Welcome to the age of diminishing returns

Tuesday, August 19, 2014

Italy: the story of the donkey and the economist

Italy's "Energy Efficiency" plotted as a ratio of the GDP (constant dollars) to the energy consumption (data from the World Bank)

There is an old story in Italy (but also in other Mediterranean regions) that tells of a man who tried to train his donkey to work without food. So, he gradually reduced the beast's daily ration of hay. Later on, the man reported that, unfortunately, the donkey had died just when it had learned to go without any food at all.

The man of the story must have been an economist. He was trying to optimize the system and he had defined the "efficiency" of the donkey as the ratio of the work performed divided by the amount of hay consumed. He had found that reducing the amount of hay improved efficiency and, with impeccable logic, had brought the idea to its natural conclusion.

Something similar seems to be taking place with the economy of whole countries. Economists define as "efficiency" the ratio of the GDP produced per unit of energy consumed. Noting that this ratio has been increasing for many Western economies during the past decades, they conclude that economies are becoming more and more efficient. They even speak of "decoupling", noting that the GDP can keep increasing while the energy consumption remains constant - or decreases. This is supposed to be a wonderful thing.

Unfortunately, the problems with this optimistic interpretation appear stark clear with the case of Italy. Notice, in the graph above, how this "efficiency" shot up just when the Italian economy started to collapse, with a decline in GDP, loss of more than 25% of the Italian industrial production, massive increase in unemployment and all the related disasters. (See here, and here for reports about the post-peak Italian economy)

The increase in efficiency shown by the graph is a pure illusion. The Italian economy is not becoming more efficient but, simply, contracting. Industries are closing down and people become unemployed. As a consequence, less energy is consumed in manufacturing and for transportation. At the same time, other elements of the economic system, say, rents or property taxes, remain relatively unaffected; government spending, for instance, tends to go up. Hence, the GDP doesn't decrease as fast as energy consumption and the ratio of the two increases (*). Obviously, that's nothing to be happy about. 

Concepts such as "efficiency" and "decoupling" seem to be based on highly aggregated parameters; too much to provide a useful interpretation of what's happening in a country's economy. That doesn't mean that the economy cannot get more efficient with time, just as a donkey may learn to work even with a reduced hay reaction. But, without energy, and especially without cheap and abundant energy, an economy simply starves and, eventually, it suffers the fate of the donkey of the story.

(*) The increase in the GDP/energy consumption ratio can be simulated by a dynamic model and it can be shown that it is just an effect of the time lag in the process of transformation of natural resources into capital. But that will take another post to explain.

Saturday, August 16, 2014

Steam trains will never replace horses

Don't you have this feeling that it is becoming more and more queer to keep repeating the same old, stale sentence, "Renewable energy will never be able to replace fossil fuels"?

From The Telegraph

Global solar dominance in sight as science trumps fossil fuels

Solar power will slowly squeeze the revenues of petro-rentier regimes in Russia, Venezuela and Saudi Arabia. They will have to find a new business model, or fade into decline 

new PS20 solar plant which was inaugurated last month at

There are already 19 regional markets around the world in which PV solar panels can match or undercut local electricity prices without subsidy Photo: Reuters
Solar power has won the global argument. Photovoltaic energy is already so cheap that it competes with oil, diesel and liquefied natural gas in much of Asia without subsidies.
Roughly 29pc of electricity capacity added in America last year came from solar, rising to 100pc even in Massachusetts and Vermont. "More solar has been installed in the US in the past 18 months than in 30 years," says the US Solar Energy Industries Association (SEIA). California's subsidy pot is drying up but new solar has hardly missed a beat.

The technology is improving so fast - helped by the US military - that it has achieved a virtous circle. Michael Parker and Flora Chang, at Sanford Bernstein, say we entering a new order of "global energy deflation" that must ineluctably erode the viability of oil, gas and the fossil fuel nexus over time. In the 1980s solar development was stopped in its tracks by the slump in oil prices. By now it has surely crossed the threshold irreversibly.

