Economics | Deirdre Kent

Welcome to a baby born at 416ppm CO2 and overshoot

Welcome to a baby born at 416 ppm CO2 on the day of COP26 in Glasgow. This is the last chance to turn around runaway climate change. Mind you they said that last time and the time before.

You were born on the first day of COP26 –the 1st of November, 2021. I am sorry to say this, but this is what you are likely to see during your lifetime.

If you live in Auckland, New Zealand the number of hot days in summer is increasing. And I guess you will be glad you are not in remote Oodnadatta, South Australia which spends its summers in the late 40s and has a record of 50.7 degrees. It’s impossible to go outside or work outside there. The maximum temperature if you were born in Death Valley, California was 54.4 degrees last July.

Or you might live in Brisbane which got up to 37 and 38 degrees in 2017 and 2018. You have to stay inside and have air conditioning. But don’t try living in a place vulnerable to sea rise. Those marinas house a lot of fancy houses and they will face bigger storms and higher seas. Maybe they will be gone by the time you are an adult. And you will see a lot of bush fires in your life. And your hail stones will be big. This year they had one in the Sunshine Coast that was 16 cm wide.

Overshoot

But life isn’t all about heat waves, bushfires, coastal erosion and extreme storms. Let’s talk about the economy, about buying things and having enough food and shelter and essentials of life.

You have been born in a time when the whole world has had a Covid-19 pandemic for nearly two years. It’s given the global economy a heart attack. Mind you the global economy was very vulnerable even before Covid.

The fact is we have had a just-in-time global supply chain where goods get shipped and trucks all over the world and it’s worked up till two years ago. But now things are different and there is little hope it can be fixed any time soon.

So when you are a child, countries and communities all over the world will be scrambling to manufacture essential goods as near home as possible. I hope they make clothes and grow good food near you. Please don’t waste good land grazing all those animals to feed. They use too much water and pollute it, as well as using too much land. Besides eating animal protein is no good for your health. I only just found that out when I was 80 but you might as well know now.

The other thing, sorry to say, you have been born as the world faces up to the fact that the flammable fossils we found in the ground 250 years ago have been harder to get. Yes, we used to call these fossil fuels –oil, natural gas and coal. In fact your state of Queensland has had a lot of high grade coal mines and up till a year ago you shipped it to China. But human beings have binged big-time on these flammable fossils. Sorry about that.

I don’t suppose you will get to see much of the coral reefs, but hopefully they will be around in some form for a few years.

The global economy

I mentioned before that oil, gas and coal have been used. They have helped your parents, grandparents and great great grandparents live in an age of huge expansion. We have used up the easy to get oil, gas and coal and now we are at the stage where it is taking so much energy to extract them that we don’t get the return we used to get a century ago.

We are digging more wells deeper into the sea and going for the oil sands and hard to extract stuff. Darn!! They were so useful. In fact they still are. When you were born, 84% of the energy used came from this magic stuff. We run our diesel trucks and ships on them and we rely on them.

But they also, when burnt for driving or heating furnaces, sent a huge amount of gases high up into the air and this blanket round the earth is making it warmer. That is causing all the storms, rising seas, melting ice, extra big hail, extra heavy rain, prolonged droughts and bushfires. Yes you will see so much of that and I am sorry I was part of a generation that was complicit in this awful situation.

Several scholars have written now that we have reached the peak of world oil extraction. Nate Hagens and White wrote in their 2021 book Reality Blind that the peak in oil extraction was in October 2018. That means there will be less every year now. Mind you the prices will still fluctuate but it is resulting in high inflation because we have relied on cheap oil for two centuries now.

And natural gas and coal are dearer too, resulting in power cuts in many places like China, Germany, US and UK. You will grow up with power cuts in Australia I am afraid because the solar and wind power won’t be regular and you will be frantically trying to buy enough metals to rebuild them before long.

And if you try using hydrogen you will soon learn you get less out of it than you put in and the plants will be abandoned. In fact if Morrison and his government stay in, they will put their faith in other unproved technologies like carbon capture and storage (CCS) that are either going to make things worse or will waste money or both.

You see we have an economic system that is reliant on having more energy. It can’t grow without more energy every year and it is set up to grow. That way it works. If it doesn’t grow there are employment problems that have to be solved So you will grow up in an age of contraction of the world economy and because it will be unplanned, it will be fast and steep. You won’t be able to buy everything you want. There will be shortages. It will be the age of resourcefulness.

So make friends with lots of skills. Train as an electrician, a plumber, an organic farmer, a person who mend things, a person who is practical. Surround yourself with people who know things and can help each other and the community around them. Surround yourself with people who don’t drain you of energy. Make friends with kind, compassionate people, people who understand how nature works and that human beings are a vulnerable species with huge potential for compassion, innovation and heroism.

You will see a lot of sadness. Tragedies will be common.

Now suppose you are my great grandchild. Challenges will abound, but you are bred for it. Your grandfather has been skilled with his hands all his life and has made do with little. Your great grandfather John was a doctor and his father was a fabulous gardener. John’s grandfather was a skilled bricklayer. His grandmother and great aunts were humorous and alert, always aware of who is doing what.

On our side you get me, then my mother who cooked, sewed, knitted and gardened to care for her six daughters. . My father was a minister on a small salary who learned things from books and was wise. My grandfather and grandmother came to New Zealand with three little children. When my grandmother was young, she wheeled her pram into town with a toddler in front and bought stuff for her meals every day because they didn’t have a fridge and were poor.

I am sure your mother will fill you in with her side of the family and then there is all your father’s side to enquire about. Find out about their lives and how they struggled. You will struggle, but in a different economy and a different climate completely. So remember all these people came before you. Think about them.

