The Scholarship of Collapse

The June issue of Gregor.us Monthly, The Scholarship of Collapse, addresses several views of economic and systemic collapse from the works of Jared Diamond to Joseph Tainter, and then goes on to apply these views to the United States–and to its biggest state, California. Frankly, it’s not much fun to suggest that another leg down in housing is on the way. Or, that California is unlikely to see its GDP exceed its previous peak for quite some time. But without the two industries that characterized post-war growth in the US, housing and automobiles (and the financial industry that squatted on top of these) it’s hard to see how California–and the US by extension–does not become a permanently smaller economy.

Ouch. Permanently smaller economy!? Are you kidding me? The United States? Yeah, I know. The growth paradigm since WW2 is so firmly entrenched in the record (and in the psyche) that mere mention of US economic stasis seems outlandish. To suggest, as I am, that this condition will carry on for years sounds impossible. However, that is my call. I now foresee zero, net physical infrastructure or housing growth in California for at least another 5 years. If housing units go up somewhere in California, they’ll be bulldozed someplace else. If new roads or highways are erected, they’ll be discontinued or dismantled somewhere else. Without California, there will be no sustainable US GDP growth.

Peak autos is another favored theme of mine. Via the crushing blow of high energy prices, the price mechanism has tried for a second time in 30 years to send the signal that an economy run on cheap gasoline doesn’t, actually, work. Given the loathsome state of America’s presently collapsed economy, I would venture the country needs gasoline at 50 cents–right now–to return to its busy post-war arbitration of cheap transport and energy inputs, in service of earnings and output. That’s not going to happen. The reason: the United States no longer controls the price of oil via the mechanism of its own demand.

An interesting exercise when looking at previously collapsed economies and societies is to ask when a certain, initial terminus was reached, before the overshoot phase began. This could be the point, for example, when the Anasazi have denuded their local forests of wood, and have to start traveling farther afield for supply. The population will hardly be declining at this stage. In addition, the economy will be merrily carrying onward to a higher level of complexity. I call this the hidden terminus. The crossover point where resources were harder to attain, but, the techniques of the economy kept advancing (to some extent masking the the underlying countertrend in resources). It now seems likely the United States reached this point in the year 2000. That’s when the ability to grow the economy, without a large acceleration in debt, appears to have crossed a threshold. From my June newsletter:

In my opinion the United States economy passed its hidden terminus with the bursting of the technology bubble in 2000. All of the power and thrust in the economy since 2000 was provided by nothing more than an expansion of credit via two, typical vehicles: War and Domestic government spending (Guns and Butter), and, artificially low interest rates provided by the central bank. This concept can be extremely difficult to accept among people working in highly innovative, highly productive areas like technology, venture capital, engineering, and other globalized product and service industries. What’s important to understand, however, is that the economy we made in the United States needs to serve 300 million people. If a good portion of that population is living off the housing and automobile economy, unsustainable at high levels, it matters little to the problem of a fundamentally unsound economy that Google, SunPower, and Honeywell are indeed doing wonderful things in technology, solar energy, and engineering. Moreover, it seems quite likely now that the expansion of credit post 2000 was in many ways a collective attempt to replace the trailing loss of our manufacturing economy. Yes, the US remains a hotbed of the best innovation but the acceleration of the financial and financial product economy was very likely an overshoot, past the hidden terminus in the structure of our system. To use a phrase that was once somewhat unfairly said about California by Gertrude Stein, we have discovered that there was no there, there in the US economy.

The United States, just like California, now sits astride massive, gargantuan post-war infrastructure that was built with cheap energy and leveraged with cheap energy, for over 50 years. Many parts of the US right now are actually experiencing something closer to a depression, and yet oil is above 60 dollars a barrel. A price that was considered ridiculous just 5 years ago, when even 40 dollars a barrel was viewed as unsustainable. The United States has been in an inflationary recession since the start of the decade, which now threatens to become an inflationary depression. To make matters worse, the federal government is in the midst of one of the largest policy mistakes in US history as it has chosen to make enormous new investments in car companies, cars, biofuels, roads, and highways to the exclusion of public transport. This is a classic, textbook example of the sunk cost effect in decision making and is a hallmark of the collapsed societies of antiquity. The choices the US makes from this point forward will likely have more of an effect on how the decline is mitigated. As I wrote in my newsletter, we do not view the post-war decline of Britain as a human tragedy, and there’s no reason to see the US decline as either shocking, or unexpected. However, it is indeed regrettable that we did not face up appropriately to the changes that unfolded, at the start of this millennium.