The ratchet effect of energy deflation may be imperceptible at first since solar makes up just 0.17pc of the world's $5 trillion energy market, or 3pc of its electricity. The trend does not preclude cyclical oil booms along the way. Nor does it obviate the need for shale fracking as a stop-gap, for national security reasons or in Britain's case to curb a shocking current account deficit of 5.4pc of GDP.

But the technology momentum goes only one way. "Eventually solar will become so large that there will be consequences everywhere," they said. This remarkable overthrow of everthing we take for granted in world energy politics may occur within "the better part of a decade".

If the hypothesis is broadly correct, solar will slowly squeeze the revenues of petro-rentier regimes in Russia, Venezuela and Saudi Arabia, among others. Many already need oil prices near $100 a barrel to cover their welfare budgets and military spending. They will have to find a new business model, or fade into decline.

Wednesday, August 13, 2014

Peak mileage and the diminishing returns of technology

This graph, from "economonitor," is very interesting because it contains so much relevant information. (However, note one detail: the title of the graph, "Miles Driven" is somewhat misleading; it should be "mileage", as the text of the post clearly says.) The relation of mileage to hourly wages is a parameter worth examining because it tells us a lot about the "systemic" efficiency of road transportation. What kind of efficiency can we actually afford?

Now, the graph shows a clear "peak mileage" which occurred around the year 2000, when Americas could afford the highest mileage from their cars in history. It was an efficiency peak of the road transportation system. But then, this efficiency diminished. How can we explain that?

The data of the graph depend on three factors 1) the cost of gasoline, 2) the average hourly wage, and 3) the average mileage of cars. Let see first the behavior of oil prices, which determine gasoline prices.

You see how oil prices spiked twice during the past 50 years, with the first and the second (ongoing) oil shocks. Amazingly, after the start of the first oil crisis, the mileage per hour worked increased, despite the steep price increases. But the opposite took place with the second oil crisis, mileage per hour worked rapidly decreased. Something must have compensated the price increase during the first crisis, but that is not occurring during the second. Why?

Of the other two parameters involved in the mileage curve, hourly wages play only a minor role. In real terms, wages have remained more or less constant in the US since the early 1970s, as you can see in this graph (source: income inequality)


What changed a lot in this period is the technology of cars. The first oil shock in the 1970s was, indeed, a shock. People reacted by actively seeking for technological solutions which would increase the mileage of their cars. And these solutions were easy to find: simply reducing the size and the weight of the monster gas guzzlers of the 1960s did the job. Look at these data (source):

You see how quickly mileage increased throughout the 1970s - it nearly doubled in less than 10 years! And you can see how quickly people forgot about the oil problem once prices collapsed in the second half of the 1980s. The graph also shows that, with the second oil crisis, mileage restarted to increase, but by far not as fast as in the 1970s. There is a reason: it is difficult to optimize something already optimized. This we call 'diminishing returns of technological progress."

In the end, it looks like the "peak mileage" of the late 1990s is the real one. In the future, the a combination of factors which led to the peak will never return. Oil depletion is destined to make oil less and less affordable, even though market oscillations may hide this phenomenon. Wages are unlikely to grow in real terms after having been static for the past 40 years. And technological miracles are unlikely. Even the Toyota Prius, technological marvel of our times, can only bring us back to where we were 15 years ago in terms of mileage per hour worked. As long as we remain within the paradigm of "road vehicle powered by a combustion engine" we have reached the limit of what we can do.

The result of the reduced overall efficiency of transportation we can see in this last graph (from advisorperspectives). In the US; people are driving less. Perhaps there are behavioral factors involved, but "peak mileage" suggest that they are doing that because they can't afford to drive more.

h/t Giorgio Mastrorocco

Monday, August 11, 2014

The decline of science: why scientists are publishing too many papers

We are seeing scientists badly failing in convincing decision makers of the urgent need of doing something against the impending disaster caused by global warming. But that's just a symptom of the decline of scientific research, desperately seeking for funds, but oppressed by bureaucracy and by a general disinterest on the part of the public; to say nothing of the rampant phenomenon of pseudoscience. In this text, I argue that one of the causes of the decline of science is the emphasis in publishing (the "publish or perish" rule). I argue that scientific papers have become a form of currency, suffering all the problems which plague the modern financial markets. Both the financial world and the scientific world have developed "emergent" properties which optimize throughput but not necessarily benefits. In short, we are publishing too much. (image above from this page)

The scientific world seems to be swamped by a true tsunami of papers of all kinds, full of sound and fury and signifying nothing. A situation which looks more and more similar to that of the general cacophony of the World Wide Web, swamped by poor quality information drowning the good information (if any). This starts to be a serious problem and some have explicitly asked that scientists should publish a smaller number of papers, but of higher quality (as argued, for instance, by Timo Hannay). 