Food

Don’t expect to live in a city all your life. There will be many more going to the country to grow food and live in small communities. Be a leader in a small community.

Climate catastrophe or inevitable after COP26?

Often during the last twenty years, climate activists have had high hopes that humanity will avert a climate catastrophe.

Thousands of scientists warned us not once, not twice but four times – in 1992,2017, 2019 and 2021. On each occasion it was that humanity was on a collision course with nature.

A search on “climate action” yields 26 million results. There are climate action groups all over the world. Even in New Zealand with a population of 5 million, there is a Climate Action Network comprising major groups like 350.0rg, Gen Zero etc. In 2017, former Green Party leader Jeanette Fitzsimons got 3000 people to sign Our Climate Declaration. Now we have Extinction Rebellion and a myriad of local groups to add to this list.

Various IPCC reports have warned us how urgent this all is.

Political interference again

COP26 is now just days away. The Sixth Assessment Report of the IPCC was compiled by thousands of scientists. But BBC revealed a leak that “Saudi Arabia, Japan and Australia are among countries asking the UN to play down the need to move rapidly away from fossil fuels.” The leak also revealed Argentina, Norway and Opec talking up the possibility of CCS (carbon capture storage). They want to emit in the hopes that new technologies will capture their carbon from the atmosphere. IPCC scientists doubt that technology is good enough.

There was still some hope in 2015 with the Paris Agreement. In 2018 the IPCC warned there was just a decade to get climate change under control. They warned “emissions would have to be on an extremely steep downward path by 2030 to either hold the world entirely below 1.5 degrees Celsius, or allow only a brief “overshoot” in temperatures.” But emissions kept rising.

In the US, Democrat Senator Joe Manchin is blocking effective action on climate. Not surprisingly he is a recipient of fossil fuel money. The Guardian reports, “In the current electoral cycle, Manchin has received more in political donations from the oil and gas industry than any other senator, more than double the second largest recipient.”

In Brazil Bolsonaro has presided over the destruction of about 10,000 square miles of the Amazon rainforest, one of the most precious ecosystems on the planet. The destruction started around 2002 but was slowing down at the time Bolsonaro became president in 2019. By July 2021 the Amazon, instead of being a carbon sink, has become a carbon source.

So when COP26 fails are we to blame Mohammed bin Salman, Bolsonaro, Scott Morrison and Joe Manchin?

Five years ago a Pakistani delegate on his way to COP21 in Paris, Adil Najam wrote in the Guardian, “I am not a cynic – just old. Old enough to remember the dashed hopes of Kyoto (COP 3, 1997), the purposeful energy of Berlin (COP 1, 1995), the naïve optimism of Rio de Janeiro in 1992 where the UN framework convention on climate change (UNFCCC) was first adopted, and even the calls for urgency when the negotiation process was first launched by the United Nations in 1990.”

The big emitting countries

China, India, the EU, and the US contributed around 60% of global CO₂ emissions from fossil fuel combustion in 2017. Add Canada, Japan, Saudi Arabia, Indonesia and Australia and the percentage rises. Few of these apart from some EU countries have reduced emissions since COP25 in 2019.

The UN warned that more than 70 countries are expected to submit revised (stronger) plans to curb emissions before Glasgow. This summit COP26 was originally scheduled for 2020 but because of Covid it is 2021. We are not holding our breath.

Only 113 countries have come up with improved plans so far for COP26. BBC News said, “Analysis of the climate plans submitted so far shows that emissions are actually set to rise by 16% by 2030, which could lead to a temperature rise of 2.7C (4.9F) above pre-industrial levels.”

Hope is fading

Ever since 1992 when UN climate summits started, global emissions have steadily risen. Despite flashes of hope throughout those many years, the relentless upward trend continues. And now that big emitters have signalled their desire to water down ambitions, our hope is fading fast again.

We could spend a great deal of time assigning blame for this succession of failures. We could blame Bolsanaro or Trump, no trouble. After 2015 the Bolivian president was one of many low emitting nations to blame capitalism.

Political tensions add to the roadblocks for COP26, with President Joe Biden stepping up the rhetoric on Taiwan, angering China. Russia hasn’t had its natural gas pipeline Nord Stream 2 approved by all the European nations yet. So Putin may be punishing them by sending them less gas. Or else Russia simply needs the gas now for their own domestic purposes.

Then there is the problem of not transitioning to renewables early enough. After shutting its nuclear plants and setting up wind farms Germany has had to return to gas fired electricity generation when the wind died down. So it is experiencing high natural gas prices (they are now six times higher than at the beginning of the year). This in turn is leading to high power prices.

Britain is also coping with Brexit, a truck driver shortage and a natural gas shortage. There are going to be many Europeans and English people shivering this coming winter.

The outlook in northern China is bleak. They are paying the price for not transitioning to renewables in time. Their coal prices have soared and their coal mines have been flooded more than once. And this is at the time that Xi Jinping has decreed that coal usage must reduce in order to meet their climate goals.

Transitioning to renewables anywhere will not be smooth or easy and anyway renewables are less energy intense than fossil fuels. In America coal fired power generation is on the rise because of high natural gas prices.

While there is a tiny chance significant progress could be made, given the difficulty of transitioning to renewables together with the interference by nations dependent on fossil fuels, it is more likely that COP26 will fail.

Renewables – can we ever get there – when energy and climate clash

Hydrolakes in Aotearoa/New Zealand have had many years of low rainfall, but it is now happening more frequently. In dry years we revert to coal generation, making the transition to renewables harder.