-Gregor

Updating 19 July 2008:

California’s Population May Stall, or Even Fall with a Possible Reduction of Congressmen after the Next Census.

  • bzmoore

    Gregor: Excellent article. I don't think the US will invest in public transport, that would take too much thought.

    The stick approach might work. That is, I think, what works in Europe, high gasoline taxes, suppresses individual fossil foolishness and provides a market for public transit. But again anyone advocating higher taxes would be bombed like Baghdad.

  • bzmoore

    Gregor: Excellent article. I don't think the US will invest in public transport, that would take too much thought.

    The stick approach might work. That is, I think, what works in Europe, high gasoline taxes, suppresses individual fossil foolishness and provides a market for public transit. But again anyone advocating higher taxes would be bombed like Baghdad.

  • http://www.competitivefutures.com/blog ericgarland

    I think you are so right to view California as the harbinger of what is to come. The simple, undeniable fact is that the U.S. economy will no longer be judged on its ability to inflate itself like it was bitten by some poison toad. It's got to work for people, live within its means, cease to measure its worth by its ability to spread suburbia across this gorgeous continent like a metastatic cancer.

    Will this be a shock? Sure. Will this be a tragedy? Only if we make it one. We have many other productive, humane, culturally-beautiful options. And we also have a number of control-addicted, vicious, destructive options.

    Now, it is up to us to choose. Our politicians won't do so, for reasons of ideology and campaign finance. It is up to us as a people. I wonder what we will decide.

  • http://www.competitivefutures.com/blog ericgarland

    I think you are so right to view California as the harbinger of what is to come. The simple, undeniable fact is that the U.S. economy will no longer be judged on its ability to inflate itself like it was bitten by some poison toad. It's got to work for people, live within its means, cease to measure its worth by its ability to spread suburbia across this gorgeous continent like a metastatic cancer.

    Will this be a shock? Sure. Will this be a tragedy? Only if we make it one. We have many other productive, humane, culturally-beautiful options. And we also have a number of control-addicted, vicious, destructive options.

    Now, it is up to us to choose. Our politicians won't do so, for reasons of ideology and campaign finance. It is up to us as a people. I wonder what we will decide.

  • BMR789

    Where does the aeronautical industry sit as a driver of post World War II growth sit for California?
    @BMR789

  • BMR789

    Where does the aeronautical industry sit as a driver of post World War II growth sit for California?
    @BMR789

  • gregor.us

    Aerospace was huge in post-war CA. I mention that more fully in my newsletter. It's a whole 'nother piece to the problem. Indeed,

  • gregor.us

    Aerospace was huge in post-war CA. I mention that more fully in my newsletter. It's a whole 'nother piece to the problem. Indeed,

  • gregor.us

    Our politicians are also very much post-war paradigm thinkers. They are still operating within a framework of discretion. They think “Well, we can do this, or we can do that.” They don't consider the other possibility: “We have no choice but to do X.”

  • gregor.us

    Our politicians are also very much post-war paradigm thinkers. They are still operating within a framework of discretion. They think “Well, we can do this, or we can do that.” They don't consider the other possibility: “We have no choice but to do X.”

  • gregor.us

    US ridership on public transport soared in 2008. Cities and states are begging Washington for money to finish projects already underway, or, to simply have the money to go ahead with subsequent stages. The original StimPak was designed with a few fatal clauses. One was that the money could not go to existing projects. Even so, so little of the original StimPak was for public transport, it's moot.

    I need to read Confederacy of Dunces.

  • gregor.us

    US ridership on public transport soared in 2008. Cities and states are begging Washington for money to finish projects already underway, or, to simply have the money to go ahead with subsequent stages. The original StimPak was designed with a few fatal clauses. One was that the money could not go to existing projects. Even so, so little of the original StimPak was for public transport, it's moot.

    I need to read Confederacy of Dunces.

