Our Finite World

We are at a time when there seems to be far more conflict than in the past. At least part of the problem is that slowing growth in the world economy is making it more difficult to repay debt with interest, especially for governments. A related issue is that government promises for pensions and healthcare costs are becoming more difficult to pay. Donald Trump is trying to make numerous changes that are distasteful both to other countries and to many people living within the US. What is going wrong with the economy?

In my view, major cracks are developing in the economy because we are heading toward a collapse scenario of the type that Dr. Joseph Tainter talks about in his book, “The Collapse of Complex Societies.” No one has told the general population about the potential problem, partly because they don’t fully understand the issues themselves, and partly because the underlying causes are too frightening to discuss with the public. At the root of these collapse-related issues is a physics issue, which is only gradually being fully understood.

In this post, I try to describe some of the issues involved. I don’t believe that the situation is hopeless. At the end, I discuss where we are now, relative to historical patterns, and some reasons to be optimistic about the future.

[1] Economies need to “dissipate” energy on a regular basis, just as humans need to eat food on a regular basis.

In physics terms, economies and all plants and animals are dissipative structures. So are tornadoes, hurricanes, and ecosystems of all kinds. All these structures have finite lifetimes. They all need to “dissipate” energy to continue performing their expected functions. Humans require a variety of foods to digest; economies require energy types that match their built infrastructure. The amount of energy required by an economy tends to rise with its human population.

Figure 1 shows that since 2008, world energy supply growth has only barely been keeping up with world population growth. Physics tells us that energy dissipation is required to create any part of GDP, so energy consumption that rises with population growth should not be surprising.

The dips in per capita energy consumption in the latest period correspond to major recessions in 2008 and 2020. Rapid growth in per capita energy consumption seems to take place when growth in some low-priced fuel temporarily becomes available.

[2] Low energy prices are at least as important to the economy as low food prices are to individual households. Low energy prices seem to allow investments that pay back well.

If a family spends 10% of its income on food, the family has lots of money left over for non-essentials, such as a vehicle, trips to movies, and even a foreign vacation. If a family spends 50% of its income on food (or even worse, 75%), any little “bump in the road” can cause a crisis. There is little money available to spend on housing or a vehicle.

Figure 2 shows that oil prices were under $20 per barrel (adjusted to today’s price level) in the 1948-1972 period. This corresponds quite closely with the rapid-growth early period shown on Figure 1.

The economy was able to add many types of helpful “complexity” during this early period because of the growing supply of cheap oil. It could add interstate highways and many miles of pipelines. Inventions included television, air conditioning, early computers, and contraceptive pills. Many families were able to buy a vehicle for the first time. Women started to work outside the home in much greater numbers.

Many of these early types of complexity paid back well. For example, interstate highways made travel faster. Early computers could handle many bookkeeping chores. Contraceptive pills made it possible for women to plan their families. Without so many children, working outside the home was more of a possibility for women.

[3] Many indirect changes took place between 1948 and 1970 that would be harder to maintain if oil supplies stopped growing as rapidly and as inexpensively as they did during this early period.

If we look back, we know that in the 1600s and 1700s, people worked pretty much all their lives. It was the growth in energy supplies in the 1800s and 1900s that allowed governments to expand their services. They could promise to provide pensions and health care benefits. The rapid growth in oil supplies in the 1948 to 1970 period allowed even more expansion of government benefits, as well as other changes.

US Medicare was added in 1965, providing healthcare benefits to the elderly and disabled. Schools were integrated, promising better education for Black children. After actuarial models started to suggest that pensions could pay out a great deal in pension benefits, businesses started to award pensions to workers, in addition to Social Security.

Social standards started changing, too. Dating couples didn’t have to worry about the woman accidentally getting pregnant, at least in theory. No fault divorce became available. Government programs became available to provide funds to single or divorced parents with children.

Of course, if wages of young people started to stagnate, or if there were too many divorces of low-wage people, this whole approach wouldn’t work as well. It would be harder to tax wages enough to pay for the many benefits for the elderly, the disabled, and those with low incomes.

