Responding to Collapse, Shortages of Money, Part 2

A high water level, wind, big waves and temperatures below freezing combine to create ice sculptures along Lake Huron.

 

I am writing this in late March of 2020 and it seems that hardly anyone else is writing anything that doesn’t focus on the COVID-19 pandemic. A few posts back I said that shortages of electrical power, diesel fuel and money will be at the heart of the troubles that lie ahead for small remote communities as collapse progresses. I am interested in that sort of community because that is where I am recommending that you take refuge in order to ride out collapse, and where I have already taken refuge myself. I’ve covered electrical power and diesel fuel, and in my last post I covered the sort of money shortages that occur when you have money on deposit at the bank, or credit prearranged with them, but can’t access it due to problems with the banking system.

Today, tempting as it is to talk at length about the pandemic, I’ll be talking about the money shortages that occur when you have trouble earning enough money to live on because of problems with the economy. The end game is the demise of BAU and finding a sustainable replacement for it on a local scale. But between now and then there is a transitional state that is going to be pretty challenging for many of us.

To my way of thinking, the pandemic is going to result in a relatively small but very much regrettable loss of human life. To put that in context, I’ve been saying that the demise of industrial civilization that I expect to take place over the next few decades will result in the death of 80 to 90% of the human population. That’s pretty horrific, I know, but it’s the reality that we face and denying it will only make things worse.

For the majority those who survive the pandemic, its effect on the economy is going to be quite serious. As usual, I’m not expecting it to lead to a hard fast collapse over the next few months. Rather this will be one of those bumpy steps down that I have spoken about before, from which I expect we will recover to some extent. It will highlight the extreme fragility of our capitalistic economy, and serve to further weaken BAU. A lot of us will be learning more about what we can and can’t get along without. Who knows, we may even see BAU weakened enough that local economies will have a chance to get started in some areas.

In any case, much of what I have to say today applies to hard times of any sort. And to get back to today’s topic, as I said last time, the song says, “money makes the world go round”, but I don’t agree. Drawing from the writings of Dr. Tim Morgan on “surplus energy economics”, I would say that it is energy that makes the world, or at least the economy, go round.

Energy and the economy

So, I’ve said that energy is what makes the economy function. How does that work? An economy is really a system for making and distributing the things that people need. And to be clear, those “things” do include data and information. The processes by which things are made require energy in the form of heat, mechanical energy and electricity. Without energy, nothing works. Economist Steve Keen is one of just a handful of economists worldwide who understand the essential role of energy in the economy. As he puts it: “Capital without energy is a sculpture and labour without energy is a corpse.”

In preindustrial economies heat came from firewood and mechanical energy came from muscles (human or animal) powered by food, and of course electrical technology hadn’t yet been invented. (Yes, I’m leaving out power from falling water and moving air, but they played a relatively small part until more recent times. And I am aware that all these forms of energy ultimately come from sunlight.)

In an industrial economy most production is done by machines, and those machines are usually powered by some sort of energy other than human or animal muscle power. This became true only in the last few hundred years after engines driven by heat from burning fossil fuels were developed. Yes,. they could be powered by burning firewood, but it is interesting to note that they were invented in Britain only after that island was already pretty short of wood.

Because we use technology to access energy, people tend to think that technology produces energy. But just the opposite is true—technology uses energy. Even the technology we use to access energy uses some energy in the process. The energy that is left over is known as surplus energy, and that what really drives the economy. The term “Energy Returned on Energy Invested” quantifies this. Back in the day, for instance, it took about one barrel’s worth of energy to get 100 barrels of oil out of an oil well, leaving 99 barrels of surplus energy for use in the economy. The EROEI was 100, calculated as 100 divided by 1. That was a very good EROEI, and resulted in a rapidly growing economy in the middle of the twentieth century.

In pre-industrial days, the process of converting sunlight into food (done by plants, and less directly by animals eating plants) and then food into muscle power, had an EROEI of around 5. And that is why pre-industrial economies grew very slowly and attained a limited degree of complexity compared to our modern industrial economies. To keep functioning, a modern industrial economy needs the average EROEI of its energy sources to be above 15 or so. When the average EROEI falls below that level, growth stops and eventually it becomes difficult to maintain the complexity of the system.

In the nineteenth and much of the twentieth century successful economies in what we now call the developed world were powered by fossil fuels with high EROEIs and they grew quickly. But since we picked the lowest hanging fossil fuel “fruit” first—the ones easiest to access and use—the EROEI of the remaining fossil energy sources has declined considerably and the rate of economic growth has declined with it. There are many alternatives to fossil fuels, but the ones most people are counting on (nuclear, solar, wind) all have low EROEIs, among other problems.

Because our present banking system is fueled by growth and almost all economic operations are mediated through the banks, even small reductions in growth have very negative effects on the economy. The reduced EROEI of our energy supplies has been causing economic contraction for quite some time now. Governments don’t understand this and are puzzled that none of the remedies suggested by conventional economists seem to work. So they have adjusted the way they calculate inflation, CPI, employment and GDP statistics to make it seem that the economy is still growing, inflation is under control and there are jobs for everyone, when none of that is really true.