  • Cindy6

    One must point out that Britain's post war decline was relative, while the US decline is likely to be absolute. Living standard of the British people actually rose in the time period.

    Adaptation like you suggested, while makes perfect sense, will be impossible. The US is set up on the assumptions of abundance of resources and shortage of labor. And these 2 parameters stretched way back than WWII, to even colonial period. (Slavery was not due the southerns being more evil than others) They define not only its economy but all other aspects of society as well. Now that these 2 assumptions no longer hold, the US is having the rug pulled from under it.

  • Cindy6

    One must point out that Britain's post war decline was relative, while the US decline is likely to be absolute. Living standard of the British people actually rose in the time period.

    Adaptation like you suggested, while makes perfect sense, will be impossible. The US is set up on the assumptions of abundance of resources and shortage of labor. And these 2 parameters stretched way back than WWII, to even colonial period. (Slavery was not due the southerns being more evil than others) They define not only its economy but all other aspects of society as well. Now that these 2 assumptions no longer hold, the US is having the rug pulled from under it.

  • gregor.us

    Thanks for the perspective. I assume you mean that the British standard of living post-war declined only relative to other OECD/EU/US? If that's what you mean, yes, I am aware of the viewpoint. As an aside, as someone who lived in the UK, I often found myself asking: “Just exactly what portion of British society actually enjoyed a high standard of living between 1900 and 2000?” Socially, pre and post war Britain are perhaps two different eras. So that too complicates the equation.

    G

  • gregor.us

    Thanks for the perspective. I assume you mean that the British standard of living post-war declined only relative to other OECD/EU/US? If that's what you mean, yes, I am aware of the viewpoint. As an aside, as someone who lived in the UK, I often found myself asking: “Just exactly what portion of British society actually enjoyed a high standard of living between 1900 and 2000?” Socially, pre and post war Britain are perhaps two different eras. So that too complicates the equation.

    G

  • http://www.competitivefutures.com/blog ericgarland

    I actually feel sorry for some of the “leaders” I meet who look like frightened rabbits in a burning forest. There's real change going on, “creative destruction” if you like to wax Schumpeterian, and these guys feel obligated to be stiff-lipped white guys barking “I know what's going on…everything is UNDER CONTROL.” And well, NO IT ISN'T, and that's OK. Nobody's in control of the old system, which just isn't going to work any more. It's like there are still guys running around trying to corner the horse feed market so they can own a chunk of the transportation sector. Sorry dude…nice idea, but that's not how it runs any more.

    Hopefully, we'll hit enough EPIC FAILS that the leaders realize they don't need to appear to be in control, and then we can get back to the business of creating what works.

  • http://www.competitivefutures.com/blog ericgarland

    I actually feel sorry for some of the “leaders” I meet who look like frightened rabbits in a burning forest. There's real change going on, “creative destruction” if you like to wax Schumpeterian, and these guys feel obligated to be stiff-lipped white guys barking “I know what's going on…everything is UNDER CONTROL.” And well, NO IT ISN'T, and that's OK. Nobody's in control of the old system, which just isn't going to work any more. It's like there are still guys running around trying to corner the horse feed market so they can own a chunk of the transportation sector. Sorry dude…nice idea, but that's not how it runs any more.

    Hopefully, we'll hit enough EPIC FAILS that the leaders realize they don't need to appear to be in control, and then we can get back to the business of creating what works.

  • http://www.competitivefutures.com/blog ericgarland

    I tend to follow John Ralston Saul in his brilliant book “Voltaire's Bastards” in which he argues that all defense spending is fake GDP. He has two points: First, that the “products” are unusable by society, bullets and helicopters not really being a marketable good. Second, that all “excess” production goes directly into arming the rest of the world, which often results in more foreign military intervention, and thus requires the “industry” to arm up our 19 year olds and send them to send foreign countries. This in turn requires an increase in sales to replace to depleted stocks of bullets and rocket launchers. So we then arm countries with more sophisticated stuff, but saving the best for our 19 year olds, whom we eventually send back into the fray. Wash, rinse, repeat: Latin America, Iraq, Afghanistan, etc.