When New Zealand hydroelectric power stations ran low last summer, we beefed up electricity generation with another coal fired unit in Huntly. Environmentalists were shocked. How was New Zealand going to meet its climate targets now?

Genesis Energy had planned to close Huntly station in 2018 but is still using it. Greenpeace has wanted it shut for years. The Huntly power station was commissioned in 1982 to run on gas and coal. As Māui gas supplies began to run out in the early 2000s, coal increasingly became the major fuel. RNZ reported that more coal was burned in the 2021 March quarter than each of the years 2016, 2017, and 2018.

The Huntly power station was commissioned in 1982 to run The Huntly power station was commissioned in 1982 to run on gas and coal. As Māui gas supplies began to run out in the early 2000s, coal increasingly became the major fuel.

Aotearoa/ New Zealand is hooked on coal, importing more than one million tonnes of low-grade coal from Indonesia last year. The fuel was burnt at the Huntly to keep the lights on, as hydro and gas failed to meet demand.

Due to rising greenhouse gas emissions we are experiencing warmer winters and drier summers.

So will we painlessly transition to renewables as we had hoped? As we face our climate predicament, we have to realise that over 80% of the world’s energy use still comes from fossil fuels. Let that sink in. It’s big. So it’s going to be really hard to wean ourselves off them.

Of course, the low rainfall for our hydropower dams was not new. But climate change is going to make matters worse decade by decade.

Perhaps many thought then we were the only country having to revert back to fossil fuels.

Far from it. And it is often happening because an extreme weather event cut hydropower generation.

Due to rising coal prices and power rationing, there are power cuts in China, leaving families in the dark

It is happening elsewhere but sometimes it is accompanied by geopolitical tensions as well. Southern China for instance, when its hydropower capacity ran low after droughts, reverted to coal. And this happened at the same time as China, angry at Australia’s support for an enquiry in the Wuhan Covid origins, stopped importing Australian coal.

In Europe there has been a big move towards renewables, with wind and solar beefing up. But solar and wind are intermittent and less reliable. Wind comprised 27% of Germany’s generation mix in 2020. But this all changed in 2021 when the winds died down and the percentage of the total generation dropped to 22%. So they had to revert to natural gas. A great deal of their gas came from Russia. Over the last decade the EU has imported more and more gas from Russia as their own gas ran out. Gas prices have skyrocketed along with electricity prices.

The apparent reluctance of Russia to release gas at the onset of winter has been attributed by many commentators to its desire to put pressure on the remaining EU countries to approve the Nord Stream 2 pipeline from Russia to Germany. Nord Stream 2 is a twin pipeline under the Baltic Sea. It had already cost US$11 billion and was ready to go. Eastern European Countries like Ukraine and Poland and the Baltic States withheld approval for two reasons. 1) Because Russia had annexed the Crimean Peninsula in 2014 leaving 14,000 dead over seven bitter years and 2)because they feared it would give Russia too much leverage over EU and Putin too much power.

As the price of natural gas rises, so does electricity. The TV agency WION reports (28 Sept 2021) that electricity prices are spiralling out of control in France (up 149%), Spain (up 250%, UK 298%, Germany (up 119%) and the situation will get worse as winter closes in. Governments are already warning of blackouts and factories will be forced to shut down. Inflation has already arrived.

They finish by saying, “European countries are going to learn just how much their economies are reliant on natural gas.”

Brazil has also had to ramp up its gas fired generation after a bad drought.

Energy and Climate Clash in China

There is also the move from high energy coals to lower energy coals. In Northern China where coal mines were flooded in an extreme weather event in May 2021, they had to move quickly to find other coal sources for electricity. In early October 2021 a heavy downpour in China shut down 27 coal mines. So Chinese officials have ordered more than 70 mines in Inner Mongolia to ramp up coal production.

At the other extreme there is growing demand for air conditioning. CNBC said Japan, China and South Korea had extremely hot weather so the demand for power rose.

As if all this weren’t enough as the global mega-economy gets more and more complex, we just need more and more electricity. Despite a slight drop during Covid, by July 2021 a headline reported the International Energy Agency saying, “Global electricity demand is growing faster than renewables, driving strong increase in generation from fossil fuels.”

Oh yes that’s because we have to have economic growth at all costs. More, more, more as comedian John Clarke says. Everything flows from growth as he says.

Smooth transitioning to renewables is looking a great deal more difficult than we ever imagined.

At a time when climate induced droughts, extreme precipitation and heat waves are disrupting hydropower generation and storage all over the world, governments are reverting to some form of fossil fuel to generate their electricity. And this all comes at a time when electricity from air conditioning and gas or power to heat homes is under pressure. Even if Europe and UK insist they want to meet their climate targets at COP26, politicians will be faced with the alternative of leaving their families in the dark without cooking facilities – or effective climate action.

Politicians want to get re-elected. That’s why my bet is that they will choose to care for their citizens and to try to ensure its factories don’t close down through lack of electricity. China has already stated its power rationing is in order to keep its climate targets and doesn’t seem to have a renewable alternative.

And all this is without ever discussing the physics or the geology of it all. For a start fossil fuels are used in the production of solar and wind power. Secondly the energy return on energy invested for solar and wind is much less than with oil, coal, diesel or gas leaving less for the economy. Thirdly there is matter of the metals required.

Are there enough metals to transition to renewables?

