mfioretti: peak complexity*

Bookmarks on this page are managed by an admin user.

69 bookmark(s) - Sort by: Date ↓ / Title / Voting / - Bookmarks from other users for this tag

  1. We are in urgent need for regulatory innovation. The affirmation of this sentiment is increasingly visible globally in the evolving discourse along with world wide adoption of emerging tools such as regulatory sandboxes. But beneath the buzz, hype and coolaid are structural realities & necessities driving this trend.

    Regulatory Explosion — we have over the course of the last few decades witnessed an explosion in Regulation and Legislation both in quantum and by a multiplicity of stakeholders beyond the national state (implications of trade agreements, global compacts etc) — a defacto and predictable response to an increasingly complex digital economy sought to be regulated by analogue means. In this world, increased regulation isn’t just a temporary challenge — it’s the new reality. Research from Thomson Reuters published in its 2013 Q3 TRust Index showed that the global increase in just “financial regulation” tracked an average of 110 regulatory changes every day in the third quarter of 2013, about double the daily updates the tool recorded during the same period in 2010. Through September 2013, the number of tracked regulatory alerts that year had already reached an all-time high of 18,986. Whilst this increasing regulatory burden does have costs — it does also provide a means to create structural lock-in and walled gardens for incumbents — a useful if expensive means to preserve growing monopolies of power.

    we need to shift from regulating the ghost of the industrial economy to the reality of network economy if we are unlock its benefits and mediate its impacts and potential damage.
    Voting 0
  2. Technological advances during the industrial revolution allowed the automation of menial tasks and diversified the number of tasks human beings could perform. The industrial revolution led to advances in transportation and shipping that connected disparate parts of the world, and the internet, computers, and smartphones, of course, have served to intermingle nearly every corner of the world.

    "Human society" is now one gigantic, incredibly complex system or organism rather than many smaller, isolated, and simpler ones.

    This is how you end up with ethanol policies signed in America in the the late 1990s leading to widespread global unrest decades later. There are, of course, an unknowable number of decisions and events that have untold and difficult-to-predict effects on disparate parts of the world.
    Voting 0
  3. Earlier studies on this issue, Brandt points out, have highlighted the risk of a “net energy cliff”, which refers to how “declining EROI results in rapid increases in the fraction of energy dedicated to simply supporting the energy system.”

    Axiom: So the more EROI declines, a greater proportion of the energy being produced must be used simply to extract more energy. This means that EROI decline leads to less real-world economic growth.

    It also creates a complicated situation for oil prices. While at first, declining EROI can be expected to lead to higher prices reflecting higher production costs, the relationship between EROI and prices begins to breakdown as EROI becomes smaller.

    This could be because, under a significantly reduced EROI, consumers in a less prosperous economy can no longer afford, energetically or economically, the cost of producing more energy — thus triggering a dramatic drop in market prices, despite higher costs of production. At this point, in the new era of shrinking EROI, swinging oil prices become less and less indicative of ‘scarcity’ in supply and demand.

    Brandt’s new economic model looks at how EROI impacts four key sectors — food, energy, materials and labor. Exploring what a decline in net energy would therefore mean for these sectors, he concludes:

    “The reduction in the fraction of a resource free and the energy system productivity extends from the energy system to all aspects of the economy, which gives an indication of the mechanisms by which energy productivity declines would affect general prosperity.

    A clear implication of this work is that decreases in energy resource productivity, modeled here as the requirement for more materials, labor, and energy, can have a significant effect on the flows required to support all sectors of the economy. Such declines can reduce the effective discretionary output from the economy by consuming a larger and larger fraction of gross output for the meeting of inter-industry requirements.”
    Voting 0
  4. Replacements for oil need to be profitable and be able to pay taxes, at currently available price levels–low $40s per barrel, or less.

    We need to be careful in aiming for high-tech solutions, because of the complexity they add to the system. High-tech solutions look wonderful, but they are very difficult to evaluate. How much do they really add in costs, when everything is included? How much do they add in debt? How much do they add (or subtract) in tax revenue? What are their indirect effects, such as the need for more education for workers?

    We need to be alert to the possibility that solar PV and most wind energy may be energy sinks, rather than true energy sources. The two hallmarks of providing true net energy to society are (1) being able to provide energy cheaply, and (2) being able to provide tax revenue to support the government. When actually integrated into the electric grid, electricity generated by wind or by solar generally requires subsidies–the opposite of providing tax revenue. Total costs tend to be high because of many unforeseen issues, including improper siting, long-distance transport costs, and costs associated with mitigating intermittency.