    John Ralston Saul's argument is that while the whole enterprise makes money for the employees of the defense companies, it's not really a GDP you can measure and aspire to in terms of quality of life. And if California is attached to that type of GDP while we become fiscally incapable of repeating our role as the worlds arms dealer-policeman… a whole-lotta shakin' will be going on.

  • http://www.competitivefutures.com/blog ericgarland

    I tend to follow John Ralston Saul in his brilliant book “Voltaire's Bastards” in which he argues that all defense spending is fake GDP. He has two points: First, that the “products” are unusable by society, bullets and helicopters not really being a marketable good. Second, that all “excess” production goes directly into arming the rest of the world, which often results in more foreign military intervention, and thus requires the “industry” to arm up our 19 year olds and send them to send foreign countries. This in turn requires an increase in sales to replace to depleted stocks of bullets and rocket launchers. So we then arm countries with more sophisticated stuff, but saving the best for our 19 year olds, whom we eventually send back into the fray. Wash, rinse, repeat: Latin America, Iraq, Afghanistan, etc.

    John Ralston Saul's argument is that while the whole enterprise makes money for the employees of the defense companies, it's not really a GDP you can measure and aspire to in terms of quality of life. And if California is attached to that type of GDP while we become fiscally incapable of repeating our role as the worlds arms dealer-policeman… a whole-lotta shakin' will be going on.

  • EricCB

    I'm wondering if we see your 50 cent per gallon gas price due to all those tankers sitting out there and being used for storage. I hear there are 67 of them each holding 2 million barrels. I realize in some respecs thats not much, but maybe on the margin prices will drop at the pump and keep the current system alive another 18 months or so. The other thought about that floating crude is that maybe somebody or somebodies know that the flow of oil will soon be curbed due to political or military action in Iran or else where. Gregor, your always a good read.

  • EricCB

    I'm wondering if we see your 50 cent per gallon gas price due to all those tankers sitting out there and being used for storage. I hear there are 67 of them each holding 2 million barrels. I realize in some respecs thats not much, but maybe on the margin prices will drop at the pump and keep the current system alive another 18 months or so. The other thought about that floating crude is that maybe somebody or somebodies know that the flow of oil will soon be curbed due to political or military action in Iran or else where. Gregor, your always a good read.

  • gregor.us

    One method to capture 50 cent liquid fuel right now would be to use a CNG vehicle (compressed natural gas.). CNG car owners must feel, with NG prices so low, that they are nearly driving for free.

    G

  • gregor.us

    One method to capture 50 cent liquid fuel right now would be to use a CNG vehicle (compressed natural gas.). CNG car owners must feel, with NG prices so low, that they are nearly driving for free.

    G

  • JJ

    “To make matters worse, the federal government is in the midst of one of the largest policy mistakes in US history as it has chosen to make enormous new investments in car companies, cars, biofuels, roads, and highways to the exclusion of public transport.”

    That “policy mistake” started right after WWII and is merely coming to its crashing end.

    We built a country, infrastructure, and economy that requires 20 dollar a barrel oil, and all the cheap, easy to pump oil is gone. Mexico will cease to export in 2 years, Iran in 2014, all major exporters cease exporting in 10 to 20 years. The US is going to have to cut its oil imports drastically in say 5 years, which does not give us a lot of time.

    We should have started doing the energy efficiency improvements in the late 70s like Carter said, but we just could not be bothered. So the majority chose to live in a fantasist Morning in America that actually turned out to be the evening.

  • JJ

    “To make matters worse, the federal government is in the midst of one of the largest policy mistakes in US history as it has chosen to make enormous new investments in car companies, cars, biofuels, roads, and highways to the exclusion of public transport.”

    That “policy mistake” started right after WWII and is merely coming to its crashing end.

    We built a country, infrastructure, and economy that requires 20 dollar a barrel oil, and all the cheap, easy to pump oil is gone. Mexico will cease to export in 2 years, Iran in 2014, all major exporters cease exporting in 10 to 20 years. The US is going to have to cut its oil imports drastically in say 5 years, which does not give us a lot of time.

    We should have started doing the energy efficiency improvements in the late 70s like Carter said, but we just could not be bothered. So the majority chose to live in a fantasist Morning in America that actually turned out to be the evening.

