Degrowth, expensive oil, and the new economics of energy

October 15, 2012 • Daily Email Recap

Below is the introduction to paper published in the Real World Economics Review blog. The line of logic (limits to growth using energy as the primary bottleneck) strikes me as fairly standard, but the paper is also infused with a few worthy zingers, such as “Many ecological economists are against growth, without being against interest-bearing loans, and it is not clear that this is a coherent position.

If you are interested in reading the whole paper (10 pages), you should click through the link below.

Degrowth, expensive oil, and the new economics of energy

Samuel Alexander [University of Melbourne, Australia], Copyright: Samuel Alexander, 2012

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1. Preparing for life after growth
Building upon the ‘limits to growth’ perspective (Meadows et al, 2004), and drawing upon the work of various energy analysts (Ayers and Warr, 2009; Murphy and Hall, 2011a-b), this paper is based on the view that, in order to grow, industrial economies require a cheap and abundant supply of energy, especially oil. When the costs of oil increase significantly, this adds extra costs to transport, mechanised labour, plastics, and industrial food production, among many other things, and this pricing dynamic sucks discretionary expenditure and investment away from the rest of the economy, causing debt defaults, economic stagnation, recessions, or even longer-term depressions. That seems to be what we are seeing around the world today, with the risk of worse things to come (Tverberg, 2012a). Since crude oil production has been on an undulating plateau since 2005 while demand has increased (Hirsch et al, 2010), this has put huge upward pressure on the price of oil, and several commentators have drawn the conclusion that these high oil prices signify the end (Heinberg, 2011; Rubin, 2012) or at least the twilight (Alexander, 2011a; 2012a) of economic growth globally. If this is true, we are living at the dawn of a new age, and should be bracing for impact.
Some new research, reviewed below, has come to light that seems to confirm this essential message. Expensive oil, in other words, does appear to be suffocating the debt-ridden, global economy, just as it is trying to recover (Hamilton, 2011; Tverberg, 2012b). Unfortunately, mainstream economists, including those in government, seem oblivious to the close relationship between energy, debt, and economy, and this means they are unable to see that expensive oil is one of the primary underlying causes of today’s economic problems. Consequently, they craft their intended solutions (e.g. stimulus packages, quantitative easing, low interest rates to encourage borrowing, etc) based on flawed, growth-based thinking, not recognising that the new economics of energy means that the growth model, which assumes cheap energy inputs, is now dangerously out-dated.

To read the full paper, click here:

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