Professor Simon Michaux of the Geological Survey of Finland has done a remarkable study of the probable metals required for all the batteries for all the vehicles involved worldwide and his answer in the case of cobalt, nickel, graphite and lithium is a loud NO. He says,

“The current system was built with the support of the highest calorifically dense source of energy the world has ever known (oil), in cheap abundant quantities, with easily available credit, and seemingly unlimited mineral resources. The replacement needs to be done at a time when there is comparatively very expensive energy, a fragile finance system saturated in debt, not enough minerals, and an unprecedented world population, embedded in a deteriorating natural environment. Most challenging of all, this has to be done within a few decades. “

The zen riddle for our Government is will they recognise the predicament we are in or will they opt for Business As Usual, thereby disappointing millions of climate activists once again? In my view COP26, like 25 other COPs before it, will fail once again and to a few it will be no surprise. But they might just entertain a fleeting thought…”If only….”

Climate, Women and the Feminine

Is it too late for the Great Mother archetype?

Over recent weeks I have been watching over 50 interviews on Post-Doom on YouTube. Michael Dowd has interviewed climate scientists, young leaders in the eco-anxiety space, systems thinkers, journalists, ecologists, spiritual leaders, authors and researchers of all descriptions. Many have degrees in up to three disciplines and almost all can think across disciplines. Between them they have studied books about the collapse of civilisations, abrupt climate change, consciousness, peak oil, energy and environmentalism.

All are facing up to the reality of our current global predicament. They are not taken in by the happy chapter at the end of Al Gore’s film or any number of dissertations after describing the mess we have got ourselves into as a species. They don’t blindly obey the cultural imperative to be optimistic and not scare the punters.

I was delighted to listen to Barbara Cecil, a woman who has coached women leaders. She commented that, at the time of the 50 minute interview (2019), there were four trends. First there is the movement towards totalitarianism; second the desecration of the Earth and a headlong rush into an unliveable planet. Third was the subjugation of women. She noted that in India in 2019, 5 million women had joined in a protest across the nation against violence, and the United Nations was using the new word, femicide. (think of the pain in today’s Afghanistan). Fourth was the genocide of indigenous rainforest.

She noted that the resistance against this these issues was not working. From there she said what we need is an amplified vibration the type that can break a glass with the singing of Ella Fitzgerald or can break up a kidney stone. She asked, “Where is the source of the feminine energetic?”

There must be a deep listening for the interior impulse.
They must be right placement. By that she means a relationship to others being the right distance from each other and Inbetweeners these fields are where the deep feminine is.
There must be attention paid to and respect for cycles. You must do beginning is born out of silence and do endings at the appropriate time you must tune into the natural cycle and be patient.

There is power when enough people doing it. She said the feminine creative universal force is badly needed. And she left it there.

This led me to thinking about money systems and the writings of the late Bernard Lietaer. You may think this is a strange transition but in my mind I recalled a lot of writing about the worship of the goddess in different ages. Lietaer had studied the Black Madonna and had concluded that the worship of a Great Mother happened to coincide several times in history with a just and sustainable society. He attributed this successful and sustainable society to the fact that there were dual currencies operating at the time, a yin currency and a yang currency. The yin was abundant, the yang scarce. There was no monetary monoculture as there is today.

The interview finished on the theme that the feminine creative universal force is badly needed at a time when we have seen the Earth our Mother as an “it” to be exploited rather than a Goddess to be worshipped.

Bernard Lietaer and Stephen Belgium in their 2005 book New Money for a New World explain that Jung’s four archetypes, warrior, sovereign, magician and lover needed a fifth. They suggested the missing archetype is the Great Mother.

“The Great Mother was honoured and active over tens of thousands of years and over vast geographic areas. Her presence has been documented from the earliest times of human consciousness. Image has been carved in mammoth ivory, in reindeer antlers, and on stone at the entrance of sacred caves. Great Mother effigies were the most common figures of the upper-Paleolithic period (30,000 to 9,000 BC). Her predominant importance in ancient times is illustrated by the fact that four times more feminine than masculine prehistoric figurines have been uncovered.”

“Archeologist Marija Gimbuta’s Great Mother is the symbol of unity of all life in nature. The power was in water in stone into tomb and cave in animals and birds snakes in fish hills trees and flowers hence the holistic perception of the sacredness industry of all that is on Earth.”

The Great Mother archetype maybe what has been missing from our civilisation. But is it just too late? If so, it must surely be part of the culture of any civilisation that emerges from the Sixth Extinction.

As transition engineer Nathan Surendran recently wrote on an email group, “To me, our job is to ready people for the consequences of not having found a “route to a peaceful but profound transition” in 40 plus years of ‘trying’. We’re so far into overshoot that it is a wholly unrealistic and naively idealistic aim to suggest we can plan for anything other than civilisation ending collapse. Resource depletion and environmental effects are the two blades of the scissors that Gaia will use to castrate our ambitions to avert this logical, fact based and data supported conclusion.”

It is therefore no coincidence that those who have worked on finding ways to reverse climate change like the huge team of Paul Hawken’s Drawdown Project has done, put the education of women and family planning at numbers 3 and 6 in order of importance. Paul Hawken has in a 17 September 2021 lecture, concluded that when you put these two together, “empowerment of women and girls is the number one solution to climate change.”

Tradable Energy Quotas or Tradable Emissions Quotas? – our discussion rages on

When you fill up with petrol you would surrender TEQ units.

We have now had three online meetings of those wanting to promote TEQs as described by Dr David Fleming and summarised by his colleague Shaun Chamberlin here.

The last discussion was very stimulating and it was hard to sleep that night. Five good brains agonised for an hour over whether to make the unit energy or emissions, but still no conclusion. It isn’t any good launching a campaign until we are clear in our minds of what it would be called, how it is designed and how, if at all, it would work alongside the ETS structure or replace it.

First let’s look at the history. TEQs were designed as applying to energy. Dr David Fleming wrote about managed energy descent and invented this tradable quota system to ensure a smooth descent rather than a chaotic one. But on the website the Parliamentary report of 2011 states on P47 that it could be designed for emissions. It’s just that we can’t see the second design and it is far from simple to figure out what it would be.

