There is No Steady State Economy (except at a very basic level)

We keep seeing statements from the Center for the Advancement of a Steady State Economy suggesting that a steady state economy is desirable. I would agree that growth in a finite world is not sustainable, but even continuation of our current level economic level, or a drop to an economic level two or three levels below that where we are today, is not sustainable.

We are consuming a huge amount of fossil fuels, and to maintain anything close to our current economic state, we would need to continue to consume a very large amount of fossil fuels. If a person stops and thinks about it, no level of fossil fuel extraction is sustainable, because we only have a finite amount of fossil fuels. At best, we would be talking about stair-stepping extraction–reducing it to a lower level than today, and holding it there for a while.

One big issue with even trying to stair-step fossil fuel use is the fact that our financial system needs growth to keep from collapsing. In order to pay back debt with interest, it is necessary to have economic growth, and financial growth and growth in fossil fuel use are very closely tied. Economic growth can be 2% or 3% above fossil fuel use growth because of efficiency gains, and economic growth in a particular country can be higher than that of world economic growth because of greater outsourcing of manufacturing to other countries. There was even a gain in the late 70s and early 80s, as we picked the low-hanging efficiency fruit and switched to using nuclear. But overall, there is no evidence that fossil fuel use, or even oil use, can be divorced from economic growth. If there is a big decline in fossil fuel use, it will translate to a decline in economic growth.

The need for economic growth in order to pay back debt even applies to our money supply itself. Money is loaned into existence. This happens when a commercial bank makes a loan and deposit at the same time. The problem is that when the money is created, not enough money is loaned into existence to pay back the interest as well.  So economic growth is needed to create the additional money so that the debt can be paid back with interest.

Because of this issue, a Steady State Economy (economy without growth) requires a financial system with virtually no debt. It might be possible to have a little debt, but its use would be primarily to facilitate short-term transactions. Debt jubilees at regular intervals might be needed, to keep people from building up much debt.

It is theoretically possible to create a Steady State Economy that doesn’t use fossil fuels, and a new financial system that doesn’t use debt. As far as I can see, though, this would put us in a situation similar to where we were in 1750, because none of our so-called newer “renewables” (like solar PV and wind turbines and algae-based biodiesel) are really possible without fossil fuels. We need fossil fuels to extract metals and to make the solar PV and wind turbines and to transport them to their new locations. There is not even a plan in place that would get us to a situation such that the various renewables would replace themselves and provide enough energy for the world to live on.

The problem with going to a system without fossil fuels and with much less debt than we have today is the fact that the world supported fewer than one billion people in 1750. There are now nearly 7 billion people in the world. Furthermore, most people living today don’t have the skills required to live without fossil fuels. We also don’t have all of the infrastructure in place that we would need to live as people did then (draft animals, horse drawn carriages, wells that could be repaired with local materials, schools close to where people live, homes mostly in rural areas or villages, etc.). So it is not clear that we could even successfully make this type of transition.

When I read articles that talk longingly about going to a “Steady State Economy,” I am perplexed. If governments were to take away fossil fuels, or even reduce their use significantly, it would likely cause a crash of the financial system, and this would likely lead to a crash of other systems, particularly international trade. It would seem to be virtually impossible to keep this crash from affecting food production systems, international food export systems, and even such basic systems as electricity (because workers need to be paid, and fuel needs to be purchased). It seems to me that without a lot of intervention and planning, we would soon fall back to a very low level, very quickly, perhaps much lower than the 1750 level.

It seems to me that what we really ought to be doing is looking at the situation that is ahead, and figuring out what we can do to make the best of a pretty awful situation. Those wanting a steady state are dreaming for something that can never happen. Decline is pretty much inevitable. We need to be working to understand what is really ahead and figuring out how to make the best of a bad situation. Perhaps by planning, we can make things a little better.