[4] Governments facing the problem of high-cost oil did exactly what families with suddenly high-cost food would do, if they had unlimited credit cards. They ran up increasing amounts of debt, to pay for all the promised programs.

We know with our own finances that if we are spending too much on food, we can temporarily work around this problem by maxing out our credit cards and adding more debt in other ways. I believe that the world economy has been doing something similar for a long time.

The push toward added debt has become much greater since 2008 (Figure 1), but the general trend toward increased debt started back in the early 1980s, about the time Ronald Reagan and Margaret Thatcher began their terms. Businesses decided that they needed to use what they now called “leverage” to obtain higher profits.

The debt that economies added was a kind of complexity. If the debt was invested in factories or industry that paid back well, everything went well.

But not all the uses of debt went into approaches that paid back well. For example, paying doctors to give high-priced treatments to elderly people who were certain to die within a few months did not provide much benefit to the economy, apart from the money the physician and the rest of the health care system obtained to spend on other goods and services.

Another way the growing debt was used was to invest in international trade. Companies found that they could outsource many kinds of manufacturing processes to low-wage countries in Southeast Asia, leading to cost savings relative to paying for high-priced US labor. (Human labor is a type of energy used by the economy.) In these Southeast Asian countries, coal was used for many processes, making the energy part of manufacturing costs cheaper, too.

The US and other Advanced Economies (defined as members of the Organization for Economic Development (OECD)) seemed to benefit because goods made in Southeast Asia were cheaper than what Advanced Economies could make for themselves. Two major issues arose, however:

a. Wages for the less-skilled workers in the US tended to stagnate or fall.

One reason for stagnating pay was because of wage competition with low-wage countries. As a result, the middle class has tended to disappear. Wage disparity has become a problem.

b. Advanced Economies tended to lose the ability to make many essential goods and services for themselves. If a shortage of inputs were to occur in the future, they would be at a disadvantage.

[5] Now the consequences of too many governmental promises are becoming clear.

Advanced Economies around the world are finding their debt levels ballooning. Much of their higher expenditures are on programs citizens expect to continue forever.

US leaders can see that practically the only way that they can fix this situation is by cutting back on many programs the public depends on. If a leader like Trump has a lot of power, he can also try to get a larger share of the world’s output by imposing tariffs on the output of other countries. Neither of these approaches will be popular with very many people. If nothing else, there will be conflict over who gets cut out if cuts are necessary.

Other Advanced Nations face similar problems.

[6] Leaders have not told the public about the likelihood of a shortfall of energy supplies and the difficulties this would cause.

Physicists have been warning that a shortfall in fossil fuel supplies was likely to occur since the 1950s. More recent models, such as the modeling represented in the 1972 book, The Limits to Growth, gave a similar picture.

Part of the confusion has been that economists have given an optimistic view of what is ahead. Their (oversimplified) models indicate that in the case of a shortfall, prices will rise. With these high prices, a huge amount of difficult-to-extract fossil fuels would shortly become available, or substitutes would be found.

In my opinion, the model of economists is incorrect. With the middle class shrinking, there is not enough “demand” to keep the price of any commodity up for very long. Instead, prices tend to bounce up and down. This can be seen for oil on Figure 2. Pricing represents a two-way tug-of-war: Prices need to be high enough for the producers to make a profit, but end products (including food grown and transported using oil) must be inexpensive enough for consumers to afford.

With one story being told by the physicists and another by the economists, competing belief systems arose:

• One saying that there would be a major shortage of fossil fuels, particularly oil, starting in the first half of the 21st century because the only fossil fuels we can extract are the fairly accessible fossil fuels. There are constraints caused by geology that seem to be difficult to work around, arising from limitations caused by physics.
• The other saying that any such problems lie far in the future. We should be able to develop new techniques quickly. Otherwise, any shortfall should cause prices to rise high enough to pay for more expensive techniques, or to find substitutes.

