The point is that the money created does not involve many real material goods. But "runs" in a virtual or low-resource chain of transactions. For example, you took out a loan but did not buy a house or a large stock of toilet paper and canned peas, but spent it on: buying bitcoin, buying stocks, spending it on new video games, or buying things for heroes in video games, subscriptions to channels, musical works, access to magazines, porn, investing in some startup, etc.
In essence, this money immediately flows higher in the transactional hierarchical chain and only adds to the pool of the richest, creating some growth along the way.
Yes, it is worthless and unstable. Of course, to provide these even virtual services, a physical foundation is needed, but come on, there is a difference between a thousand copies of an expensive video game and a thousand oranges
When the government or banks create money, it is not in an inert form, but is involved in the economy. Since a lot of such money is involved in the "financial flow", and not the "real", then only the fictitious capitalization of companies (the stock market) grows. Since there is no absolute measurement for GDP and inflation, as you already said, it is reflected in comparison with the previous time period (or group of consumer demand - for inflation) and often only distorts the statistics of recession/growth. In addition, a large, I would say decisive role is played by the processes that occur with the participation of NBFIs, which only adds to the problems with accounting for claims (debt). Therefore, a significant part of the debt is simply trust, but the more claims (promises) grow, the more unstable the growth becomes (because recently most of it has come from outside the physical supply of goods and services). This is easy to track if you look at the FTX collapse recently.
Actually your theoretical modeling doesn't work in an applied sense. Of course the concept itself that you described is indeed possible, but not in the real world. Because complexity and expansion decide everything. ERoI is closely related to 1) resources and their quality (for example, even in the case of cheap energy, its costs for energy return would grow, because the extraction of increasingly scattered deposits "eats up" new energy, and replacement and repair over time will also require new energy. And so in the feedback loop, all activity can be reduced only to the construction of solar panels and food), 2) free people (or man-hours), in the case of the growth of such infrastructure, more and more people will need to be involved in their management, the creation of new "bureaucracies", but people are not produced in factories at will and do not receive imposed skills (they themselves choose the source of income and employment, so this moment would also become a critical point) 3. other (for example, scaling to maintain a stable flow of energy would essentially create and expand an absurd superstructure, for the simple maintenance of this superstructure with a minimal contribution to welfare, assuming a static world)
On the energy theme, I would like to unpack the statement : “It really doesn't matter if you use 15% or even 50% of the energy produced by solar power to keep the system going as long as energy is cheap enough. In a similar vein, the fact that solar panels just convert some 20 percent of the solar energy to electricity doesn't matter as long as they are cheap enough.”
Won’t the cost be driven by the resources needed to produce the panels, of which energy is but one component? I would draw attention to the mineral demands of producing solar panels , which as with all renewable technologies use considerable quantities of metals, needing to be mined, smelted and transported, all processes consuming energy.
In a culture with a consistent energy demand and assuming the possibility to endlessly recycle metals from obsolete panels, then 20% ( or more) of total produced energy to maintain the energy infrastructure might not matter. On the other hand, constantly increasing energy demands , from AI or wherever, suggests constantly increasing metal and mineral extraction, with associated environmental impacts
The fact that metals are unevenly distributed between countries and often limited, adds additional costs, complications and unpredictability.
Seems to have most angles covered. For the last decade I've been trying to decide whether our current predicament is more driven by capitalism eating itself and concentrating wealth or external environmental constraints like resource depletion, and after long consideration I must say: both.
Your point on energy return is also something that sometimes gets lost in discussions of EROI. If the system can scale then any size surplus can be created as long as the return is greater than 1. While there probably aren't enough oilfields with a return of 1:1.5 to drill for our current energy surplus and doing so would be climatically catastrophic, there is a lot of land surface area to cover with solar panels though all systems will eventually hit a limiting factor or other issues as you note.
And I do appreciate you highlighting the adaption aspect (not to say it won't be messy). From a purely environmental perspective energy is too cheap in the rich world. It makes people unwilling to be creative and use less, smaller car, bus, etc, and at a systems level means that actors with access to debt can access previously unharvestable resources, i.e. logging remote forests or mines.
It also might be worth stepping out beyond economics and asking what does a "working economy" mean? What does quality of life mean? I know you've already done some of that in the past.
Regarding money creation (credit) and growth.