Fleming, who died in 2010, didn’t include non CO2 emissions in his Tradable Energy Quotas and I would imagine he didn’t envisage that a country like New Zealand would have half its emissions in agriculture in the form of methane and nitrous oxide.

Josh Floyd the Melbourne researcher from the Simplicity Institute had tentatively suggested to us in an email that we use TEQs for fossil fuels and use the ETS for other GHGs. But there would be different prices for the units coming from two different systems. Someone argued that is logical because they are different gases. I don’t know the answer.

We then asked where is the public now in their thinking? Will they want to reduce their fossil fuel energy? We think they will know they have to reduce their emissions yes. Would they be more on board if the unit was emissions? Probably.

Jack brought up the idea of what happens to a society during a big disruption as he had read that research shows altruism dominates the responses during big disruptions. (Think Christchurch earthquake and the 2020 lockdowns). Then someone asked if we could somehow use the pandemic issue to edge into the campaign.

Every time we talk to someone new about whether we want Tradable Energy Quotas or Tradable Emissions Quotas they answer the latter. But let’s think a bit more.

Ideally it seems people would like it to be Tradable Emissions Quotas (TEQs). As yet we not really sure whether the data is there for making this feasible. TEQs were originally designed to be Tradable Energy Quotas, but since in New Zealand half our emissions are from methane and nitrous oxide from agriculture, and we know we need to reduce all the greenhouse gases, we instinctively choose emissions as the unit.

But let’s suppose the technology and the data is now available to make the unit for the quota “emissions” and see what happens.

There are two ways of measuring emissions – production based and consumer based.

The IPCC has asked countries to use the production-based as the way to count our emissions. In the case of Aotearoa New Zealand we import manufactured goods with embedded carbon dioxide and we export food with embedded methane and nitrous oxide emissions. Using the the IPCC method means we must measure all our emissions from agriculture and waste as well as from industry and transport. And that is why, when we try to invent a Tradable Emissions Quotas and plan to do it on consumption data it just doesn’t work.

And the design still has to be worked out. In the case of Tradable Energy Units the TEQ scheme only wants us to surrender units when we buy fossil fuels or energy. The units go up the chain to the producer or importer and then to the registrar. When we buy items of services with embedded emissions we don’t surrender units, as the price is already reflecting the embedded emissions. In the case of emissions being the unit, there is nothing comparable to fossil fuels.

Also you can think of it this way:-

If we bring down energy use, we will bring down emissions too.

But if we bring down emissions there is no guarantee we will bring down energy use and this will lead to ecological disaster. In fact Dr Rodney Carr in answer to a question on a Climate Commission webinar said our energy would be the same in 2050 as it is now. And our GDP would have increased by 73% with all the material throughput that implies.

I have been reading the chapter in Jason Hickel’s book Less is More called Can Technology Save Us? There was lots of data and science reported. He eventually dismisses green growth as a fantasy.

Sustainability and Money

Sustainability and money Deirdre Kent Nov 2020

A few months ago I gave this presentation to a climate change group. Hope you enjoy it. Well it’s not actually enjoyable to know that energy use and economic growth are so closely linked. As Naomi Klein said “The economy is at war with the climate”. We are going to need all our collective intelligence to downshift without chaos. Can we manage an energy descent without it being haphazard and dangerous socially?

That is why I got to be studying Tradable Energy Quotas (TEQs) which set the scene for a well managed transition to a low energy economy. I even wrote a blog on it recently.

Kate Raworth’s “Doughnut Economics” is a great starting point for new thinkers

Kate Raworth is an author who can’t be ignored. Google her book “Doughnut Economics” and you get 155,000 results. In September 2020 Goodreads had 549 reviews and Amazon 469 ratings. Her book is lucid and accessible and I love her chapter headings. She has an extraordinarily comprehensive list of references.(Some chapters have 90-100)

This is a comprehensive review of orthodox economics over a few centuries. Her “doughnut” metaphor describes the realm of a living habitat for humans as being only in the doughnut. We have to be lifted out of poverty to reach a certain minimum standard of living, yet not consume so much of the earth’s resources so that we are breaching planetary boundaries. Her doughnut is unforgettable and will go into future economics textbooks. She describes a social floor for wellbeing and an ecological ceiling.

To illustrate her strong call to rethink economics she packs her chapters with a dense and interesting mix of facts and trends within economics thinking. The strength of this book is that because of Raworth’s deep understanding of the history of economic thinking she is acutely aware she is just but one thinker in a chain, and that there will be another generation of thinkers beyond her. She regularly invites her readers to think our way out of this mess and tempts us with numerous leads. She is an advocate of drawing diagrams.

However naturally there are omissions and blind spots.

Naturally when reading a new book on new economics (I have written two) I go straight to their bibliography and there I find a good list on the topic of money and an excellent one on tax –Gaffney and Harrison, Henry George, Michael Hudson, JS Mill, Ricardo, Josh Ryan-Collins and Peter Barnes. I also find Michjaninel Bauwens on the commons and Janine Benyus on biomimicry.

So here is what I think a list of what the next generation of thinkers could productively focus on:-

First Omission – asking what is the root cause of the growth imperative?