The situation is worsened by widening economic inequality. To use a pie analogy, where the pie represents all the wealth generated by the economy, the upper classes have always insisted on an ever growing slice of the pie. As long as the economy was growing, the amount of pie left for the rest of us could grow as well, though not so quickly as the share allotted to the wealthy. But once the economy started to contract, our share had to shrink faster that the economy itself was contracting if the upper class’ share was to keep growing. And indeed this is what has happened.

Any society that works like this will experience growing inequality and all but the upper class will suffer greatly during economic contractions. The U.S. is certainly an example of this. Since the 1990s there has been little real growth—debt and investment bubbles have been used as a substitute for surplus energy to keep things “growing”. Interest rates have been lowered so that the increased debt can be supported. Those with wealth have been hard pressed to find investments that give good returns. Many have turned to speculation in real estate and this has resulted in real estate bubbles in many cities.

The contracting economy has also meant businesses have had to streamline their operations to maintain their profitability. This has resulted not so much in outright unemployment, but rather in under-employment—part time, precarious jobs that won’t support even a lone individual, much less a family. That, combined with the overheated real estate market, is making it very hard for working class people to find affordable accommodations. This is leading to homelessness for more and more people, with many who still have jobs being forced to live in their vehicles. And the prices of food, fuel and other necessities have also been going up, which only makes things that much worse.

In societies where progressive taxation is used to take some of the money accumulated by the rich and fund a social safety net, inequality is decreased and conditions are much better for those at the bottom. The negatives effects of homelessness both on society and on the homeless themselves can be significantly reduced by providing socially supported accommodations.

Let’s be clear—I am not saying that it is possible to reverse the decay of BAU, but the trip down can be rendered much less unpleasant and more resources can be retained at the community and personal level for the adaptations that will be needed when BAU does eventually fail.

Coping in a contracting economy—deliberate descent

If anything, the contracting economy has been harder on small, rural communities than urban areas. Farming still continues but because less labour is involved these days, the farming community is smaller, and the business of providing services to farmers has declined as well. For the last several decades there has been a steady flow of young rural people to the cities in search of work, reducing the local population and causing the economy to shrink that much further.

If, as I’ve been suggesting, you’ve moved to a small, remote town, found a job in the local economy and rented a place to live, you may well find that the local economy is drying up around you, and your job is much less secure, if it still exists at all. There will be a temptation to move back to the city. Why, then, am I recommending small, remote communities?

Well, things aren’t, and increasingly won’t be, all that much better in the cities. And I believe that as collapse deepens and infrastructure and supply chains start falling apart more quickly, the cities will become a very much worse place to live while rural areas will have a chance to support themselves outside of BAU. And remote areas will be faced with less of a deluge of refugees from the cities than those rural areas immediately adjacent to the cities.

The trick is finding a way to support yourself during the transitional period. Setting up economic arrangements outside of BAU will be very hard to do until BAU has been drastically weakened—today it just provides too much competition. You want to avoid homelessness if at all possible, since it has some very debilitating effects—poor health and lowered life expectancy, along with the sapping of personal strength and the loss of any sort of a community of people with the resources to help you.

The key to avoiding destitution and homelessness is something called “deliberate descent’, on which I wrote a series of posts a few years ago. John Michael Greer coined the phrase “collapse now and avoid the rush”, and that is basically what I am talking about here—anticipating that the future holds a decline in your economic status, and taking voluntary steps to adapt to that before you are forced to.

Whether your resources consist of a job, a pension or personal investments, you will use part of your income for living expenses (keeping those as low as possible), some for paying down debts, and some for accumulating a reserve of cash and non-perishable emergency preparations. Always with the awareness that income based on BAU will eventually disappear, and may do so at any time and at a moment’s notice. And finally, having taken care of yourself, it would be wise to invest in people who are less fortunate—more on that in a moment.

Unfortunately we are all being deluged with marketing efforts that attempt to convince us that we need a great many things. Most of those “needs” have only existed for a few years or decades at most and people got on just fine without them before that. So it is important to sort out your wants from your needs and concentrate on your needs when resources are limited. When it comes to material things, water, food, adequate clothing and a safe, warm, dry place to sleep are pretty much the short list. Of course, you may need some tools and equipment to acquire those things, but most of them can be made, borrowed or bought second hand.

It will still be necessary to maintain personal morale, and some small luxuries and entertainments may help. But non-material things, chiefly human relationships, are far effective at maintaining our morale, and in monetary terms, much less expensive. No single individual can hope to be completely self sufficient, but a community can come pretty close. And a close knit community can provide the sort of companionship and support that material toys simply can’t. Independence and privacy are likely to be among the main casualties of the changes in life style that I am talking about, and that will be hard for many of us, especially old boomers like myself.