But why do we find ourselves in this situation? What has caused science to become a paper mill? Here, I argue that it is the result of the basic properties of complex systems. These systems generate emergent properties which are often similar in fields which appear very different at first sight. In particular, scientific publishing turns out to be very similar to the world's financial system, with all the associated problems of uncontrolled growth and waste of resources. Let me explain my point.

From the beginning of one's career, scientists are pressured to publish, publish, and publish. That is known as the "Publish or Perish" rule which is implemented by means of the "peer review" process in which colleagues of the authors have the authority of accepting or rejecting the submitted paper, or request modifications. It looks simple, but it is much more complex than this, with several variants on the theme of "peer review", different prestige of scientific journals, different methods of diffusion (e.g. open access or paid subscriptions) and more.

One of the problems with the system is that the peer review system can usually filter out the really bad papers, but can hardly do the same for papers which are simply mediocre. The limitations of peer review have generated the arcane (and ineffectual) methods of post-publication evaluation which sometimes go under the name of "scientometry" or "scientometrics" (not to be confused with Scientology!!).

For a non-scientist, the urge to publish and the methods of publications in science are hard to understand, but the matter will appear perfectly clear if we compare it to something we are all familiar with: ordinary, monetary currency. Let me examine the many parallels in a non-exhaustive list.

1. Currency. The way we intend monetary currency nowadays is something that has no intrinsic value: it is in the form of sheets of paper or bits in computers. But by having these bits or pieces of paper you gain prestige and luxury items, and you climb up in the social ladder. The situation is exactly the same for scientific papers. In themselves, papers may have little or no value, but the more papers a scientist has published, the higher is his/her prestige and the more he/she can climb up the scientific ladder to higher and more prestigious positions. Papers can also bring luxury items in the form of expensive research equipment (microscopes, particle accelerators, scanners, etc.).

1. Emitting currency. Today, central banks are the entities authorized to emit monetary currency, and they have the authority of stamping a validation mark on an otherwise worthless piece of paper which then becomes 'money'. In science, validation of a paper is the privilege of scientific publishers. But who gave to scientific publishers this authority? It is an interesting question, just as impossible to answer as asking who gave the banks the same kind of authority with ordinary currency.

2. Spending your currency. Ordinary currency has no value in itself, but it can be exchanged with all sorts of items in the market. Scientific papers are not so easy to redeem, but can be transformed into ordinary currency by using them as tokens necessary to obtain a salary, career advancements, honorariums, and more.

3. Inflation. Currency is well known to undergo inflation; it loses part of its value with time. Scientific papers are subjected to the same phenomenon. Older papers are less valuable than new ones and in order to maintain your "wealth", as a scientist you must fight inflation. If your papers get old and no new ones are published, then they will be worth nothing.

4. Interest on currency. Ordinary currency can be deposited in banks in order to acquire an interest in the form of more currency. For scientific papers, the same role is played by funding agencies which transform scientific papers into research grants, which scientists will use to produce more papers. It is a classic example of a reinforcing feedback. 

5. Assaying. The real value of ordinary currency can be ascertained by procedures which may involve chemical assaying of precious metals. With paper currency, there are ways to determine whether they have been printed by authorized agencies. With scientific papers, their validity is verified by "referees;" scientists who will decide whether the data and the interpretation reported are correct.

 6. Counterfeiting. Ordinary currency can be counterfeited in various ways, for instance in the form of worthless metals instead of precious ones, in the form of paper bills printed by unauthorized agencies, and in the form of legitimate - but worthless - currency emitted by the central bank of small and unknown countries. In scientific publishing, counterfeiting is performed by small "predatory" publishers which do not perform the same validity check as the established publishers and may simply publish anything in exchange for a (standard monetary) fee paid by the authors.