  • agathocles

    Dear Gregor,

    I respectfully disagree with the following conclusions:

    “[I]t’s hard to see how California–and the US by extension–does not become a permanently smaller economy.”

    “An interesting exercise when looking at previously collapsed economies and societies is to ask when a certain, initial terminus was reached, before the overshoot phase began…It now seems likely the United States reached this point in the year 2000. That’s when the ability to grow the economy, without a large acceleration in debt, appears to have crossed a threshold.”

    We had a similar problem in the early-to-mid 1970s in the US. Productivity declined as the go-go years of the 1960s electronics and semiconductor industries fell into a slump, the government was priming the pump in Johnson/Nixon's War on Poverty initiatives, and the Vietnam War was draining our coffers. The Federal Reserve didn't have the political will, backing, or independence to place their foot on the credit and money supply growth.

    Did all this necessarily cause a permanent long-term decline in the US? No – times were hard for many in the 1970s due to stagflation, but this didn't really affect long-term growth.

    It's hard for me to see a long-term, absolute decline in the US economy. More likely, I think, is a short-term absolute decline followed by a long-term, relative decline *as a share of* the global economy. Is that what you mean, or do you really mean a permanent, absolute decline?

    Cheers,
    agathocles

  • agathocles

    Dear Gregor,

    I respectfully disagree with the following conclusions:

    “[I]t’s hard to see how California–and the US by extension–does not become a permanently smaller economy.”

    “An interesting exercise when looking at previously collapsed economies and societies is to ask when a certain, initial terminus was reached, before the overshoot phase began…It now seems likely the United States reached this point in the year 2000. That’s when the ability to grow the economy, without a large acceleration in debt, appears to have crossed a threshold.”

    We had a similar problem in the early-to-mid 1970s in the US. Productivity declined as the go-go years of the 1960s electronics and semiconductor industries fell into a slump, the government was priming the pump in Johnson/Nixon's War on Poverty initiatives, and the Vietnam War was draining our coffers. The Federal Reserve didn't have the political will, backing, or independence to place their foot on the credit and money supply growth.

    Did all this necessarily cause a permanent long-term decline in the US? No – times were hard for many in the 1970s due to stagflation, but this didn't really affect long-term growth.

    It's hard for me to see a long-term, absolute decline in the US economy. More likely, I think, is a short-term absolute decline followed by a long-term, relative decline *as a share of* the global economy. Is that what you mean, or do you really mean a permanent, absolute decline?

    Cheers,
    agathocles

  • EricCB

    CNG?? Good luck with that.
    http://www.theautochannel.com/news/2009/04/06/4

    I believe that there are substantial deposits of NG in the US; enough for quite awhile. Considering that you can convert autos to it, it's amazing that no serious push by the government has occured. What am I missing??

  • EricCB

    CNG?? Good luck with that.
    http://www.theautochannel.com/news/2009/04/06/4

    I believe that there are substantial deposits of NG in the US; enough for quite awhile. Considering that you can convert autos to it, it's amazing that no serious push by the government has occured. What am I missing??

  • BMR789

    Have experience with a CNG vehicle.

    In the early 1980's following the 1979 oil shock – NZ embarked on a CNG scheme rollout – filliting stations etc, and subsidies to convert cars to run as duel fuel vehicles on CNG and petrol.
    My mother had her Ford Escort 1300 set up to run on CNG. It was the car I learnt to drive in – well officially that's the story.

    Whilst acceleration would be better described as “Gaining momentum' – there was nothing too much wrong with it to trundle about in. It took a little bit longer timewise to fill perhaps, and the distance able to travel was possibly not quite as far as a tank of gas – but still at least 300km. Importantly for a learner driver it was cheap to fill

    Most of the 1980's it was possible to run a car on CNG in NZ, but then the crisis passed and the CNG installs dropped off, the refill stations which were expensive to operate were slowly pulled out, as the number of cars were churned out – or people stopped using CNG as the price of gas declined relative to earnings.

    There are still plenty of LPG powered cars in NZ – mainly Taxi's and fleet operated vehicles. Tend to be larger 6 cylinder type cars.

  • BMR789

    Have experience with a CNG vehicle.