Both sides could see a need to limit consumption, one side because we appeared not to have enough, and the other because, if we really could extract as much fossil fuels as they considered possible, models suggested that there would be a climate problem.

To try to satisfy both sides, politicians decided to push the “save the world from CO2 emissions” narrative. This approach had an added benefit: Businesses wanting to import low-priced goods and services, made in China and other low-cost countries, very much favored it. The limitation on CO2 emissions of the 1997 Kyoto Protocol was simply a local limitation on emissions, not a limitation on CO2 on imported goods.

[7] The Kyoto Protocol, as implemented, has had the opposite effect from the hoped-for reduction in world CO2 from fossil fuels.

What has happened with the 1997 Kyoto Protocol is precisely what businesses, looking to sell low-cost goods made in Southeast Asia, wanted. Manufacturing and other types of industry have tended to move out of the Advanced Economies, and into lower-cost countries.

Total world CO2 emissions have risen, rather than fallen.

[8] The supposed transition to wind turbines and solar panels is not going well.

Wind turbines and solar panels, the way that they are now being added to the overall electric grid, are having far less benefit than most people had hoped. Of course, their benefit is only with respect to electricity production. Farming, transportation of many kinds, and other industries use a great deal of oil and coal, in addition to grid electricity.

Figure 8 shows a breakdown of world energy consumption by type. Electricity from wind turbines and solar panels makes up only the tiny reddish portion at the top. It represents only 3% of the total energy consumption.

We usually hear about wind and solar electricity as a percentage of electricity production. This is a higher percentage, which averages close to 15%.

The areas with the highest percentage of wind and solar electricity generation are already experiencing blackouts because differences from grid electricity have not sufficiently been compensated for. For example, Spain experienced a 10-hour blackout on April 28, 2025, because of low “inertia.” Inertia usually comes from the rotating turbines used in the production of electricity using coal, natural gas, nuclear, or hydroelectric.

Figure 10 shows that in 2024, wind and solar electricity amounted to between 5% and 6% of energy consumption in Australia and the EU. Their high level of usage helped to bring the world average up to a little under 3% of total energy.

[9] There are important things about ecosystems in general and our economy in particular that we are not told about.

I don’t think that educators and politicians are generally aware of the following issues relating to ecosystems and our economy:

a. Ecosystems are built to be resilient. As dissipative structures, ecosystems and economies are “self-organizing structures” powered by energy, just as the human body is. We need not fret that we are responsible for species extinction. Ecosystems, like plants and animals, have short lifetimes. A replacement ecosystem will quickly develop if adequate resources (such as sunlight and water) are available. Furthermore, the waste (or pollution) of one species helps provide the nutrition for other species; CO2 provided by burning fuel helps plants grow. Over the long history of life on earth, 99.9999% of plant and animal species have died out and been replaced by other species.

b. Ecosystems and economies also tend to heal themselves, just as human wounds tend to heal themselves. If a fire, or a type of beetle, destroys an ecosystem, replacement plants and accompanying animals will soon find a way to populate the area. If a major government fails, or banks fail, somehow workarounds will be found to take their place. Human systems need order; if governments fail, religious systems that provide order may become more important.

c. Humans, unlike other animals, have a built-in need for supplemental energy, such as firewood, or fossil fuel energy. Over one million years ago, pre-humans figured out how to cook part of their food. Because of this cooked food, their jaws and digestive apparatus could shrink in size. The improved food supply allowed their brains to improve in complexity. Also, cooked food greatly reduced the time required for chewing, allowing more time for toolmaking and crafts. Heat is also important for killing pathogens in water.

d. Humans are smarter than other animals, allowing the population of humans to grow, while the population of many other species tends to fall. This issue continues today:

The large rise in the population of the less advanced economies contributes to the huge number of immigrants wanting new homes in higher income countries. The book, Too Smart for our Own Good by Craig Dilworth, discusses this issue further.