    Unless EROI studies are specially tailored (such as this one and this one), they are likely to overstate the benefit of intermittent renewables to the system. This problem is related to the issues discussed in my recent post, Overly Simple Energy-Economy Models Give Misleading Answers. My experience is that researchers tend to overlook the special studies that point out problems. Instead, they rely on the results of meta-analyses of estimates using very narrow boundaries, thus perpetuating the myth that solar PV and wind can somehow save our current economy.
    Voting 0
  5. The system acts as if whenever one pump dispenses the energy products we want, another pump disperses other products we don’t want. Let’s look at three of the big unwanted “co-products.”

    1. Rising debt is an issue because fossil fuels give us things that would never have been possible, in the absence of fossil fuels. For example, thanks to fossil fuels, farmers can have such things as metal plows instead of wooden ones and barbed wire to separate their property from the property of others. Fossil fuels provide many more advanced capabilities as well, including tractors, fertilizer, pesticides, GPS systems to guide tractors, trucks to take food to market, modern roads, and refrigeration.

    The benefits of fossil fuels are immense, but can only be experienced once fossil fuels are in use. Because of this, we have adapted our debt system to be a much greater part of the economy than it ever needed to be, prior to the use of fossil fuels. As the cost of fossil fuel extraction rises, ever more debt is required to place these fossil fuels in use. The Bank for International Settlements tells us that worldwide, between 2006 and 2014, the amount of oil and gas company bonds outstanding increased by an average of 15% per year, while syndicated bank loans to oil and gas companies increased by an average of 13% per year. Taken together, about $3 trillion of these types of loans to the oil and gas companies were outstanding at the end of 2014.

    As the cost of fossil fuels rises, the cost of everything made using fossil fuels tends to rise as well.

    3. A more complex economy is a less obvious co-product of the increasing use of fossil fuels. In a very simple economy, there is little need for big government and big business. If there are businesses, they can be run by a small number of individuals, with little investment in capital goods. A king, together with a handful of appointees, can operate the government if it does not provide much in the way of services such as paved roads, armies, and schools. International trade is not a huge necessity because workers can provide nearly all necessary goods and services with local materials.

    The use of increasing amounts of fossil fuels changes the situation materially. Fossil fuels are what allow us to have metals in quantity–without fossil fuels, we need to cut down forests, use the trees to make charcoal, and use the charcoal to make small quantities of metals.

    Once fossil fuels are available in quantity, they allow the economy to make modern capital goods, such as machines, oil drilling equipment, hydraulic dump trucks, farming equipment, and airplanes. Businesses need to be much larger to produce and own such equipment. International trade becomes much more important, because a much broader array of materials is needed to make and operate these devices. Education becomes ever more important, as devices become increasingly complex. Governments become larger, to deal with the additional services they now need to provide.

    f an increasing share of the output of the economy is funneled into management pay, expenditures for capital goods, and other expenditures associated with an increasingly complex economy (including higher taxes, and more dividend and interest payments), less of the output of the economy is available for “ordinary” laborers–including those without advanced training or supervisory responsibilities.

    As a result, pay for these workers is likely to fall relative to the rising cost of living. Some would-be workers may drop out of the labor force, because the benefits of working are too low compared to other costs, such as childcare and transportation costs. Ultimately, the low wages of these workers can be expected to start causing problems for the economic system as a whole, because these workers can no longer afford the output of the system. These workers reduce their purchases of houses and cars, both of which are produced using fossil fuels and other commodities.

    Ultimately, the prices of commodities fall below their cost of production. This happens because there are so many of these ordinary laborers, and the lack of good wages for these workers tends to slow the “demand” side of the economic growth loop. This is the problem that we are now experiencing.

    The Two Pumps Are Really Energy and Entropy

    Unlike the markings on the pump (gasoline and ethanol), the two pumps of our system are energy consumption and entropy. When we think we are getting energy consumption, we really get various forms of entropy as well.

    The first pump, rising energy consumption, seems to be what makes the world economy grow.

    The second pump in Figure 3 is Entropy Production. Entropy is a measure of the disorder associated with the extraction and consumption of fossil fuels and other energy products. Entropy can be thought of as a loss of information. Once energy products are burned, we have a portion of GDP in the place of the energy products that have been consumed. This is why there is a high correlation between energy consumption and GDP. As energy products are burned, we also have an increasing pile of debt, increasing pollution (that our sinks become less and less able to handle), and increasing wealth disparity.
    Voting 0
  6. The promised returns from globalization just aren't there: poor countries don't have as much to spend, corrupt governments undermine foreign multinationals, domestic rivals hack trade secrets out of multinationals foreign offices and doing business all over the world is complicated and expensive.

    Even giants like GM, the biggest bettors on globalization, aren't getting the returns on capital that they expected. There's a sad/promising trend of manufacturing returning to the developed world -- sad because decades of globalization have driven down domestic wages, promising because of the return of industry to advanced countries.

