The Faustian Bargain that Modern Economists Never Mention

[Paul Mobbs]

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Note: Go to the on-line article for a collection of graphs and links which 
illustrate the points made.

P.


http://ourfiniteworld.com/2012/01/09/the-faustian-bargain-that-modern-economists-
never-mention/

The Faustian Bargain that Modern Economists Never Mention

Gail Tverberg, Our Finite World, January 9th 2012


Historically people have shifted their belief systems in various ways. The 
Greeks and Romans believed in numerous gods and goddesses and attributed all 
kinds of powers to them. Then the great monotheistic religions came along and 
people began to believe in just one god, though they honored him under different 
names.

Recently, beliefs have shifted again, with people worshipping just one part of a 
god, the invisible hand. Thanks to Adam Smith and those who followed him, 
especially the current neoclassical economic theologians, we have seen such an 
increase in the world’s wealth and sheer numbers that it is hard to imagine life 
before the industrial revolution, with its shift from mostly human and animal 
muscle power to the energy dense fossil fuels—coal, oil, and natural gas. It is 
also hard to imagine that humanity could someday slide back into another age of 
scarcer and more expensive energy, but that is a possibility that cannot be 
excluded from our thinking.


The Faustian Bargain

What about the Faustian bargain? It remains deeply hidden from view because its 
exposure by the high priests of modern economics would force us to rethink how 
we live and why we live this way, as well as what we’re planning to leave for 
future generations. The Faustian bargain goes something like this: Thanks to the 
discovery and exploitation of fossil fuels, humans (really just a small minority 
of them) are able to live richer lives today than even the queens and kings of 
yore could have dreamed of.

Furthermore, we’ve used some of those finite resources to increase food supplies 
and to expand the human population, which provides the economic system with both 
more workers and more consumers, a necessity to keep the economy growing under 
our current economic model. The world’s population increased from 1.6 billion in 
1900 to 7 billion today, and we add about 80 million more each year. Humans have 
quickly become the most numerous megafauna on the planet.

The other side of the bargain, the side hidden from view and never mentioned in 
economics texts is this: At some undetermined time in the future, one that 
creeps ever closer, this economic system, fed by energy and other resources at 
ever increasing rates at one end and spewing out waste products at rates that 
cannot be absorbed by Earth’s ecosystems at the other, is unsustainable. What 
that means is simple enough: Industrial society as we know it cannot go on as it 
has forever—not even close.

Our economic system must exist within Earth’s finite limits, so recent and 
current generations have sold their soul to the devil for temporary riches, 
leaving the Devil to collect his due when the system falls apart under its own 
weight and the four horsemen of the apocalypse ride again across the world’s 
landscapes. None of this will happen tomorrow or this week or this year, but our 
economic system is faltering at both ends.

For many, if not most, of the world’s population life may become more difficult, 
incomes lower, and uncertainty greater. It does not mean the end of the world, 
as some predict for 2012, but it will mean that future generations probably will 
not live like current ones. Rather than admit that the current system cannot be 
sustained, the affluent and powerful will do everything possible to maintain the 
status quo.


The Fallacy of Long-Term Economic Growth

Economic growth remains a mantra for politicians and corporate leaders, 
including the banksters who brought us the Great Recession. Even President 
Obama, like presidents before him, speaks regularly about “growing the economy.” 
But nothing in the real world suggests that economic growth can continue 
forever. Nor does much evidence support the notion that economic growth has been 
a good thing for either the planet or billions of its human residents. It looks 
more like a colossal Ponzi scheme.

One of the most optimistic supporters of modern economics and its marvels is Tim 
Harford, who wrote, in his book The Logic of Life, “The more of us there are in 
the world, living our logical lives, the better our chances of seeing out the 
next million years.” This may be the dumbest thing an economist has ever written 
and he shows not even the slightest understanding of the planet on which we 
live. Homo sapiens has only been around for about 200,000 years, so another 
800,000 years at the rate we’re going seems absurd. If our population were to 
continue to grow at an annual rate of only 1.0 percent, slightly less than our 
current growth rate, then our numbers would increase to over 115 trillion in 
just the next thousand years. You can play with the growth rate if you wish, but 
you cannot escape the cold hard fact that human population growth must stop. 
Only economists seem to miss the fact that economic growth must stop.