Rent, or taxes and upkeep on housing you own, will probably be the hardest part of BAU to get clear of and most of us will be paying them for quite some time yet. I think sharing housing with a group of people and pooling incomes to cover the cost is probably the way to go for many people. If you can find a way to set up an extended social unit that can maintain its integrity within BAU and generate enough income to pay taxes/rent and purchase what it can’t produce (by gardening, hunting and so forth.), then the world should beat a path to your door. I notice younger people are being forced to try this, and are experiencing some degree of success, with which I am very impressed.

Eventually rural municipalities will have to admit to the realities of collapse and reduce both property taxes and services to match the realities of the situation. Land reform will also be needed, to take advantage of potentially productive land that has essentially been abandoned by owners who can’t make a living farming it. This will be easier to do once housing developers are no longer interested, having realized that no one can afford the housing they would build on such property.

There is a role to play for an enlightened local government in organizing the response an area needs to mount when BAU withers to the point it can no longer provide the necessities, and in handling refugees from the city, but I haven’t much faith in the kind of people who run for office in most municipalities. They tend not to be at all collapse aware and will most likely be caught unprepared and unwilling to change. More likely this will have to be done by small groups of people who are aware of what is going on and have planned ahead and made some preparations. I think the key is to realize that BAU’s demise will be gradual, recognize the signs and start taking action at that point to get ahead of the curve of collapse.

I can think of a few different situations people may find themselves in during the coming years, and approaches suitable for those situations.

Retirees from the local area who (like me) have fairly decent pensions and already own a house will be in a good position until the pension fund runs into financial trouble, and our pension are discounted and finally disappear altogether. Indeed that is probably the way that BAU will first fail us. Fortunately, we know what’s coming, we already know the area and have had lots of opportunity to established a network.

Retirees from the big cities, who have sold their city homes for several times the price of a house in a small town, can set themselves up in such a town with a fair chunk of cash left over to live on, especially if they are content to chose a fairly modest place for their new home. Investing that cash so that it doesn’t disappear will be the big challenge for those folks, especially with the chaos we can expect to see in the financial sector.

Those who are still working to earn their living fall into several categories.

Some intrepid souls with a job in the city will elect to move to a small remote town and commute. This is expensive and involves a lot of personal wear and tear. Others are self employed in a way that is not location dependent, or have a job in the city but can do the work from home most of the time. All these situations make it possible to move without having to find a new job. This allows you to get to know your new community without making any irreversible commitments. Especially if you keep your place in the city and rent in your new town. Your city home can be rented out, or sublet if you are renting.

Skilled people—professionals, trades people, artisans and so forth— who can find paying jobs in the local economy are another significant group. Many areas have one or more large local industries that employ a significant number of people, and will continue to do so until the failing economy forces them to shut down. There’s nothing wrong with working at a place like that as long as you realize it won’t last forever and plan accordingly. In most areas there are also opportunities in health care, education, agriculture, trades and various sorts of services.

I wouldn’t advise anyone to try setting up a new business in a contracting economy, even if your idea seems fool proof (to you), but some jobs are available and if you have the right skills, there will be people who have need of you. You just have to find an area where the opportunities match your abilities. And of course if you succeed in “deliberately descending”, it will be easier to find a job with pay that matches your needs.

Then there are those who are less fortunate, who are working at a job that doesn’t pay the bills, or have lost their job or their pensions or whose investments have evaporated in a market crash. Sadly there will be a great many more such folks as economic contraction becomes more intense. Many will find themselves homeless or at least tottering on the edge of it. And people in any of the categories above should keep in mind that they themselves may well become less fortunate at any moment.

Sadly, many folks have a picture of homeless people as human detritus and pretty much beyond help, as if poverty was some sort of moral failing. But, if this was ever true, it is becoming less so all the time as ordinary working class people find it more and more difficult to earn enough to provide the necessities of life, even if they can find a job. I think there are a great many people currently in dire straits who could do, or easily enough learn to do, the sort of work that will need to be done in a community trying to support itself when BAU can no longer do so. Many would be willing or perhaps even eager. What is needed is the organization to offer these people a job, and training as required, with the aim of relocalizing* and, rehumanizing* the local economy in order to cope with broken supply chains and energy infrastructure.

Initially these will be local people who left for the city and are now returning along with a few city folks who have read the writing on the wall and want to get out before things get worse. Eventually, it will get worse and then there will be refugees.

In any case these people will need a place to live and they won’t have the resources to buy or even rent. Those with local connections will live with parents or friends. Others will come in a vehicle and live in it, at least at the start, and they will need parking and access to services—water, washrooms, showers and electrical power as long as it is available. For those with no local connection and no vehicle, camping may be an option in the summer (certainly not in the winter, where I live), but families with a spare room should be encouraged to welcome them and collect room and board once they are working. Any empty housing should not be allowed to sit idle as long as there are people without a place to stay. The local community may eventually have get together to build some very modest, low cost rental accommodation, even though resources will be very short.

Whatever the details, investing some time and money in creating jobs and making a place to live for such folks will eventually pay off very well, as BAU fades away and the new local economy rises to take its place. Experience has shown that in emergencies people do come together to do what is needed.

doomstead diner