    In the early 1980's following the 1979 oil shock – NZ embarked on a CNG scheme rollout – filliting stations etc, and subsidies to convert cars to run as duel fuel vehicles on CNG and petrol.
    My mother had her Ford Escort 1300 set up to run on CNG. It was the car I learnt to drive in – well officially that's the story.

    Whilst acceleration would be better described as “Gaining momentum' – there was nothing too much wrong with it to trundle about in. It took a little bit longer timewise to fill perhaps, and the distance able to travel was possibly not quite as far as a tank of gas – but still at least 300km. Importantly for a learner driver it was cheap to fill

    Most of the 1980's it was possible to run a car on CNG in NZ, but then the crisis passed and the CNG installs dropped off, the refill stations which were expensive to operate were slowly pulled out, as the number of cars were churned out – or people stopped using CNG as the price of gas declined relative to earnings.

    There are still plenty of LPG powered cars in NZ – mainly Taxi's and fleet operated vehicles. Tend to be larger 6 cylinder type cars.

  • BMR789

    Permanent absolute decline based on the failure of energy inputs to maintain existing lifestyle and expectations.

    I would suggest this is what Gregor means – based on other posts.

    It's somewhat difficult for people to swallow, when all we have known is cheap abundant energy always on tap.

  • BMR789

    Permanent absolute decline based on the failure of energy inputs to maintain existing lifestyle and expectations.

    I would suggest this is what Gregor means – based on other posts.

    It's somewhat difficult for people to swallow, when all we have known is cheap abundant energy always on tap.

  • http://notthatkindofoperation.blogspot.com/ hbobrien

    “To use a phrase that was once somewhat unfairly said about California by Gertrude Stein, we have discovered that there was no there, there in the US economy.”

    Well, your image appears to be correct, but only inadvertantly.

    Miss Stein wasn't speaking about all of California. She was speaking specifically about Oakland, where she lived as a child between ages 4 and 18.

    Even more specifically, she was speaking about Oakland on a return visit as an adult, and the place had changed so much from when she grew up there it was almost unrecognizable. The comment wasn't a slam; it was more in the spirit of Thomas Wolfe's, “You can't go home again.”

  • http://notthatkindofoperation.blogspot.com/ hbobrien

    “To use a phrase that was once somewhat unfairly said about California by Gertrude Stein, we have discovered that there was no there, there in the US economy.”

    Well, your image appears to be correct, but only inadvertantly.

    Miss Stein wasn't speaking about all of California. She was speaking specifically about Oakland, where she lived as a child between ages 4 and 18.

    Even more specifically, she was speaking about Oakland on a return visit as an adult, and the place had changed so much from when she grew up there it was almost unrecognizable. The comment wasn't a slam; it was more in the spirit of Thomas Wolfe's, “You can't go home again.”

  • kells1001

    There is definitely a trend that is just beginning, which will downsize housing, concentrate populations and permanently change the American landscape unless new strategies to coordinate communication, mass transit and cheaper housing are not addressed more proactively. This does not mean Americans will not adapt and prosper, but instead will buy fewer cars, move closer to population centers and build and maintain smaller homes. Many more Americans will most likely live or even immigrate abroad.

  • kells1001

    There is definitely a trend that is just beginning, which will downsize housing, concentrate populations and permanently change the American landscape unless new strategies to coordinate communication, mass transit and cheaper housing are not addressed more proactively. This does not mean Americans will not adapt and prosper, but instead will buy fewer cars, move closer to population centers and build and maintain smaller homes. Many more Americans will most likely live or even immigrate abroad.

  • kells1001

    There is definitely a trend that is just beginning, which will downsize housing, concentrate populations and permanently change the American landscape unless new strategies to coordinate communication, mass transit and cheaper housing are not addressed more proactively. This does not mean Americans will not adapt and prosper, but instead will buy fewer cars, move closer to population centers and build and maintain smaller homes. Many more Americans will most likely live or even immigrate abroad.

  • kells1001

    There is definitely a trend that is just beginning, which will downsize housing, concentrate populations and permanently change the American landscape unless new strategies to coordinate communication, mass transit and cheaper housing are not addressed more proactively. This does not mean Americans will not adapt and prosper, but instead will buy fewer cars, move closer to population centers and build and maintain smaller homes. Many more Americans will most likely live or even immigrate abroad.