Among the high priests of modern economic theology, Paul Krugman came closer 
than anyone to admitting that growth could not go on forever on our planet. In 
an Op-Ed piece in the New York Times (12-26-10) he wrote, “What the commodity 
markets are telling us is that we’re living in a finite world [my italics] ….” He 
went on to mention the possibility of peak oil production and even climate 
change, both of which threaten the modern economic system, but then, returning 
to the faithful fold, he wrote, “This won’t bring an end to economic growth….” 
He admitted that our lifestyles might have to change but gave no clue about 
where and how that might come about or where it might lead.

Economic reality and economic theology don’t fit together very well. In 1988 
Edward Abbey wrote, in his book One Life at a Time, Please:

    It should be clear to everyone by now that crude numerical growth does not 
solve our problems of unemployment, welfare, crime, traffic, filth, noise, squalor, 
the pollution of air, the corruption of our politics, the debasement of the 
school system (hardly worthy of the name ‘education’), and the general loss of 
popular control over the political process—where money, not people, is now the 
determining factor.

Today, 24 years later, virtually every word of Abbey’s statement is truer than 
ever, yet politicians and economic theologians continue to preach that if we can 
just grow the economy (local, state, national, and world) then all will be well 
again. You need not look far or deeply to see how wrong they are and what price 
we’ll pay when the Devil comes looking for our collective souls.

Among economists, Herman Daly is one of the few who has tried to reveal the 
Faustian bargain for what it really is, as is apparent in this statement from a 
Dec. 26 article, Rio+20 Needs to Address the Downsides of Growth:

    Even though economies are still growing, and still put growth in first place, 
it is no longer economic growth, at least in wealthy countries, but has become 
uneconomic growth. In other words, the environmental and social costs of 
increased production are growing faster than the benefits, increasing “illth” 
faster than wealth, thereby making us poorer, not richer. We hide the uneconomic 
nature of growth from ourselves by faulty national accounting because growth is 
our panacea, indeed our idol, and we are very afraid of the idea of a steady-
state economy. The increasing illth is evident in exploding financial debt, in 
biodiversity loss, and in destruction of natural services, most notably climate 
regulation.

As a geographer, I look for signs in my local cultural landscape that look 
ominous, from potholes in streets to for sale and/or for lease signs strewn 
around our city like leaves after a storm. Ours is a small city, with about 
30,000 residents, yet our city manager, in an end-of-the-year report, pointed 
out that we would need some $80,000,000 to repair our current infrastructure, a 
figure out of all proportion to our physical and residential size. That amounts 
to nearly $2,700 for each man, woman, and child. He also pointed out that our 
city is operating with below necessary numbers of police, fire, and emergency 
responders. The potholes will get larger in 2012 and beyond.

Though these and other problems are widely distributed across the nation, I 
think the infrastructure issue alone is symbolic. The U.S. is becoming a 
“pothole culture,” one in which the pothole is a symbol of our inability to 
accomplish all kinds of things any more. (See recent New York Times article.) 
Other nations are on their way as well.

Despite the continued whirring of the world economy, most people here and 
elsewhere are not getting anywhere and are feeling jilted by the system they’ve 
depended on for decades because they thought it could be sustained forever. It 
cannot, but that doesn’t mean life cannot go on, it means, instead, that we need 
to move in new directions, but we won’t do that until we understand what is 
making so many people so unhappy. We need to realize that instead of believing 
bigger is better we need to decide to favor better over bigger, quality over 
quantity, less over more.

Two examples illustrate the point that the world economy has exceeded both 
Earth’s ability to provide ever more inputs and its ability to absorb and purify 
excessive wastes. Crude oil is a good example of the first; carbon emissions and 
global warming good examples of the second. Both were mentioned by Krugman, but 
he provided no details about how we might deal with either issue, nor did he say 
how economic growth would continue without confronting these and numerous other 
raw material and waste issues.


