it yourself in 2005 Paul; "creative destruction" is a path which allows real wealth to grow despite a finite resource base. But you might be right about the financial mess created by debt-fuelled asset inflation; the printing press ""cure" will cause enduring pain and hamper our "creative" abilities.
name calling
@George
What we have seen in recent decades is hyperinflation in the claims of what science is and what authority it can carry.
Your assertion that I somehow advocate "indefinite growth", and your allusion to me as akin to a holocaust denier do not help.
over and out.
Serial denial
@ Francis - It's one thing to refuse to accept the science of a complicated system such as the climate, but it is foolish indeed to believe that the Earth's environment and resources can sustain indefinite growth. As Paul said: " ..because limits are not philosophies, they are limits".
I would encourage you to have a look at a paper published in Nature entitled "A safe operating space for humanity" by Rockstrom et al.: http://www.nature.com/nature/journal/v461/n7263/full/461472a.html
Monopoly money
@ Richard - I' m no expert, but I think that's called hyperinflation.
like flatulence in a lift
While I share some of your opinions:
"defined by unchangeable physical capacity and the laws of physics, chemistry and biology"
is utter nonsense; an appalling and slimy claim to authority.
The debasement of science continues apace.
Are you ready?
Yep. Saw this coming at least fifteen years ago. Anyone not asleep at the wheel should've realised this was inevitable, only the timing was unclear.
So we sold everything, got out of debt, bought a small acreage and built an eco house that needs no inputs, generates little to no garbage, 100% self sufficient in water and electricity (actually 300% self sufficient in solar power!) and we now grow the majority of what we eat, even raising meat and dairy ourselves. All sustainably too.
Good luck to everybody else.... you're gonna need it.
Oh and all you nuts who think this is all too expensive to do... you're WRONG.
Printing
Hi, I think the way the system will release these tensions is by printing money. This will cause accelerated price increases.