The point is that the money created does not involve many real material goods. But "runs" in a virtual or low-resource chain of transactions. For example, you took out a loan but did not buy a house or a large stock of toilet paper and canned peas, but spent it on: buying bitcoin, buying stocks, spending it on new video games, or buying things for heroes in video games, subscriptions to channels, musical works, access to magazines, porn, investing in some startup, etc.
In essence, this money immediately flows higher in the transactional hierarchical chain and only adds to the pool of the richest, creating some growth along the way.
Yes, it is worthless and unstable. Of course, to provide these even virtual services, a physical foundation is needed, but come on, there is a difference between a thousand copies of an expensive video game and a thousand oranges
Regarding debt and GDP.
When the government or banks create money, it is not in an inert form, but is involved in the economy. Since a lot of such money is involved in the "financial flow", and not the "real", then only the fictitious capitalization of companies (the stock market) grows. Since there is no absolute measurement for GDP and inflation, as you already said, it is reflected in comparison with the previous time period (or group of consumer demand - for inflation) and often only distorts the statistics of recession/growth. In addition, a large, I would say decisive role is played by the processes that occur with the participation of NBFIs, which only adds to the problems with accounting for claims (debt). Therefore, a significant part of the debt is simply trust, but the more claims (promises) grow, the more unstable the growth becomes (because recently most of it has come from outside the physical supply of goods and services). This is easy to track if you look at the FTX collapse recently.
Hello.
Regarding ERoI.
Actually your theoretical modeling doesn't work in an applied sense. Of course the concept itself that you described is indeed possible, but not in the real world. Because complexity and expansion decide everything. ERoI is closely related to 1) resources and their quality (for example, even in the case of cheap energy, its costs for energy return would grow, because the extraction of increasingly scattered deposits "eats up" new energy, and replacement and repair over time will also require new energy. And so in the feedback loop, all activity can be reduced only to the construction of solar panels and food), 2) free people (or man-hours), in the case of the growth of such infrastructure, more and more people will need to be involved in their management, the creation of new "bureaucracies", but people are not produced in factories at will and do not receive imposed skills (they themselves choose the source of income and employment, so this moment would also become a critical point) 3. other (for example, scaling to maintain a stable flow of energy would essentially create and expand an absurd superstructure, for the simple maintenance of this superstructure with a minimal contribution to welfare, assuming a static world)
Thanks for the article.
On the energy theme, I would like to unpack the statement : “It really doesn't matter if you use 15% or even 50% of the energy produced by solar power to keep the system going as long as energy is cheap enough. In a similar vein, the fact that solar panels just convert some 20 percent of the solar energy to electricity doesn't matter as long as they are cheap enough.”
Won’t the cost be driven by the resources needed to produce the panels, of which energy is but one component? I would draw attention to the mineral demands of producing solar panels , which as with all renewable technologies use considerable quantities of metals, needing to be mined, smelted and transported, all processes consuming energy.
https://www.climatecentral.org/news/renewable-energy-needs-huge-mineral-supply-16682
In a culture with a consistent energy demand and assuming the possibility to endlessly recycle metals from obsolete panels, then 20% ( or more) of total produced energy to maintain the energy infrastructure might not matter. On the other hand, constantly increasing energy demands , from AI or wherever, suggests constantly increasing metal and mineral extraction, with associated environmental impacts
The fact that metals are unevenly distributed between countries and often limited, adds additional costs, complications and unpredictability.
Seems to have most angles covered. For the last decade I've been trying to decide whether our current predicament is more driven by capitalism eating itself and concentrating wealth or external environmental constraints like resource depletion, and after long consideration I must say: both.
Your point on energy return is also something that sometimes gets lost in discussions of EROI. If the system can scale then any size surplus can be created as long as the return is greater than 1. While there probably aren't enough oilfields with a return of 1:1.5 to drill for our current energy surplus and doing so would be climatically catastrophic, there is a lot of land surface area to cover with solar panels though all systems will eventually hit a limiting factor or other issues as you note.
And I do appreciate you highlighting the adaption aspect (not to say it won't be messy). From a purely environmental perspective energy is too cheap in the rich world. It makes people unwilling to be creative and use less, smaller car, bus, etc, and at a systems level means that actors with access to debt can access previously unharvestable resources, i.e. logging remote forests or mines.
It also might be worth stepping out beyond economics and asking what does a "working economy" mean? What does quality of life mean? I know you've already done some of that in the past.
What to think about this as an Doctor?
We are total oil dependent and resources used and complexity grows every year.