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About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

77 thoughts on “There is No Steady State Economy (except at a very basic level)

  1. 7 billion is a tremendous height to fall from. . that will make a big noise.
    steady state? hmm . .like Somalia? Afghanistan? not exactly the happy agrarian fantasy common in many circles that foresee collapse. The future is local and tribal. For growth to continue, for the high-tech world to survive, technology would of had to deliver us beyond this planet. If this civilization does collapse, it will not ever again reach the heights we have achieved, we wont have the energy resources.This brief strange period in human history will become a rumor. Many a strange and suppositional tale will be told of this world from its enigmatic ruins. None though will likely reach to its fantastical reality.

  2. Great post Gail. I totally agree that the meaningful topic of discussion is how best to manage the era of energy and economic descent.

    I don’t think you made any comments on my recent TOD post on TEQs (Tradable Energy Quotas):

    As you may well be aware, this is the late David Fleming’s energy/carbon rationing scheme designed with exactly this purpose in mind, and I personally find it an exciting possibility for ameliorating the coming times. It is now attracting ever-more political and media coverage, and I just wonder whether you have any thoughts on it?

    Since David’s death I find myself with a big responsibility for future developments around the idea, and would appreciate any insights you might have.

    Best wishes,

    • I will have to admit I have not been following this issue, and haven’t read the comments on the thread you linked to. It is possible that the system would work in a small homogeneous European country better than it would in the US. My comments are based on thinking about how it would work in the US.

      It seems like the proposed system would add a big bureaucracy on top of what we have, so would add significant costs. It would also present a significant opportunity for fraud, similar to what already has been experienced in Europe in their carbon trading. Even if the system mails out credits to people, the system needs to have a good mailing list for everyone (something I doubt exists), and there is significant chance of mail theft. Think of all of the problems the census folks encountered.

      Many people live in apartments. Quite a bit of their costs are built into their rent, so they may not pay any separate heating bill. How would this work? Some live in public housing, or in jails, or in mental institutions, or in college dorms. How would their credits work? Does each child in a family get credits too? How about those illegally in this country?

      Utility bills come after the fact, in the US. Isn’t then a bit late to be figuring out using these credits to pay bills?

      I would expect that pretty much all poor people would end up with left-over credits, and all of the rich people would be short, because energy tends to be used in proportion to income. But I don’t see the poor people as having the tech savvy to figure the whole system. Most of the poor don’t have computers, and don’t read newspapers. Many have very limited education. I expect that they would not figure out the system of selling back the credits, and there would be a huge percentage that end up unaccounted for.

      Climate and geography has a big impact on fuel use. People living in temperate climates would tend to have leftover credits, but people living in very cold/ hot climates would need to buy their credits. This would tend to have an adverse impact on housing prices in less temperate climates. People is Hawaii would come out well. They don’t need to heat or cool their homes, and they can’t drive very far, so they would have lots of left-over credits. People in Alaska and Wyoming would likely find the system confiscatory.

      One big use of fuel is buying airline tickets. I presume people /businesses would need credits for these, and poor people would the primary source of the left-over credits for buying these credit. Or are these excluded from the calculation?

      The thing that it is important to remember is people’s income doesn’t go up because of this new system (except the people employed by the system). Any money spent on overhead for the new system does not really produce any goods and services for the economy, so the economy is that much poorer because of it. I would expect the system to act like an additional tax on the economy, for this reason.

      • Thanks for your thoughts Gail. Entirely understandable that you haven’t been following the issue – one can’t follow everything!

        I’ll attempt to answer your queries here, and if you don’t have time to read the full report I would definitely suggest a quick scan of the FAQs page:

        In fact, the TEQs scheme is electronic, so there is no mailout issue. There would be a TEQs account for each energy user, however, which does permit the possibility of computer hacking, though to no greater extent than any other electronic system.

        The infrastructure would indeed cost – the UK Government’s 2008 pre-feasibility study estimated running costs in the UK of £1-2bn per annum, (although more recent work has suggested that halving that figure may be more realistic), but also estimated that the auction of TEQs units to energy users other than individuals would generate Government revenue of £6bn per annum (though the public sector would also be a buyer).

        With regard to those living in apartments, the system is quite straightforward. Whoever buys the fuel or energy has to surrender TEQs units alongside their purchase. If this is some institutional body, landlord etc, they would simply pass the cost on to their tenants.

