We are driven to transform raw materials into an ever greater number of goods and services with competition and problem-solving needs constantly forcing technological advancement and rising complexity. We achieve all this via the dissipation of ever greater amounts of energy, generating in the process ever more entropy (pollution, waste materials etc.).
But of course there are only finite amounts of energy sources and minerals on the planet, so our quest is ultimately doomed to failure. Furthermore we will always naturally go for the easiest to extract resources first. This means that we have a physical resource-base that is constantly shrinking in quantity and quality and/or accessibility. Meanwhile maintaining existing infrastructure and battling the growing entropy soaks up more and more of the available energy, leaving less and less for growth.
Debt is the promise of a more profitable tomorrow that we use to ‘ramp up’ our purchasing power in the present. In fact we can understand growing debt, the erosion of interest rates in developed nations, the legalisation of share buybacks, the securitisation of debt and the growth in increasingly arcane financial instruments generally as an attempt by the global economy to compensate for the encroachment of the growth-limiting factors outlined above, going all the way back to Nixon’s cancellation of the direct international convertibility of the US $ to gold back in 1971, which occurred just after the US passed peak conventional crude production.
Debt must be paid back with interest accrued, so a debt-based system is fine until tomorrow is less profitable than today – then it takes on the characteristics of a Ponzi scheme.
We have now reached the point at which each tomorrow really will be less profitable than today. Energy and resource-constraints are biting, as evidenced by the dramatically rising extraction costs of oil, for example, and we have a worryingly flat throughput of energy per capita. Wages of non-elite workers, which are themselves an expression of how much ‘energy profit’ is flowing through the system, have been stagnant for too long and workers are struggling to afford the output of the system. Many parts of the global economy are debt-saturated, ie existing debt is a worsening drag on growth and new debt is becoming less and less productive economically.
Trump’s protectionism and the increasingly fractious and polarised politics we are seeing in various parts of the world are a predictable response to this underlying sense of lack and the unease it generates. When people feel that their economic prospects are constrained or threatened they will vote accordingly. Demagogues can rise to power; wars can start.
Perhaps more likely than a global conflagration is that the financial system, which, as a vulnerable nexus for the various limits to growth, breaks, as it so nearly did in 2008. Certainly the central banks are now in a much weaker position to cope with any downturn – interest rates cannot be cut significantly from where they are – and their ongoing interventions have in any case begun to morph from solutions to problems.