First Example of Limits to Economic Growth: Crude Oil

Given that most Americans have a knowledge of history that doesn’t go back much 
over a month or two, it is no surprise that they cannot conceive of a time 
without cars, gasoline (preferably cheap), and a pattern of settlement that 
requires the use of both—our modern suburban landscape. For many years the U.S. 
was the world’s largest producer of crude oil and the largest exporter of it as 
well. In 1970, however, our oil extraction reached a peak and then started down 
hill. We became an importer of oil and today import more oil than any other 
nation, even though we still produce lots of oil and our extraction has been 
increasing in recent years.

Since about 2005 the world’s extraction of crude oil has been almost flat, 
despite prices that rose at one point to around $147 per barrel. Though we may 
not know for a while whether the world has reached its peak oil production or 
not, we do know that it will. In the meantime we know that traditional oil fields 
are getting more and more difficult to find, are harder to get to, and will be more 
expensive to develop. Alternative sources of oil, such as the Athabascan tar 
sands, are abundant but also expensive to develop and environmentally 
undesirable. Substitutes for gasoline, such as corn ethanol, are not only 
nonsensical from either an environmental or an economic viewpoint, they are also 
diverting food from humans (mostly via animals) to SUVs, driving food prices 
upward.

Figure 1 below, by mathematician Tom Murphy on his Do the Math blog, in  post 
called, The Future Needs and Attitude Adjustment, provides a deeper historical 
perspective on oil production and industrial societies.


Figure 1: Image by Tom Murphy. Original caption: “On the long view, the fossil 
fuel age is a blip, with a down side mirroring the (more fun) up side.”
http://gailtheactuary.files.wordpress.com/2012/01/peak-ff-oil-tom-murphy.png


You don’t need any knowledge of either deep history or the unpredictable future 
to get the point of this graph (unless, of course, you are an economist). Like 
Earth itself, the supply of crude oil is finite, even if we don’t know exactly 
how much is there, where it all is, or how much of it we can ultimately recover. 
Though we can tweak this curve, argue about its shape, and nibble along its 
edges, the basic fact remains: World oil extraction will reach a peak, probably 
sooner rather than later. After that, extraction will decline, though along what 
kind of curve we don’t know for sure. Just as the Stone Age did not end because 
of a lack of stones, the oil age will not end because of a lack of oil. Rather, 
it will end because what is left of the oil supply will at some point cost far 
more than it is worth; it will take more energy to extract it than we would get 
from it.

Knowing this, the prudent course would be to wean ourselves from this energy 
source as soon as possible, in order to treat our addiction before it is too 
late. However, we live in one of the most competitive periods in world history. 
Not only do Americans not want to be parted from their cars but millions of 
Chinese, Indians, and others are lining up to get their first taste of “the 
freedom of the road.” That is one of the reasons why, despite a sagging world 
economy and lower crude oil consumption in the U.S. in recent years, the price 
of crude oil has hovered around $100 per barrel through most of 2011 ($98.83 on 
Dec. 31).


Second Example of Limits to Economic Growth: Carbon Emissions and Global Warming

Burning fossil fuels to provide energy at the input end of our economic system 
results in a combination of outputs or waste products that cannot be removed or 
neutralized quickly enough by our ocean and atmosphere. That leads to an 
increasing amount of gases and particulates gathering in both, changing the 
chemistry of both the ocean and our atmosphere. Among the gases is carbon 
dioxide, a greenhouse gas that we know plays a role in how Earth’s atmosphere is 
warmed. Adding more carbon dioxide to our atmosphere is analogous to turning our 
heater up a little—we get more heat.