7. Bad money replaces the good. This is a well known phenomenon in all economies, with money being debased by reducing the content of precious metals or printing too much of it. In science, we are seeing the same phenomenon with the proliferation of scientific publishers - often shady businesses trying to make a buck from scientists eager to see their paper published but not succeeding with the traditional journals. The result is an inflation of bad papers which tend to swamp the flux of good ones.

8. Ponzi schemes and multi-level marketing.  A Ponzi scheme is a pyramidal structure in which the lower layers pay the higher ones for the privilege of being inside. A multi-level marketing scheme is similar, but you pay for the privilege of being able to sell a product. There is no reason why such schemes cannot exist also in science. Some recently started journals have taken up a pyramidal structure which looks suspiciously like a multi-layer marketing scheme. In this case, scientists are drawn into the scheme with the allure of being defined as "editors." As a result, they work for free for the publisher!

As you see, the similarities are so many and so evident that we can say that the paper publishing system in modern science is a form of currency which exists and prospers within the system which has created it. It is so entrenched and so natural that most scientists seem to show little or no interest in its origins. Yet, the peer review system seems to have been unknown a century ago (see, e.g. this note by Michael Nielsen). For instance, only one of the about 300 papers published by Albert Einsten went through peer review. The scientific publication system we know today seems to have become the rule only in the second half of the 20th century. It is impressive that this system emerged all by itself without anyone planning it. It is an "emergent phenomenon", one of the characteristics of complex systems which tend to evolve in such a way to maximize the dissipation of potential energy (see, e.g. Kaila and Annila).

We could say that the world's financial system has evolved in order to maximize the destruction of the Earth's natural resources; favoring their consumption at speeds much larger than the Earth's capability to reform them - obviously not a benefit for humankind. We could argue that the world's scientific publication system has evolved in order to maximize the production of a large number of mediocre and useless paper. Again, this is not a benefit to science. Scientists are publishing too much!

Can these systems be changed? There is much talk on the subject of reforming the world's financial system, just as there is much talk about reforming the world's scientific publication system. In both cases, however, reform seems to be very difficult, if not impossible. In science, the well intentioned effort to open up to the public the results of scientific research by the "Open Access" system seems to have backfired, generating a wave of "predatory publishers" favoring an even faster dissipation of scientific potentials by greatly increasing the number of mediocre or bad papers. The financial system seems to be even more impervious to all kind of changes.

In the end, it seems that most systems of this kind can be reformed only by rebuilding them after they have crashed. That's not surprising: after all, you should know that if you fight thermodynamics, thermodynamics always wins.

Saturday, August 9, 2014

Thursday, August 7, 2014

A tale of a powerful empire and of a riotous kingdom

History, it is said, doesn't repeat itself, but it does rhyme. In particular, the times of the Roman Empire are a remarkable source of events rhyming with those of modern times. For instance, the ancient Romans had developed a number of propaganda technologies which were remarkably similar to the ones we use today. The image above (source), from the Trajan column in Rome, may be seen as accusing Rome's enemies of the time, the Dacians, of preparing for war by building a fortress - perhaps breaking a previously agreed pact. So, let me tell a tale of Roman times. I won't tell you what exactly it rhymes with in our times, but I think it will be easy for you to understand.

The Roman Empire had become rich and powerful on the precious metals, gold and silver, that the Romans mined in Spain. (the details are described here, and here). The problem for the Romans was that gold is a mineral resource and mineral resources don't last forever.

With the first century of our era, the production of gold and silver from the Roman mines started declining and the Empire started showing signs of trouble. The Jewish revolt of 66 CE was one of these signs: it almost destroyed the Empire. Eventually, however, the Romans managed to crush the rebellion and, by sacking Jerusalem, they obtained a nice stash of gold to replenish their badly depleted reserves. But the problem remained: the gold sacked in Jerusalem could not last forever. How to get the gold necessary to pay the legions which ensured the Empire's survival?

