Tuesday, December 30, 2014

Jevon's Paradox also works in reverse

Though always plagued by negative publicity after they collapse, Ponzi schemes work out quite well for the early participants. If you can get in (and out!) early enough, you're set.

My grandparents generation was likely the first in all of human history to experience retirement on a large scale. My parent's generation looks to be alright for the moment, though their whole story has not yet been written.

My generation, and those that follow, not only lack this opportunity, but will be paying for the collapsing scheme in terms of a failing planet. Though most have not yet consciously embraced this fact, I think we've all sensed it at some level.  Witness three recent movies to hit the box office -- Interstellar, Snowpiercer, and Mockingjay. Contrast those with the movies we used to explore our future as I was growing up, like 2001, or Star Wars.

Jevon's Paradox, for those unfamiliar with the concept, essentially states that energy use actually *increases* as efficiency improves. Jevon noted this effect with the early steam engines of his day. Increased efficiency lowers the cost of operation, thereby increasing demand.

Living as we do in the techno-utopia of the 21st century USA (cough, cough), we're constantly bombarded by stories of increasing efficiency, whether it's cars, electronics, or streamlined manufacturing. It's enough to make us think that the rise of efficiency is a one-way street, but we'd be wrong.

As Gail Tverberg notes on her excellent blog, a number of sectors in the global economy are suffering from significant *decreases* in efficiency. Of greatest note is the energy sector, where almost all recently utilized reserves have a much lower EROEI than those of the 20th century, whether that's fracked gas and oil, tar sands, ultra-deepwater oil, or mountaintop removal for coal extraction.

As efficiency decreases, prices rise, which can lead to demand collapse. She believes this is what's currently happening in the oil sector. Other critical sectors of the economy are in similar straits, whether that's healthcare, mining, education, or fresh water supply.

When these sectors of the economy -- and the other sectors which rely upon them -- were doing well, investing in public corporations made some sense, at least among the majority who are willing to ignore the clinically psychopathic behavior that characterizes most large public corporations. As Upton Sinclair once noted, "It's difficult to get a man to understand something if his salary depends upon his not understanding it."   Just replace the word "salary" with "retirement".

When efficiency in critical economic sectors is on the decline, the whole industrial economy has the brakes applied, calling for extreme (if temporary) measures such as quantitative easing. These band-aids can't really solve the problem, but only delay the inevitable. The denial they help foster ultimately makes the problems worse.

When investment no longer makes sense, retirement moves from the realm of possibility back to its traditional home in the world of fantasy. The sooner people realize that fact, the better prepared they'll be, and the less they'll lose to failing investments.

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