One of the more irksome features of her discussion is that she never really asks what causes the growth imperative. She doesn’t appear to stress that it is built into the system. While she cites many who write on money creation including Benes and Kumhof, Charles Eisenstein, Michael Hudson, Steve Keen and Bernard Lietaer but never seems to use the phrase “interest-bearing debt” or explore the consequences of issuing money this way. She dabbles but pulls back when it comes to probing important leads. I urge thinkers to read Chapter 2 of economist Richard Douthwaite’s book The Growth Illusion, where after a discussion about the consequences of issuing money as interest bearing debt, he concludes. “In our present economic system, the choice is between growth and collapse, not growth and stability…The alternative is slums, dangerous roads, old factories, cramped schools and stunted lives.” Douthwaite, like Raworth, was a development economist who spent years on overseas aid work, and in the process he had to spend time relearning and unlearning economics.

Second Omission – the role of power

When I was a full time advocate in the smokefree campaign in the 1980s, I watched public opinion change over a decade of debate and conflict. I was high profile in the media for a decade. On non-smokers’ rights I was a controversial figure in many households, workplaces and clubs. The health lobby, equipped with all the scientific facts, gradually and painfully learnt the reality of political power. We started to understand the subtle influence of the tobacco industry, and came to realise that the frustrating reluctance of politicians to move was because they were waiting for public opinion to change. So I always notice when an academic advocates for change and appear to imply it happens without pain and struggle. The famous quote of Mahatma Gandhi, “First they ignore you, then they laugh at you, then they fight you, then you win” is relevant here. So even a passing reference to the role of power and the agony of the political struggle would have been helpful here.

Third Omission – the importance of currency design

Kate Raworth leads us to the insightful author Silvio Gesell, summarises his argument for a demurrage currency, chooses the best quotes from him, and then pulls back. I urge the next generation of thinkers to follow through this clue, because the design of money changes everything, from purchasing behaviour to investment patterns. If Keynes called Gesell ‘an unduly neglected prophet’ we should really pay attention. She has a whole chapter called ‘Design to Distribute’, but completely omits the critical nature of currency design.

She has read Bernard Lietaer, or at least one of his books, but the next thinkers should read the more of Lietaer and think deeply about his argument that the design of money affects human economic behaviour and that there are good examples in history of a dynamic, successful societies where dual currencies contribute to this result.

Fourth Omission – Energy Decline

I am not sure I do it justice either, but those who understand that because of peak oil the net energy in the industrial system must decline, also know that we have to live with progressively less net energy. That is a big concept because economic growth has for decades been closely correlated with energy growth.

When it comes to discussing the regenerative circular economy, where the essential concept is to ensure we can unmake everything we make. I am not sure how this fits with the Second Law of Thermodynamics says that processes that involve the transfer or conversion of heat energy are irreversible. … It also states that there is a natural tendency of any isolated system to degenerate into a more disordered state. As energy is transferred or transformed, more and more of it is wasted. So the circular economy is not that simple.

I am rather inclined to agree with a University of Otago scientist Craig Anderson who recently wrote on an email discussion, “Concepts like Doughnut Economics will not achieve what we need – they sound lovely and the heart is definitely in the right place – but these concepts are still not yet grounded in the realities of the remaining resource base and energy constraints.”

Fifth Omission – Land Tax reform

She has spent a few pages on Henry George who would replace income tax with land value tax and on the origins of the board game Monopoly. This occurs under the chapter heading Design to Distribute. But she doesn’t really convey that land tax is the most powerful way to distribute wealth. Those wanting to take this topic further should learn about the value of inner city land, not just rural land and learn from Georgist organisations like Progress in Australia for more information. A discussion of the relative merits of capital gains tax, land value tax, death duties, wealth taxes, estate taxes would have been useful.

This book is a must read for any critic of orthodox economics. Raworth concludes, “We are all economists now”. So if we are to survive, we can’t avoid this discipline.

Proposed new local spending currency can only work with a full land rent

Council owned land Manukau. The other property owners get unearned capital gains from rise in land value.

Two of my previous posts have advocated local authorities get authority from Government to issue a new currency which decays like ordinary goods decay. It would exist alongside the national currency. Because it decays, it will circulate much faster than the national currency, the rate being dependant on the rate of decay.

The previous idea was to do what the Mayor of Wōrgl, Austria did during the Great Depression in 1932, to spend it into existence by paying part of the wages of council employees in that currency. In the case of Wōrgl that was a Work Certificate that had to be stamped every month. Owners of the certificates would have to buy a stamp every month worth 1% of the note’s face value. That means over 12% a year of decay, or a -12% interest rate. Well that turned out to be big because the certificates circulated so fast that the town had to withdraw a large percentage of the notes from circulation.

Continue reading “Proposed new local spending currency can only work with a full land rent”

The system itself requires some people to be drowning in debt

Debt for the few is structurally built in to the economic system

This Government promised to prioritise child poverty. Child poverty comes from many sources, with one of the biggest being debt from loans with high interest rates. The 2019 efforts by the Government to legislate to constrain the predatory lending practices of loan sharks leading to unmanageable debt have hardly had much effect, if the number of debt consolidation agencies is anything to go by. A search on “debt consolidation” will show pages and pages of companies offering help to the desperate.

And Covid-19 has made it all worse.

On 4 May 2020 Tim Barnett, CEO of Fincap the umbrella group for 200 financial mentoring agencies, said the $11 million they received for running Fincap last year would not do the job this time around.

“If unemployment goes to 12 percent, that’s triple [the current rate], and we’d expect the demand to triple as well. That’s going to be impossible for us to meet at the standard we want. So [we are] absolutely needing more support.

He said in 2018, “The people we see have an average debt of $10,000 – so that’s about $600 million debt a year.”

FinCap surveyed agencies on their experiences of dealing with clients whose financial lives were in turmoil as a result of unsustainable debts. People came to the agencies as a “last resort”, facing extreme hardship such as eviction, going hungry, or having the power cut off, the report said.