At this point, the Romans noticed that a small a kingdom on their North-Western border, Dacia, still had producing gold mines. The Dacians had been building up their production and by the start of the 2nd century CE they could dream of using this gold to their advantage; maybe to create a small empire of theirs.

The situation was clear: the Romans needed gold, the Dacians had it. The Roman had a powerful army, the Dacians a much less powerful one. The consequences were obvious: the Romans invaded Dacia during the early years of the 2nd century CE. It was a risky gamble, because the Dacians put up a stiff resistance, but eventually they were defeated and the Romans took control of their gold mines. With the newly found gold, the Romans tried to conquer their rival empire: Parthia, on their Eastern border. They failed miserably at that. If the gold of Spain had yielded a whole empire to the Romans, the gold of Dacia yielded strictly nothing except Dacia itself. And Dacia was the first border province to be abandoned by the empire less than two centuries after having been conquered. Then, the empire which slowly faded away from history as it was condemned to do.

This is the story. Now, as a little exercise in history-rhyming, let's list its main elements.

  • A powerful empire plagued by excessive military expenses and by declining mineral resources (Rome)
  • A short lived boost of resources for the empire (the sack of Jerusalem)
  • A growing regional power, with still productive mineral resources (Dacia)
  • A large rival empire (Parthia) 
  • A remarkable capability of using propaganda for military purposes (Rome)

Now, try to fit in this scheme the modern equivalents of the ancient ones. As you can see, history really rhymes a lot. It is not surprising: the way humans behave is determined by the way their brain works. And that has not changed much in the past and - from what we are seeing happening around us nowadays - is not changing at all.

But one more thing that history teaches us is how futile some human efforts are. Think again of the desperate attempt of the Romans to conquer Dacia. They succeeded, but they took a tremendous risk: the campaign was enormously expensive and, had they failed, the result could not have been anything but the disintegration of the empire. And, anyway, the gold of Dacia turned out to be insufficient to keep the empire expanding. The Roman Empire, just like our modern economy, could survive only by growing. Once it couldn't grow any longer, it withered and died.

So, conquering Dacia was a reckless gamble, an enormous cost, and a lot of destruction; and all that just postponed the unavoidable. Will the present world situation evolve in the same way? We can't say for sure, but it is certain that history rhymes a lot. 

Monday, July 28, 2014

The Great War and the rise of propaganda

The Great War started one hundred years ago, on July 28, 1914. It was later known as the first world war, but the term "Great War" better conveys the enormity of something that had never happened before in human history. Here I propose an interpretation of the war based on the emergent properties of complex systems: the triumph of propaganda.

One hundred years after the start of the Great War, we are still struggling to understand what caused Europeans to decide that it was a good idea to kill each other by the millions while staying in humid and lice infested trenches. Political and economic factors are often mentioned, but are hardly sufficient. Wars have been around from the beginning of human history, but had never reached the size and the level of ferocity of the Great War.

What made the Great War so destructive was the power of what was later called "propaganda" (and which today we tend to call "consensus building"). In turn, propaganda was a classic case of an emergent phenomenon of complex systems. It was an unexpected result of the diffusion of literacy in industrialized countries. As an example, by the end of the 19th century, France had achieved a nearly 100% degree of literacy in its population  (image below from Wikipedia). Several European countries, including Germany, Britain, and others, had reached similar rates.
People were taught to read and write because literacy was a useful ability in a rapidly industrializing society. But, for literacy, just as for many other things, there holds the law of unexpected consequences. Once most people were able to read and write, the rules of the game of communication changed completely. Before the age of literacy, governments had to rely on town criers screaming "hear ye, hear ye!" in order to tell their subjects that a war had been declared and that they had to enlist in the army. With literacy, people would read newspapers and were told not only that they had to enlist, but how good and beautiful it was to enlist to fight against the evil monsters that the enemies were.

In a classic case of reinforcing feedback, propaganda fed on itself. As people became more and more convinced to be on the side of good against evil, the war became harsher and more out of control, generating more hate and more propaganda. In part, this disastrous spiral was a spontaneous phenomenon, but soon governments learned how to exploit it. It took some time to develop the right techniques, but we can pinpoint the beginning of modern war propaganda methods with the sinking of the British ship "Lusitania" by a German submarine in 1915. Allied propaganda exploited the sinking in ways which we can easily recognize as a standard part of "false flag" operations: the extensive use of the media to demonize the enemy. These technologies are still commonly used today and are perhaps more effective than ever.