    “We have believed for some time that a large global footprint is critical to our success and to the success of any company in the auto industry,” said an international executive at a top-six multinational auto company. “But given recent events, we can’t help but wonder if we should be a little more hesitant, less eager and more discerning about where we invest our efforts.”

    Or put more diplomatically, General Motors President Dan Ammann told a Detroit investors conference in January that the Chinese auto market “is maturing rapidly . . . Its » rate of growth will decrease year-to-year.”

    This is a surprisingly tepid forecast for an executive whose company has, in essence, gone all-in on globalization, and particularly in China.

    “Even for the most successful multinationals, profit margins in international markets are on average lower than margins in the domestic market,” said Robert Salomon, aprofessor of international management at the NYU Stern School of Business. “It’s the liability of foreign markets. By virtue of the fact that you are foreign, you are at a disadvantage.”
    Voting 0
  7. The Wall Street Journal recently ran an article called, Glut of Capital and Labor Challenge Policy Makers: Global oversupply extends beyond commodities, elevating deflation risk. To me, this is a very serious issue, quite likely signaling that we are reaching what has been called Limits to Growth, a situation modeled in 1972 in a book by that name.

    What happens is that economic growth eventually runs into limits. Many people have assumed that these limits would be marked by high prices and excessive demand for goods. In my view, the issue is precisely the opposite one: Limits to growth are instead marked by low prices and inadequate demand. Common workers can no longer afford to buy the goods and services that the economy produces, because of inadequate wage growth. The price of all commodities drops, because of lower demand by workers. Furthermore, investors can no longer find investments that provide an adequate return on capital, because prices for finished goods are pulled down by the low demand of workers with inadequate wages.

    The “secret formula” humans have had for winning in our competition against other species has been the use of supplemental energy, adding to the energy we get from food. There is a physics reason why this approach works: total population by all species is limited by available energy supply. Providing our own external energy supply was (and still is) a great work-around for this limitation. Even in the days of hunter-gatherers, humans used three times as much energy as could be obtained through food alone.

    In my view, the formula that has allowed humans to keep winning the battle against other species is the following:

    Use increasing amounts of inexpensive supplemental energy to leverage human energy so that finished goods and services produced per worker rises each year.
    Pay for this system with debt, because (if supplemental energy costs are cheap enough), it is possible to repay the debt, plus the interest on the debt, with the additional goods and services made possible by the cheap additional energy.
    This system gradually becomes more complex to deal with problems that come with rising population and growing use of resources. However, if the output of goods per worker is growing rapidly enough, it should be possible to pay for the costs associated with this increased complexity, in addition to interest costs.
    The whole system “works” as long as the total quantity of finished goods and services rises rapidly enough that it can fund all of the following: (a) a rising standard of living for common workers so that they can afford increasing amounts of debt to buy more goods, (b) debt repayment, and interest on the debt of the system, and (c) and an increasing amount of “overhead” in the form of government services, medical care, educational services, and salaries of high paid officials (in business as well as government). This overhead is needed to deal with the increasing complexity that comes with growth.

    The formula for a growing economy is now failing. The rate of economic growth is falling, partly because energy supply is slowing (Figure 3), and partly because we need more and more every year to do the same things.

    One way of viewing our problem today is as a crisis of affordability. Young people cannot afford to start families or buy new homes because of a combination of the high cost of higher education (leading to debt), the high cost of fuel-efficient new cars (again leading to debt), the high cost of resale homes, and the relatively low wages paid to young workers. Even older workers often have an affordability problem. Many have found their wages stagnating or falling at the same time that the cost of healthcare, cars, electricity, and (until recently) oil rises. A recent Gallop Survey showed an increasing share of workers categorize themselves as “working class” rather than “middle class.”

    It is this affordability crisis that is bringing the system down. Without adequate wages, the amount of debt that can be added to the system lags as well. It becomes impossible to keep prices of commodities up at a high enough level to encourage production of these commodities. Return on investment tends to be low for the same reason. Most researchers have not recognized these problems, because they are narrowly focused and assume that models that worked in the past will continue to work today.
    Voting 0
  8. Cline’s book devotes itself to the last years of the Late Bronze Age, which ended 1200 BCE, and the early years of the Iron Age, as the title suggests, down to 1177 BCE., when the final waves of invasion washed against the shores of Egypt. What concerns us here are the theories (and some more than theories) about what brought these great civilizations down in such a short period of time:

    Natural disasters (a 50-year-long series of earthquakes, an “earthquake storm” or “unzipping”);
    Climate change (Mediterranean core samples show a drop in sea temperature, resulting in reduced precipitation on land);
    Drought lasting decades (famine is confirmed by surviving Bronze Age documents and verified by pollen counts of Bronze Age sediment);
    War (including internal rebellions/revolts);
    The interruption of trade through wars and natural disasters (collapse of the international trading system upsetting fragile economies);
    Scarcity of resources (it has been noted that tin was for the Late Bronze Age what oil is for us); and,
    General Systems Collapse (“A systemic failure with both a domino and a multiplier effect.”)