e. It is ultimately the rising population issue discussed in (d) that leads to the typical overshoot and collapse situation. The issue is that available resources do not rise fast enough (in the area, or with the technology available) to provide enough physical goods and services for the population. If a new approach can be developed, or a neighboring area with additional resources can be conquered, population can start to grow again. Figure 12 represents my attempt to show the shape of a typical secular cycle (also called overshoot and collapse cycle) based on Turchin and Nefedov’s research regarding collapses of agricultural economies.

f. Outgrowing our resource base is not a phenomenon that began with fossil fuels. In 2020, I wrote a post explaining how Humans Left Sustainability Behind as Hunter-Gatherers. In 1796, when world population was about one billion, Robert Thomas Malthus wrote about population growing faster than food production. This was before fossil fuels were widely used. Now, about 230 years later, population has risen to eight billion, thanks to the availability of fossil fuels. We need major innovations, or additional energy resource types, if we want to work around obstacles now.

[10] We seem to be reaching the end of the Stagflation Period in Figure 12. We are likely starting along the long downslope of the Crisis Period.

In my opinion, the Stagflation Period began when US oil production peaked, in 1970. The estimated length of the Stagflation Period is 50 to 60 years. The 1970 peak is now 55 years behind us, so the timing is just as expected.

The Crisis period is next, listed as lasting perhaps 20 to 50 years. This is the period when governments and financial systems fail. What we think of as national boundaries can be expected to change, while countries themselves will generally become smaller. With less energy per capita, the quantity of government services provided can be expected to fall. Government organizations can be expected to become smaller and simpler. It is unlikely that democracies can continue; authoritarian rulers with a support staff are more likely. Plagues may cause the overall population to fall.

We don’t know if the pattern shown on Figure 12 is the correct model for modern times, but we should not be surprised if things do change in this direction. Governments may fail, and, in fact, the replacement governments may fail repeatedly.

I believe that uranium production is also constrained by prices that never go high enough, for long enough, to increase supply.

To pull us out of this predicament, new energy supplies will need to be developed, or old ones dramatically improved. At the same time, the system will need to reorganize in such a way to use these new, improved energy supplies. I would expect that in the new system, the general trend will once again be toward more complexity. New customs and new variations on religions may also develop.

It is theoretically possible that AI could help us find solutions quickly, so we never go deeply into the Crisis Period.

If much of the world economy does temporarily head downward because of limited fossil fuel supplies, some researchers might continue to work on solutions. Other people may temporarily need to focus on growing enough food, close to where it is needed, and finding sufficient fuel sources to at least cook much of this food. Nice things we are used to, such as home heating and repaving of roads by governments, are likely to be cut back greatly.

[11] Hope for the future.

We know that there are many ideas that are being worked on now that might be helpful for the future. They just aren’t ready to be scaled up, yet.

At the same time, some energy types we have today might work better if used in a different way. For example, solar panels seem to provide intermittent electricity for a long period, with relatively little maintenance. If they can be made to work where intermittent electricity is sufficient, and their use directed specifically to those locations, perhaps this might be a better use for them than putting them on the grid. Solar panels are made with fossil fuels, but they do act to stretch the electricity from those fuels.

Another possibility for hope comes through greater efficiency in using fossil fuels. History suggests that if we can figure out how to use fossil fuels more efficiently, the price of fossil fuels can rise higher. With a higher (inflation-adjusted) price, more oil and other fossil fuels can perhaps be extracted.

One thing that strikes me is the fact that economies are put together in an amazingly organized manner, with humans seeming to be put in charge of them. Everything I can see seems to suggest that there is a Higher Power, which some might call God, that is behind everything that happens. People talk about economies being self-organizing. However, in a way, it is as if a Higher Power is helping organize things for us. It appears to me that creation is an ongoing process, not something that stopped 13.8 billion years ago or 6,000 years ago.

Seeing how ecosystems heal themselves, and how humans have made it through many secular cycles so far, gives me hope for the future.