Today, images and movies are used to complement and replace the written world of a century ago, but the basic mechanism of propaganda remains the same: governments can reach their subjects with a tremendous barrage of false or distorted information. People are not normally equipped to defend themselves from this onrush of disinformation and tend to react either believing in it or taking refuge in bizarre conspiracy theories - often manufactured as part of more false flag propaganda operations.

The emergent phenomenon of propaganda during the Great War took most people by surprise and, after the war was over, there were several attempts to understand it and - if possible - control it. Edward Bernays was a pioneer in this field with his 1928 book "Propaganda". He was an optimist and thought that propaganda could be used for good purposes. Unfortunately, it is nearly impossible to control a self-reinforcing phenomenon and today we are as sensitive as a hundred years ago to the waves of hate which periodically engulf the public opinion. The case of the non-existing "Weapons of Mass Destruction" which led to the invasion of Iraq in 2003 is the most recent full size manifestation of this phenomenon. Others may be in the making right now.

So, a hundred years later, the story of the Great War is a lesson on how difficult it is for us to manage complex systems. Our society, one of the most complex systems that ever existed in human history, is subjected to destructive transitions created by emergent control phenomena which appear out of nowhere: unpredictable and uncontrollable. Propaganda feeds on itself and creates waves of hate which generate destructive wars. The illusory perception of abundance of oil and gas created by fracking leads to the diversion of immense amounts of resources to a task which is leading us nowhere. Waves of self-reinforcing optimism in the media lead to financial bubbles and then to destructive crashes, as it happened in 2008 and may happen again.

The war propaganda of one century ago looks to us hopelessly naive. But the core ideas developed at the time of the Great War are still with us, although often in subtler and more effective forms. The diffusion of the Internet is adding layers and layers of complexity to the once simple mechanisms of propaganda and the fragmentation of the infosphere makes it even more difficult to control it. Never in history, we have faced such an incredibly complex system which is shaping our perception of the world. The infosphere is quickly becoming a game of mirrors where multiple images of the same thing scream at each other "I am the real one".

Where is it all leading us? We don't know, we cannot know. The future, as usual, is a dim reflection of the past. So, the Great War is part of our past, but also of our future. With its more than 10 million deaths and with its incredible mix of love and hate, it is still part of the way we are, part of the way we see the world, part of the way we react to the unknown, to the mysterious essence of the universe.


These words by Olaf Stapledon (last and first men) may give us a hint of what we are facing.

Great are the stars, and man is of no account to them. But man is a fair spirit, whom a star conceived and a star kills. He is greater than those bright blind companies. For though in them there is incalculable potentiality, in him there is achievement, small, but actual. Too soon, seemingly, he comes to his end. But when he is done he will not be nothing, not as though he had never been; for he is eternally a beauty in the eternal form of things.

Man was winged hopefully. He had in him to go further than this short flight, now ending. He proposed even that he should become the Flower of All Things, and that he should learn to be the All–Knowing, the All–Admiring. Instead, he is to be destroyed. He is only a fledgling caught in a bush-fire. He is very small, very simple, very little capable of insight. His knowledge of the great orb of things is but a fledgling’s knowledge. His admiration is a nestling’s admiration for the things kindly to his own small nature. He delights only in food and the food-announcing call. The music of the spheres passes over him, through him, and is not heard.

Yet it has used him. And now it uses his destruction. Great, and terrible, and very beautiful is the Whole; and for man the best is that the Whole should use him.

But does it really use him? Is the beauty of the Whole really enhanced by our agony? And is the Whole really beautiful? And what is beauty? Throughout all his existence man has been striving to hear the music of the spheres, and has seemed to himself once and again to catch some phrase of it, or even a hint of the whole form of it. Yet he can never be sure that he has truly heard it, nor even that there is any such perfect music at all to be heard. Inevitably so, for if it exists, it is not for him in his littleness.