    The relevance of these should be apparent today. We too are facing the effects of climate change.

    General Systems Collapse theory is of particular interest. Cline cites the work of archaeologist Colin Renfrew, who, in “Systems Collapse as Social Transformation” (1979) pointed to four general features of a systems collapse:

    collapse of the central administrative organization;
    disappearance of the traditional elite class;
    collapse of centralized economy; and,
    settlement shift and population decline.

    Keep in mind, these are not the causes, but the results of a systems collapse. All these were present at the end of the Bronze Age.

    Cline looks at the last half-century of the Late Bronze Age, 1225 to 1175 B.C.E. as a “perfect storm.” None of the causes given above could be alone responsible for such a complete collapse, but “they could have combined to produce a scenario in which the repercussions of each factor were magnified, in what some scholars have called a ‘magnifier effect.'”

    Imagine dominoes tumbling down, each domino a major civilization, the Mycenaeans, the Minoans, the Hittites, the Canaanites, the Babylonians, and despite Ramses victories, the Egyptians. It was their very interconnectivity that left them vulnerable to the fate of the others.

    Cline refers to the highly globalized nature of the Late Bronze Age world, pointing out that one society’s collapse could have triggered the collapse of the next, and the next. As he quips, “they were not too big to fail.” Is ours?
    Voting 0
  9. Contemporary industrial civilization has taken intermediation to an extreme not reached by any previous civilization, and there’s a reason for that. White’s Law, one of the fundamental rules of human ecology, states that economic development is a function of energy per capita. The jackpot of cheap concentrated energy that industrial civilization obtained from fossil fuels threw that equation into overdrive, and economic development is simply another name for complexity. The US health care system, again, is one example out of many; as the American economy expanded metastatically over the course of the 20th century, an immense army of medical administrators, laboratory staff, specialists, insurance agents, government officials, and other functionaries inserted themselves into the notional space between physician and patient, turning what was once an ordinary face to face business transaction into a bureaucratic nightmare reminiscent of Franz Kafka’s The Castle.

    In one way or another, that’s been the fate of every kind of economic activity in modern industrial society. Pick an economic sector, any economic sector, and the producers and consumers of the goods and services involved in any given transaction are hugely outnumbered by the people who earn a living from that transaction in some other way—by administering, financing, scheduling, regulating, taxing, approving, overseeing, facilitating, supplying, or in some other manner getting in there and grabbing a piece of the action. Take the natural tendency for social complexity to increase over time, and put it to work in a society that’s surfing a gargantuan tsunami of cheap energy, in which most work is done by machines powered by fossil fuels and not by human hands and minds, and that’s pretty much what you can expect to get.

    That’s also a textbook example of the sort of excess complexity Joseph Tainter discussed in The Collapse of Complex Societies, but industrial civilization’s dependence on nonrenewable energy resources puts the entire situation in a different and even more troubling light. On the one hand, continuing increases in complexity in a society already burdened to the breaking point with too much complexity pretty much guarantees a rapid decrease in complexity not too far down the road—and no, that’s not likely to unfold in a nice neat orderly way, either. On the other, the ongoing depletion of energy resources and the decline in net energy that unfolds from that inescapable natural process means that energy per capita will be decreasing in the years ahead—and that, according to White’s Law, means that the ability of industrial society to sustain current levels of complexity, or anything like them, will be going away in the tolerably near future.

    Add these trends together and you have a recipe for the radical simplification of the economy. The state of affairs in which most people in the work force have only an indirect connection to the production of concrete goods and services to meet human needs is, in James Howard Kunstler’s useful phrase, an arrangement without a future. The unraveling of that arrangement, and the return to a state of affairs in which most people produce goods and services with their own labor for their own, their families’, and their neighbors’ use, will be the great economic trend of the next several centuries.
    Voting 0
  10. The same story may apply with Uber. Uber is currently in disputes with regulators over whether its cars meet the safety and insurance requirements imposed on standard taxis. Also, many cities impose some restrictions on the number of cabs in the hopes of ensuring a minimum level of earnings for drivers, but if Uber and related services (like Lyft) flood the market, they could harm all drivers' ability to earn even minimum wage.

    This downside of the sharing needs to be taken seriously, but that doesn't mean the current tax and regulatory structure is perfect. Many existing regulations should be changed, as they were originally designed to serve narrow interests and/or have outlived their usefulness. But it doesn't make sense to essentially exempt entire classes of business from safety regulations or taxes just because they provide their services over the Internet.
    Voting 0

Top of the page

First / Previous / Next / Last / Page 1 of 7 Online Bookmarks of M. Fioretti: Tags: peak complexity

About - Propulsed by SemanticScuttle