We know that the carbon dioxide content of the atmosphere has gone from about 
280 parts per million around 1850 to 390 parts per million in 2011, an increase 
of just over 39 percent. Though we did not discover how to measure the 
atmospheric content of carbon dioxide directly before the mid-1950s, we do have 
a careful record of what it has been doing since then, as shown in Figure 2 
below (from Wikipedia):


Figure 2. The Keeling Curve of atmospheric CO2 concentrations measured at the 
Mauna Loa Observatory. (From Wikipedia) 
http://gailtheactuary.files.wordpress.com/2012/01/1000px-
mauna_loa_carbon_dioxide-en-svg.png


It is hard to miss the upward trend in the carbon dioxide content of the 
atmosphere since 1958. Few scientists would identify a source for this trend 
outside of humans and our burning of fossil fuels. Figure 3 below  shows how 
much more carbon dioxide humans are adding each year through the burning of 
fossil fuels, setting a new record for emissions in 2010 (source):


Figure 3. Greenhouse Gas image from Yahoo News
http://gailtheactuary.files.wordpress.com/2012/01/yahoo-news-greenhouse-gas-
image.png


It also shows the major contributors, China and the U.S. The failure of the U.S. 
to lead the world toward an economic system less dependent on fossil fuels is 
monumental. Modeling shows that rising carbon dioxide emissions can be expected 
to lead to global warming.


Conclusions

Though causes and effects may be difficult to connect, the outbreak of protests 
around the world in 2011 doesn’t seem coincidental. From the Arab Spring, to 
Greece and other European countries, to the Occupy Wall Street movement in the 
U.S., and even to demonstrations in Russia, people have taken to the streets to 
protest governments, corporations, and policies that are affecting their lives in 
negative ways. TIME magazine in 2011 chose “The Protestor” as its person of the 
year.

The are several reasons for people to be angry and upset. High oil prices and 
more extreme weather conditions have been driving food prices upward and high 
gas prices act as a tax on consumers, slowing modern economies. In addition, in 
the U.S. awareness has grown that most of the gains of economic growth are going 
to the top one percent (or less) of the population. Figure 4 below from Mother 
Jones (“It’s the Inequality, Stupid,” by Dave Gilson and Carolyn Perot, 
March/April 2011) says all one needs to know about inequality in the U.S. today.


Figure 4. Average Income Per Family Distributed by Income Group. (From Mother 
Jones)
http://gailtheactuary.files.wordpress.com/2012/01/inequality-page25_1.png


Figure 5 below from the Congressional Budget Office shows how things have changed 
for different income groups in recent decades in the U.S. Citizens who are not in 
the top 1% are coming out very much worse than those at the top, whether they 
realize it or not.


Figure 5
http://gailtheactuary.files.wordpress.com/2012/01/average-household-income.png


Even as nations continue to prop up banks and the Fed plays games with trillions 
of dollars, the general feeling seems to be that the “pothole culture” or its 
equivalent is spreading, that the benefits of what economic growth there is are 
not being shared equitably, and that many places cannot even maintain what they 
have in terms of infrastructure. Frustration is widespread, and much of it seems 
connected to what may be first signs that our modern industrial economy is 
breaking down. An analogy might be those first tiny pools of oil that you start 
to see under your car, warning you softly that things may be going wrong.

Unless humanity recognizes the bargain we’ve made with the Devil, and soon, 
we’ll saddle ourselves or posterity with paying the Devil his due. We cannot 
treat our current addiction to fossil fuels and economic growth until we admit 
we have them. Perhaps the best advice I’ve seen lately came from John Greer, who 
wrote:

    Right now, as the limits to growth tighten around us like a noose and an 
economy geared to perpetual expansion shudders and cracks in the throes of 
decline, one of the things that’s needed most is the willingness, in a time of 
gathering darkness, to locate what lamps can still be found, and light them.

Is anyone out there listening? You can bet the Devil is!


- -- 

.

"We are not for names, nor men, nor titles of Government,
nor are we for this party nor against the other but we are
for justice and mercy and truth and peace and true freedom,
that these may be exalted in our nation, and that goodness,
righteousness, meekness, temperance, peace and unity with
God, and with one another, that these things may abound."
(Edward Burrough, 1659 - from 'Quaker Faith and Practice')

Paul's book, "Energy Beyond Oil", is out now!
For details see http://www.fraw.org.uk/mei/ebo/

Read my 'essay' weblog, "Ecolonomics", at:
http://www.fraw.org.uk/mei/ecolonomics/

Paul Mobbs, Mobbs' Environmental Investigations
3 Grosvenor Road, Banbury OX16 5HN, England
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