Cassandra has moved. Ugo Bardi publishes now on a new site called "The Seneca Effect."

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.


  1. Ugo,

    I'm very much of the opinion that we can consider the situation in Greece to be largely made by the incompetence of European policy makes, and as such not really entirely related to the LTG collapse scenario. The fact is that the Euro is an incredibly badly designed currency system, and with no mechanisms for internal fiscal transfers or devaluation of currencies, this outcome was almost certainly inevitable. Indeed the UK economist Wynne Godley was predicting just this sort of outcome way back in 1992 ( ).

    Essentially the way the eurozone is designed means that it is at war with double entry bookkeeping and accounting relations, and in this war there will only ever be one winner. Books always balance! For a more complete summary of what has gone wrong in the eurozone I highly reccoment the following paper from the levy institute (these are the guys whose combination of accounting and economic models also correctly predicted the US financial crisis, as indeed did the aforementioned Wynne Godley):

    The only upside from this whole sorry tale is that the world might gain a better understanding of how the modern monetary system operates, and that people might come to understand that monetary union without fiscal and political union will almost surely end in disaster.

    1. I understand the point that was made, and that is still being made. In time of crisis, a government can devaluate the local currency; that makes the country's products a but cheaper, the people a but poorer, and on, you go.

      I am not sure, however, that this recipe will still work today. It used to work once, when commodities were becoming cheaper every year. Now, I am afraid that the result would be, "government devalues, country cannot import energy, people starve" or something like that.

    2. I think it's probably the least worst system we have, to be honest. The eurozone, as currently designed, seems to amplify any shocks to the economy and further destabilise matters, since it makes the countrys people poorer without making anything else cheaper, and there are the additional balance sheet instabilities.

      A system of redistribution, as there in the USA between rich states like California and poor states such as Arkansas, would also work. But in the current political climate in Europe this seems unlikely to develop. Ironic that, in this case, the Americans appear to be bigger socialists than the Europeans!


    3. There is a context Sam.
      Financial crash especially Western World 5 - 7 years now and not been fixed. All that weird low to zero interest rate and etc. "Central Bank of the Central Banks" just issued a Big warning of next Big recession - Greece sacrificed to no avail? World teetering on deflation. Sure - redistributive policies are needed, but do we see that happening - enough - even in the USA?

      And Europe - nobody to fix that 'killer' youth unemploymant or the refugee enormity. And more, much more to come.

    4. And in most of Europe -above all Italy, Portugal, Spain, - we should not overlook the intertwining of very high youth unemployment and the impossible burden of long-living retirees. I believe in Spain now, approx 33% of adult population either unemployed or retired. Not at all sure about France, better or worse than these countries?

    5. Phil,

      I do kind of agree. I think that the ongoing european crisis is basically the European part of the Financial Crisis, and that the poor design of the euro has served to make the effects of said crisis much more persistent and damaging. One only need compare the aftermath in the UK or USA, which both have their own central banks and free floating currency, to that of the EU. While things in the UK are far from perfect, we don't have near the Spanish rates of youth unemployment.

      That's not to say that the eurozone is entirely to blame for everything that's gone on, just that it is a vastly suboptimal institutional structure which serves only to make things worse for everyone by introducing needless constraints on the available responses to a crisis.

    6. You are only looking at devaluation and ignoring money creation, which is the important part. Devaluation assues you have to sell to foreign customers, which only true if you need to purchase things using foreign exchange. Most goods and services are however created and consumed domestically, even in SMOPEC countries.

      Under Euro regime that is not possible. In that way it is similar to the gold standard. However if you have what the Post-Keynesians call a sovereign currency, you can freely create demand. While real resource limits still exist, you can maintain full employment and redistribute income to at least feed everyone should the real resources allow.

      Maintaining full employment this way does reduce the exchange value of the currency, but far less than devaluation and increases the real goods and services produced and available to the population.

      Bill Mitchell in his blog has written a simple three part introduction to deficit spending and how the money is modelled:

      I thought you might find this also interesting. It was mentioned in this interview that Keen showed that debt based money system can run without growth:

      I can't find the paper but savers, both private and institutional, do accept negative real returns as long as returns beat inflation. So my guess would be that creating enough demand though fiscal deficits in a shrinking economy would push the inflation high enough for the banks to keep lending and keep the system running.

    7. I still think that people are not sick because they sneeze. They sneeze because they are sick

    8. True, but how you react to a sickness makes a big difference. Oil will run out, but pushing 60% of young people outside the society is purely a choice. A horrible one, I'd say.