Many borrowers were struggling with debts after losing employment, or falling ill. Multiple debts were the norm, including credit card, high-interest payday loans, overdrafts, truck shop and Work and Income debts, with agencies estimating the average number of debts per client at between three and five.

A recent report (June 8, 2020 Stuff) by BERL on high-cost lending noted that small high-cost lenders had become increasingly common in New Zealand and were now a $8.5 billion industry.

It might be said, and often is said, that people should live within their means. Some blame them and other sympathise.

Yet there is a third option – it is inevitable. The very system itself makes sure of it. How can this be?

Well most of us know that commercial banks are the main issuers of the money we use. Whenever they issue a loan, they just write a credit on one side of the ledger and a debit on the other. The home buyer gets a deposit put in their account and they have to pay the bank back over a number of years. But they have to pay it back WITH INTEREST. The bank, you see, has created the deposit but not the interest. So borrowers must go out and compete with others to find that interest. Some will succeed but a small portion will necessarily fail, because there isn’t enough for them.

It is best illustrated with a story. Bernard Lietaer, author of the Future of Money said,

“I have a story that I call the “11th Round Parable.” I learned the story in Australia, so I’m setting it in the Australian Outback, in a little village where people don’t know about money. Every week they gather, and people bring hams, chickens, and eggs and barter and bargain with each other.

Then one day, a gentleman comes with a very fancy hat and very shiny shoes, and he observes the market. At one point, he sees a farmer trying to carry 12 chickens around the market to exchange them for a ham—and the farmer is obviously having trouble doing that. So the man starts laughing.

The wife of the farmer says, “Hey, stranger, do you know a better way of getting around with the chickens?”

And the man says, “I don’t know about chickens, but I know a better way of doing all this.”

“Oh, really,” she says. “What would that be?”

“See that tree in the corner?” he asks. “I’m going to sit under that tree. One of you bring me a big cow skin, and I will prepare something. Bring every family together, and I will explain it to you.”

He goes to the tree, and they bring him the skin. He cuts little rounds in that skin and puts a fancy little seal in each of those rounds. He gives ten rounds for every family. One round is equal in value to a chicken. So now the villagers can carry those rounds instead of the chickens.

Then he says, “I’ll come back next year and sit under the same tree. I want everyone to bring 11 rounds. The 11th round is the token of appreciation for the improvement that I’ve made possible in your community.”

The farmer’s lady asks, “Where will the 11th round come from?”

He says, “You’ll see, you’ll see, you’ll see. Don’t worry.”

Do you know what’s going to happen?

TRACY: Some people will have enough, and others will be left with fewer than 11.

BERNARD: What has to happen is on average, one of ten families has to go bankrupt to provide the 11th round to someone else. We’ve created a negative-sum game. And the next time the harvest is ready, not everyone will participate to help a neighbour in trouble to get his harvest in before a storm.

That’s how scarcity is created and how competition is generated. Lietaer said, “Our money system is structurally brittle. It doesn’t matter if you put a very clever guy or a stupid guy at the wheel. The clever guy will take a half hour to have an accident, and the stupid guy will take ten minutes.”

Of course how to solve it is another matter for another time. Meanwhile let’s first understand that unless you look at the structure of the money system and ask the right questions you are not going get the right answers.

I don’t believe the Labour Party understands the cause of accumulating debt in the section of our society at the bottom of the heap. Yes, sure they understand the pain. Yes they try. But the way they try is to put more and more bandaids on. They also keep up the rhetoric about solving child poverty.

The only trouble with knowing that the very structure of our money system requires a certain number of vulnerable people to keep getting into unmanageable debt is that once you understand it, once the genie is out of the bottle, you can’t push it back in. You can’t unknow it. But the more of us that are informed, the more likely we will collectively discover various solutions.

A dual currency system would help New Zealand recover

Covid-19 in New Zealand has resulted in the loss of thousands of jobs, including from Air New Zealand, Auckland Council, Fletchers, Millennium hotels, Sky City, Ngai Tahu and Bunnings. With the first round of wage subsidies ending in June and the second round ending in September there will be thousands more jobs to be lost. Despite the fact that on Monday 8 June we moved to Level One and we can all move around normally within our country, there is no sign of overseas tourism starting up again or Air NZ getting back to 2019 levels within the foreseeable future.

The economy is a gigantic machine in which one person’s consumption spending generates someone else’s income. We buy the things we want and need, and in exchange give money to the people who produced those things, who in turn use that money to buy the things they want and need, and so on, forever.

But right now it is not looking good. Spending money at your local cafe won’t cut it. The OECD said in its Economic Outlook 2020, “The global economy is now experiencing the deepest recession since the Great Depression in the 1930s, with GDP decline of more than 20% and a surge of unemployment in many countries.” New Zealand can’t escape.

The Government has already responded with a wide range of schemes to help keep jobs and businesses. The Reserve Bank has lowered interest rates and gone on a spending spree in the secondary market buying up NZ Government bonds which they believe will lower interest rates further. They also lifted Loan to Value Ratio restrictions for commercial banks lending. In other words they want banks to lend money. In a recession businesses and individuals are loath to invest or borrow, so the Reserve Bank wants to make it easier for them.

Naturally all these actions from RBNZ have kept the property market from falling in most regions. Pity about the fate of some young couple with a small deposit a year out from now when their house value declines! The Reserve Bank has sent them out to buy a house now, because of course property owners have total privilege in our tax system. They are exempt from land value tax, capital gains tax, wealth tax and inheritance tax. The only way they pay for the privilege of monopolising a site is when they pay their rates and that is certainly nothing near the capital gain they will enjoy later. And all this for doing nothing to their land but enjoying the development all around. Yes, the capital gain really belongs to the wider society not to them.