        In terms of those illegally in the country, this is a particular concern of mine, as I used to run a centre working for unaccompanied asylum seekers and the like. Although in the worst case scenario, they might struggle to secure the benefits that everyone is entitled to (as is of course often the case for them), the TEQs system would not deny them access to fuel. If they turn up, say, at the petrol station – they will simply be charged for the fuel in cash, and the cost of buying TEQs units to cover their purchase (at the current national price) will be added on and included in the price charged.

        Utility bills are retrospective here in the UK too, and this presents no problem at all, as confirmed by the various studies into the technical feasibility of the scheme. Indeed, many people pay their utility bills by direct debit, so for them there would be no hassle at all – their TEQs debits would be handled in the same way.

        And yes, as you say, energy tends to be used in proportion to income, which would leave the poor with a surplus, making the scheme strongly redistributive. But there is no need for those people to suddenly become proficient market traders. There would be a single national price for TEQs units at any given time, so no individual or company would need to ‘haggle’ or bargain for their requirements – they simply buy and sell at the current price, which is no harder than buying, say, mobile phone credit. The system is very simple for those living within it. Indeed, part of the beauty of TEQs is that it makes complicated notions like lifecycle carbon footprinting and labelling redundant.

        Regarding air travel, it is important to remember that TEQs units would only be surrendered for your direct fuel and energy purchases – not for food, manufactured products, travel tickets etc. However, the company providing your flight would have to surrender TEQs units in order to purchase the fuel that their vehicles require.

        You highlight that those living in temperate climates would need fewer units, and this is of course true. Living in those places is more energy/carbon intensive (unless extensive infrastructure – Passivhaus technology etc – is in place). This is where TEQs brings us face-to-face with reality. If we are to deal with our climate challenge and reduce energy use drastically, then we are going to have to cut back on high carbon/energy lifestyles. That’s the bottom line. Any scheme that does not discourage energy/carbon intensive lifestyles is not doing its job. TEQs would not introduce new constraints on our lifestyles, it would simply make the existing ones apparent. We do need to figure out ways to live with less energy/emissions, and that challenge is indeed much harder if we live in more extreme climates. There are ways it can be done, however, and if we are to get through these difficult times, we must either do them, or move somewhere more hospitable.

        Finally, I come to perhaps your key point:

        The thing that it is important to remember is people’s income doesn’t go up because of this new system (except the people employed by the system). Any money spent on overhead for the new system does not really produce any goods and services for the economy, so the economy is that much poorer because of it.

        This is true, as far as it goes. But surely the appropriate comparison is not between now and a future with TEQs (in which the economy would indeed be poorer). The appropriate comparison is between three possible futures:

        1) A future with TEQs
        2) A future without TEQs, in which PO/CC have their head
        3) A future without TEQs, but with some alternative approach to PO/CC

        It is clear to me that we are all better off in future 1 than future 2. And as yet, I have yet to see anyone outline a future 3 that looks preferable.

        I hope that’s helpful, and thanks again for taking the time to apply your ever-insightful brain to this topic!

        Best wishes,

        • Thanks for your thoughts. I am still wondering how all of those without computers are going to make this electronic system work, though. Maybe you have more people in the UK with computers than we do.

        • There’s no need for people to have computers – I’m not really sure what has led you to think that there would be. The Indonesian government have recently been in touch to discuss the scheme, and I’d imagine Indonesians have a lower percentage of computer users than Americans.

          What aspect of the scheme seems to imply that only computer-users would be able to participate?

          • I am afraid I don’t see how people would be involved with this without computers or some type of booklets with coupons in them. Perhaps I am too old fashioned.

  3. Gail, your talk of stair-stepping extraction–reducing it to a lower level than today, suggests you’ve read David Fleming’s earlier publication Energy and the Common Purpose – Descending the Energy Staircase with Tradable Energy Quotas (TEQs) with its numerous illustrations of stairs to step down. As Shaun says, an excellent idea whose time is come.

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