    9. Interesting and good for me(although I had Georg Borgstom lecturing once at my university),trying to make development professionals here in Botswana to understand the dilemma in my column for a professional paper. I'm trying to combine it with a paper from Mike Roscoe ($200trillion debt...)and what can be hoped for in such a situation (200trill debt and 60trill world GDP) - and we know what renewables will cost. Do we have to tighten our belts trying to get slimmer? Or changing the ruling finanacial concept? What do you think??

  2. I think LTG issues and factors and forces are a part of the problem and a less proximate "driver in the background". Weak but steadily getting stronger and more significant. More proximate and direct causes are poor politics, policies, institutions, and economic and financial premises, practices and systems. Difficult to disaggregate intellectually and quite obviously very difficult to manage towards virtuous outcomes by relevant actors and stakeholders. Will something practical be learned by trying to observe and analyze the outcomes and the processes which led to them? Perhaps, but thus far not much that seems particularly applicable to the future.

    1. Sounds about right Max, but the network of events and configurations seems to be reacting for sure.

      A key moment in my understanding came for me in Ugo's earlier report of his Club of Rome presentation to MEPs in the European Parliament.

      It seems clear - and again from the media reports of the incoherent 'dinner' the other night at 'EU Summit', where UK PM Cameron was allowed a 5 min "commercial break" which at least in its irrelevance lowered the temperature a little - that they have 'lost the plot'. That is; the 'narrative' is separate from reality. They fail at technocratic financial/ economics, at military understanding and do not grasp the meaning implicit in any real response to 'climate threat'. They have no idea to manage the coming unstoppable flood of refugees from war and contagious breakdown. They even fail at knowing who Europe is. (I think of Russia as an essential part of Europe.)


    2. Agree Phil, they seem to have lost the PLOT (and various sub-plots) and are often confusing assorted nonsense narratives and spin and tall tales ..with reality...which they have no idea how to deal with. Not exactly encouraging. But I hope they had a nice dinner and enjoyed Mr Cameron. He's quite amusing at times.

  3. To me, relating the EU structural crisis to the club-of-rome-report seems still a bit far fetched. Let's wait, what comes further down the road. AT least, it could be more substantiated, e.g. by inspecting the effect of energy import costs.
    BTW, Sam Taylors remark, that the US do internally more wealth redistribution, seems funny, but correct to me.
    If one region cannot adapt to the competitivenes of another by lowering the exchange rate - to keep the trade imbalance at bay - the only solution is for the more competitive region to reinvest its extra-profit in the less competitive region; otherwise, an unsolvable debt crisis will be created by the weaker region beeing no more able to pay for their imports.
    I think one other topic of this blog is much more fruitful to explore: communication styles and narratives. The greek have their narrative, the northern european states (by far not only Germany) have their narrative. The communication process went basically out of control. (E.g. that the announcement of the plebiscite by Tsipras was perceived as a declaration of war.)

    1. For me it is clearly linked (as well as the Arab "springs" by the way).

      Basically we have had the post war period with tremendous growth in many countries.

      That period "the trente glorieuses" more or less ended with the first oil shocks (which also represent the inflexion point in the oil production curve, as well as the peak of the top producer of the time (the US) for the first oil shock).

      Since then the "ideal" and target has remained "constant growth" leading to credit all over the place and state debts growing especially since the eighties (Friedman, Reagan, Thatcher).

      Now we reach the end of this game, and overall all of this is pretty much in line with the LTG 72 "standard run".

    2. One maybe could add that along with the "constant growth" ideal, we also have been under a "bigger and bigger entitites" ideal : European Union, Alena, China joining the WTO, this somehow even accelerated after the collapse of the USSR and now continuing with the Transatlantic treatee prject and the Transpacific one, not even talking about "world government" projects.
      And this also might be at its peak somehow ...

    3. Useful summary Yves, IMHO.

      When I was a kid, Britain still ran on coal: cooking heating, electricity, rail transport, with 700,000 miners. We could not maintain a growing economy on coal: per capita total energy use had not changed significantly since early 1900s. I suppose electrification had been an 'efficiency' gain. Then came 'trente glorieuses' and energy consumption per capita rose because of uptake of petroleum. But those years of growth only reached a fraction of the World's population.
      If anybody still thinks 'energy' is not critical have a look at the astonishing rise of coal in China since the country joined WTO in 2000. ( )
      It is my contention that the world economy has in large part these last years been carried on the backs of coal miners; particularly Chinese miners. Think of all that 'outsourcing' of our 'old' manufacturing. That last might be a kind of 'efficiency gain', but it seems to have reached an inflection point sometime after 2005. The story continues.