Tax issues aside, let’s get on to the circulation of money round an economy. The Dominion Post two days after we started in Level One had the following front page headline, “Wellington, let’s get spending”. Yes we are urged to spend, and yet the Retirement Commissioner urges us to save for our retirement, and those wanting to buy a house naturally want to save a deposit. So we get two opposing messages from society. Apparently we paid off $1 billion during lockdown on our credit cards and this is bad for the economy because every time a debt is paid off there is less money in circulation.

Two Conflicting Functions of Money

Most people are not aware that our NZ dollar has to act in two conflicting ways, as a both medium of exchange and also as a store of value. It simply can’t do both at the same time. That is a problem. It should be one or the other.

Every time a sale is made both the seller and buyer benefit. So the argument goes the more transactions we have the bigger the benefit for the whole economy. The total sales expenditure is the country’s GDP which was around $203 billion in 2019.

In deflationary times it is well known that consumers hold back on their spending and the velocity of circulation declines. People also pay off credit card debts and mortgages, taking money out of circulation. When they do this the money supply declines if banks aren’t making new loans or the Reserve Bank doesn’t print more digital money. And with all the Covid-19 unknowns and with the possibility of cheaper prices tomorrow or less income tomorrow, consumers hold back even more.

A Dual Currency System is needed

What is needed therefore is a dual currency. One, the national dollar is useful for buying imported goods and for paying taxes. It can be a saving currency as well as a spending currency. However, because these functions conflict, we need a currency that is a spending currency only. Like ordinary goods, the currency will rot or decay or go out of date.

There are two ways of starting up such a currency:

Give local authorities the power to pay their employees partly in rates vouchers redeemable only by that local authority and make those vouchers decay at something like 8% a year.
Do it nationally. That would involve chartering a new bank and having it issue a new currency. The bank would be essentially a second Reserve Bank with a different name. Spend the new currency into existence through paying for part of the budget on health, education or transport or anything else the government does.

The advantage of the local option is that it is in line with what happens in Nature, a system within a system. But the disadvantage is that when it comes to the practical matters of having a new digital only currency with two currencies on an EFTPOS card, there are too many local authority currencies (78 of them) and too much complication. However the Government itself will not accept these new currencies for taxes and nor should they. The issuer of the rates voucher is the local authority itself and when the voucher is paid to Council in rates and is redeemed, it simply disappears.

The advantages of having a second national currency is that the EFTPOS dual currency card system is simple. There would be only two currencies in the country. The disadvantage is that the new consumers could favour buying from one region over another leading to unplanned centralisation. Then there would be too much internal transport required in New Zealand which would not be efficient. Duplication occurs in Nature and is perfectly logical. For instance you can grow pumpkins or potatoes or apples all around the country so it makes no sense to centralise this activity.

Investment

Right now businesses aren’t investing. They are reluctant to upgrade their software, buy new plant, add new employees, educate their employees, or recruit a top executive. Like individual consumers, businesses are sitting on their capital and waiting to be more certain of the future.

What about those with money? Are they investing in business? We know we have to build back better because of the constraints on energy use. A successful energy transition will entail moving away from a growth based consumer economy to an entirely different way of organising our investments. The rising stockmarket since just after lockdown shows investors had unrealistic optimism for weeks. But US stocks tanked on Thursday 11 June, as cautious commentary from the Federal Reserve and rising coronavirus infection rates prompted investor concern. All three major indexes posted their biggest single-day declines since March 16.

But imagine we had a second currency operating and it had a circulation incentive built into its design. Its value declines as time passes. What would you do with it? You can’t save it. We wouldn’t fill our houses with cheap imported Chinese goods because we need national dollars to buy imported goods. And we wouldn’t buy more imported cars.

I think, as in previous civilisations where a spending currency existed alongside the national currency, we would save in the form of tangible investments. When we had spent on personally useful things for the future, we would work communally to industrialise in a 21^st century style production. We might form a cooperative buying up 3D printers and appropriate materials. Another group might grow bamboo or hemp. Another group might start an orchard and pay workers. Another cooperative would set up a clothing factory. We could invest in art, spend up large on local entertainment. The arts would thrive.

Oh, and as I wrote this I needed to do something with the dispensing box my baking paper came in. What a waste to put it in landfill! People with local spending money itching to be spent might even find it profitable to buy up waste and do some imaginative upcycling. Maybe.

Previous civilisations give us clues

What happened in the Central Middle Ages from 1150-1300 approximately in Europe? They had a dual currency system with the spending currency being used in communal efforts to build cathedrals that would bring pilgrims who would be a source of future wealth. So it was a community that did the investing. See here for more details.

What happened in Wōrgl, Austria in 1932-33 with a dual currency? In 15 months the council paved roads, built a ski jump, built a bridge and renewed their reservoir. Once again it was a communal effort in infrastructure that benefitted everyone. Also unemployment levels declined.

And in PreDynastic Egypt they invested in education and produced new knowledge in astronomy, mathematics. They maintained their waterwheels and their wine presses. Dressmakers and laundrymaids could read. They fed their population well.

The logistics of the implementation are not underestimated here. Granted there are major barriers to adopting a second currency, not the least of which is persuading businesses to keep two sets of accounts and all the technical issues of EFTPOS machines with more than one currency. There is also a challenge to ensure that the local currency remains on par with the national currency. The biggest one of all of course is that the tax system needs to be changed first so excess spending money doesn’t result in unearned profits from land speculation. All these are not addressed in this paper, but it is not being too hopeful to believe that enterprising and clever New Zealanders can solve them all.