Wednesday, June 10, 2009


Energy, Not Money, Makes the World Go Around

Governments are further putting themselves in debt and debasing their currencies for the purpose of economic stimuli that will supposedly pull the world out of the recession and set us back on the track to “sustained economic growth.” Any economic stimulus achieved in this manner is what the president of the World Bank referred to as a “sugar high” (although he was wrong in saying that getting credit markets going again will solve the problem), which will last only as long as all that borrowed money is churning through the economy. The thinking behind the stimulus plans, and behind the belief that unfreezing credit markets will fix the economy, is that money is the prime mover. As long as lots of money is sloshing around, the economy will hum, people will find jobs, and economic growth is assured. And up until now it certainly looked that way.

But as a growing shadow is cast across the world’s energy supply, and as we observe with horror and fascination the end of the cheap energy that has fueled 20th-century economic growth and globalization, it’s more apparent day by day that energy, not money, makes the world go around.

Let’s consider a hypothetical situation in which I have a large expanse of forest, and I want you to cut all the trees and haul them to a lumber mill. I hand you a huge wad of money as payment. So, what are you going to do with that money? Are you going to buy a hand saw, walk into the forest, and set to work? Of course not. You would be at it for years and get nowhere. What you would do with the money is hire men with chainsaws and diesel-powered logging machinery, and then bring in trucks to haul off the logs. So it’s obvious that the money itself doesn’t do the work, it just buys you access to the energy that actually does the work. If the energy isn’t there in the first place, all the money in the world won’t be enough to log that forest.

So the reason that all this stimulus spending will ultimately not solve any problems is because our energy supply is now on the decline. We developed our economies, built vast infrastructure, created whole industries possible only with plentiful energy (such as the airlines), globalized the world economy, and energized the development of high technology with a bonanza of cheap, high-quality energy. Now that both quality and quantity are beginning to decline, the same amount of money is able to mobilize progressively less energy. That is why infrastructure is crumbling worldwide, why governments and financial experts are admitting that we have to redefine “full employment,” why globalization is starting to reverse, why pensions are disappearing, why economic growth is stagnating, why the automotive industry and airlines are on the ropes, and why a whole host of other disruptive changes are setting in.

History has always been about who has the resources, which of course translate into energy. It’s surprising that anyone would think differently.

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