Monday, June 29, 2015

The Limits to Growth and Greece: systemic or financial collapse?


The results of the "standard run" (or "base case") scenario of "The Limits to Growth" 1972 study. Could it be that the ongoing Greek collapse is a symptom of the more general collapse that the model generates for the first two decades of the 21st century?


So, we have arrived to an interesting point, to be intended in the Chinese sense of a curse. It is the point where the people of Greece are being asked to choose between starvation and slavery and this is supposed to be a triumph of democracy.

As the tragedy unfolds, people take sides, aiming their impotent rage at this or that target; the Euro, the bureaucrats of Brussels, the Greek government, Mr. Tsipras, some international conspiracy, and even Mr. Putin, the usual bugaboo of everything.

But, could it be that all the financial circus that we are seeing dancing in and around Greece be just the effect of much deeper causes? The effect of something that gnaws at the very foundations not only of Greece, but of the whole Western World?

Let's take a step back, and take a look at the 1972 study titled "The Limits to Growth" (LTG). Look at the "base case" scenario, the one which used as input the data that seemed to be the most reliable at the time. Here it is, in the 2004 version of the study, with updated data in input.



Despite all the criticism that the LTG study received over the years, its basic soundness was repeatedly demonstrated, for instance in "The Limits to Growth Revisited." The LTG calculations were based on a number of assumptions, the main one was that the increasing costs resulting from the gradual depletion of the world's natural resources would bring an increasing burden on the industrial system, forcing it to slow down its growth and, eventually, to start an irreversible decline.

In general, models are most reliable when they are very general (or "aggregated"). So, for instance, it is an accepted challenge that of predicting the Earth's climate in a hundred years from now, but only because the models make no attempt to predict the weather patterns of specific days and specific places. When you are hit by a hurricane, you can say that it is the result of the changing climate, but you also know that it is impossible to predict when and where the next hurricane will strike.

The same is true for the collapse generated by the LTG models. It is very aggregated: it can predict a general collapse, but it cannot predict where and when exactly local collapses will occur. But it is likely that local collapses would start in the weakest economies of the world; regions with low industrial production capabilities and little or no mineral resources of their own. Greece, indeed.

That doesn't mean that financial factors may not have accelerated the Greek collapse or made it worse. But, if the reason of the Greek disaster is systemic, then no financial trick will cure a disease which is not financial at its core.

If the LTG study is right and the crisis is generated by the gradually increasing costs of production of natural resources, (and there is plenty of evidence that these costs are increasing worldwide, see also here) then, collapse cannot be avoided, at best it can be mitigated by acting at the system level. By means of such measures as renewable energy, efficiency, and recycling, the system can be helped to cope with a reduced resource availability. But the economic contraction of the system is unavoidable. It is a contraction that we call financial collapse, but that is simply the result of the system adapting to lower quality (i.e. more expensive) resources.

And, if the reasons for the collapse are systemic and not financial, then it must be a progressing phenomenon that is going to affect all the vulnerable countries, starting with the Mediterranean European countries: Spain, Italy, and Portugal, which might well be the next in line.  

Is the collapse going to stop, ever? Yes, it will stop when the size of the world's economy will have become compatible with the quality of the energy supporting it (that we can measure in terms of the energy return on energy invested, EROEI). So, we may face a very long and deep descent, indeed, unless we manage to resupply the economy with new sources of renewable energy of comparable energy quality.

It is not impossible, but not cheap either, and most people say that it is too expensive. So, our future will be what our greed will cause it to be. At least, we'll have what we deserve.














Who

Ugo Bardi is a member of the Club of Rome, faculty member of the University of Florence, and the author of "Extracted" (Chelsea Green 2014), "The Seneca Effect" (Springer 2017), and Before the Collapse (Springer 2019)