  4. Ugo, are you aware of the UK Institute and Faculty of Actuaries 2013 report on ‘Resource constraints: sharing a finite world. The evidence and scenarios for the future’ which is a comprehensive overview of the risks: It’s conclusion states:

    "This report has brought together the latest evidence on resource availability and constraints and explored how these may impact on the economy and finance. The key finding is that the future will be very different from the past. Resource constraints will, at best, steadily increase energy and commodity prices over the next century and, at worse, trigger a long term decline in the global economy and civil unrest. The actuarial profession should recognise that resource constraints do raise the possibility of a limit to growth over the medium term and should therefore dedicate some research effort into understanding how this may impact their advice.

    The evidence for resource constraints is compelling and, perhaps surprisingly, the global economy remains relatively blind to this issue. Particular resources will have local impacts (such as water) while others will have global impacts (such as oil). The 1972 Limits to Growth study highlighted that following a ‘business as usual’ path ended in global economic and societal collapse by the middle of the 21st century. This is the path that economic development has continued to follow for the past 40 years.

    How resource constraints impact the economy is complex, uncertain and depends on a number of factors. Political and market responses to the challenges faced by resource constraints will have far reaching consequences which need to be better understood and better modelled by decision makers and their advisors. To a large extent the impacts can be managed, or at the very least influenced.

    Does the current ‘no growth’ economy in developed countries give us enough time to innovate or does it distract us from our real challenge? Will the increasing cost of resources result in investments into new methods of doing things or merely increase our investments into business as usual? Will any individual, organisation or sector take responsibility for managing a transition to a new economic paradigm or will society force this responsibility onto them in time (or too late)?

    Modelling such a high impact set of issues is critical not just for actuaries but also for society as a whole."

    1. Very interesting link, Nathan, thanks. I didn't know that report, but it makes a lot of sense to me. Clearly, some people can perceive the roots of the trouble, but, judging for the reactions to my post, it seems that most can only swallow the version presented in the media. And a vociferous group (at least in Italy) seem to think that if we leave the Euro, prosperity will magically return. Alas.......

    2. Prof. Bardi

      There is a lot of magical thinking going on, all over depressed Europe. 'If only we.....Golden Age' etc.

      The governance of Greece has been so corrupt that it has given ample ammunition to those who wish, or need, to cloud the real issues.

    3. Indeed, one element of the current magical thinking is that "if only we could get rid of corruption....". Surely the Greek government is corrupted, the Italian government is corrupted, all governments are corrupted; so what? Money flows from A to B and from B to C and so on, but if an economy doesn't create wealth, then people are poor. And that's what's happening, and not only to Greece

    4. Hey Ugo, great to be able to contribute something and thanks for your continued efforts to dispel magical thinking!

      Here's a presentation by the report author Dr. Aled Jones which I found well worth watching in conjunction with a group, "Wise Response" that I'm involved with here in NZ (, as it gives some idea how you might start to make a risk assessment useful as a planning instrument.

      And here's the list of publications from the "Global Sustainability Institute" at Anglia Ruskin ni, where he is director...

  5. Greece, in its governance, is more like most Middle Eastern countries than Europe. Admittance to the EU just served to benefit the rather corrupt government that ran things there, and they proceeded, at the upper reaches of that system, to squirrel away the proceeds of the ECB loans. The proceeds were also used, as in the US, to bail out the crooked and incompetent financial sector; very little of it went to its intended beneficiaries. That the other members of the EU - and the financial structure - let this go on for so long is a monument to their incompetence and greed. They'll reap the usual reward - pennies back on the dollar or Euro or whatever. The real bad actors will no doubt find another country to infest. The Greek government will shrink in size, and will default on its pension obligations - 50% of the people supported by the other 50% cannot last long. Intelligent planning and honest government should fix things - this is a financial collapse, not a systemic one, at least for Greece. If the countries of the North were to run low on fuels for food production, and the resultant food shortages had far-reaching consequences, that would be a systemic collapse.

  6. "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."
    I hate to burst the bubble, but there is no renewable energy that can supply the economy (now or in the future) with the QUANTITY of energy that is available in fossil fuels.

  7. Hey Ugo,

    I recently came to the same conclusion as you about global weakness. LTG was surprisingly accurate. Being an engineer its very odd economists don't take into account hard physical limits.

    Here's my take:

  8. Ugo,

    I recently came to the same conclusion about the global economy. It's amazing to me, as an engineer, that its not common for economists to factor in physical limits to their models.

    I posted on my (weak) blog here:



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)