The Great Simplification with Nate Hagens - The Mordor Economy | Frankly #23

Episode Date: January 27, 2023

Description This week, Nate walks through the path we are currently on en route to the Great Simplification - a path towards a "Mordor Economy". Based on data from colleagues Art Berman and Carey King, Nate untangles the complex relationship between biology, GDP, and net energy. How is an economic metabolism based on a need for growth creating a pathway for increasing amounts of energy to be directed to the energy sector itself? Why hasn't the rapid growth of renewables satiated our energy appetite? How is the use of credit masking the full energetic-cost of energy?  Can we proactively take the necessary steps to reset the balance between energy efficiency and energy consumption to pass through Mordor unscathed and arrive at the Great Simplification? To Watch on Youtube: https://youtu.be/HoYg9M8brF4 For Show Notes and More: https://www.thegreatsimplification.com/frankly-original/23-mordor-economy

Greetings and happy New Year. I'm traveling quite a bit in the coming weeks. So I wanted to just briefly do a frankly on something I first mentioned in I think the 2021 Earth Day talk about a Mordor economy. And I mentioned it again in Art Berman's podcast last week. And a Mordor economy, I said, suggested somewhat facetiously is one day when humans would spend 50% of our energy on getting energy and 50% on remediating the environmental damages from the use of the energy. So that clearly

can't happen because we need at least some for food and shelter and the like. But I want to explain briefly the logic of how I do think we could head in that direction and why there are two general trajectories scenarios that I foresee. So first off, a brief review, there is the maximum power principle in nature where organisms and entire ecosystems self-organize to better degrade an energy gradient. And this can be trees or elephants or mice or humans or human societies. And in fact, there's something called Kleber's Law in nature, which is the metabolic use of energy by an organism, scales with its mass or size to the three-quarter power. And this scaling function is largely the same irrespective of the size.

of the organism from tiny little cells to small rodents to blue whales. It's not exactly the same, but it's close. It so happens that if you do a slope of all of the countries in the world that produce economic output, the slope of that line is around 0.75, the square of its size. So this metabolism, as Tim Garrett and others have noticed, is our civilization has an energy requirement that, irrespective of all of our wishes and conferences and policies, we continue to function as an energy-dissipating structure. The other core thing you need to know is that globally, which is all a metabolism, as far as a climate standpoint cares about, is that historically energy and GDP are 99% plus correlated, and materials and GDP are almost 100% correlated.

So if we double, well, if we increase our GDP by 3% a year, we will double the size and scale of our energy and materials every 30 years. or so. So when I refer to a motor door economy, I'm talking about that as we try to get, well, we don't try, we indirectly keep this metabolism going by rule changes and government officials don't want to tighten their belt and tell their constituents you have to consume less. So we will continue to print money. The Bank of Japan right now owns over 50% of Japanese government bonds. I mean, think about that.

If you look at just that one thing, it tells a story about our cultural narratives. Because from money and technology will create productivity for the future, then that's like, hmm, that's a problem. Japan's in trouble. They need to create more productivity in the future to. catch up with that big hole they've dug. From a biophysical perspective, all of those government bonds are ultimately supported by future income streams, which is tethered to energy, which Japan has next to none indigenously. It's like an unbelievably dangerous Ponzi scheme scenario from a

biophysical perspective. So when we look at behaviorally, culturally, the global human economy, we're going to print change rules whatever we have to do in order to continue to grow. So a logical mistake I made a decade ago or so was that I thought as net energy declined, meaning in the same way that a gazelle would run out of strong gazelles and have to chase scrawny gazelles and then rabbits and then mice and have a smaller energy consumption for its energy expense, much in that same way that as net energy declined, GDP would decline. But that was faulty logic. because since humans can create abstractions, we can continue to issue debt to 350% of global GDP to 400% to 500%. There is a limit, but I don't know where the limit is. And so when we issue debt and change the rules, what we're doing is we're accessing a lower quality tranche of energy

or we're adding lower quality energy like wide boundary, lower EROI renewables, or some new biofuel scheme that on the surface with subsidies, et cetera, makes economic sense. From a net energy standpoint, it's a decline from the total net energy we were originally getting. So what ends up happening is increases in gross energy, help contribute to GDP, especially, well, only if they're happening in their own country. In the United States, as we go down the resource pyramid and get a deeper and more environmentally sensitive and complex technology required shale, oil, for instance, we pay the drillers and the rig maintenance and the water trucks and all of that contributes to U.S. GDP. Kerry King did a study that showed that for the last seven centuries, the amount of GDP that was

allocated to the energy sector declined from like 80% all the way down to 5% in 1999. That was the trough. And since then, it's above 10% as my guess. I'm trying to find the actual data on how much of our energy is directed to the energy, refining, discovery, transmission, the entire energy sector is got to be above 10% now. So what that means is in 1999, we spent 5% of our energy in the energy sector, leaving 95% of our energy for all the hospitals and NASCAR and Disneyland and libraries and shopping centers and Xboxes and everything else.

Now we have more energy, more gross energy, but a much larger percentage of that, probably double or more, is allocated to the energy sector. We're headed towards a world where 15% of our energy is directed towards the energy sector. So when I talk about a Mordor economy, what I mean is as net energy declines,

we're going to have to allocate more and more resources to procuring energy for the rest of society. This will be a stealth sort of situation like it is now because it's contributing to GDP. But librarians and crochet contests and things at the margin that used to be part of the surplus of society are gradually, and I expect suddenly going to disappear because the energy prices will go up and that energy will be needed by the energy sector. At the same time, the other half of my hypothetical Mordor economy was we are starting to recognize as a culture that we have major environmental impacts, not only on other species and insects and pesticides and birds, but actual on ecosystems.

flipping the Amazon and the boreal forests in Canada from carbon sinks to carbon sources. The ocean is absorbed over 90% of the heat from fossil burning, etc. So over time, we're going to require and need environmental remediation of both the metabolic burning of fossil carbon as well as impacts from plastics and P5. forever chemicals and other things. That also will require a portion of the energy and GDP to go towards those carbon sequestration or whatever it is. So a larger and larger fraction of our GDP goes towards the burning and the repairing of the burning, leaving much less for the rest of society. I actually think this is the default scenario that we're headed towards. The global

superorganism will continue to grow gross energy for the human society. Gross world product will increase. But the net energy that powers the things that society used to care about and take for granted is going to decline. This will continue to happen until the amount of complexity geopolitical cooperation, trust, and the increasing rubber band stretching of the financial claims on this biophysical reality snaps back. And that results in inevitable great simplification in my book. So it's kind of horrifying in a way, this is like a Twilight Zone episode that there is this underlying metabolic drive, that even if we have these great renewable technologies, or we get more efficient, that this Mordor economy is our path unless something changes.

Since 1995, we've become 33% more efficient in using energy for generating GDP and our technology. In the same time that we've become 33% more efficient, we've used 50% more energy. So it's like this accelerating fiery snowball that no politician, no philanthropist, no government is in control of. And so the default scenarios are a Mordor economy or a great simplification. And I think that's the goal of this podcast and this work is to change the initial conditions. of when there become pathways to respond to this dynamic. I hope that made sense. More in the near future. Have a good one.