Krugman's Illusion: We Becoming Richer, But Not Damaging The Environment

About a week ago I read/ heard German media stories on the fifth IPCC report on climate change, especially on the third and last part of it. In the meantime we have all got used, almost insensitive, to the regular bad tidings coming from the IPCC. But a statement made by Ottmar Edenhofer, one of the three co-chairs of its third working group, made us sit up and take notice. He said: “It would not cost the world to save the planet;” the cost of limiting global warming to 2 degrees Celsius would be only 0.06 percent less yearly growth than what would otherwise be possible.

Then, a few days later, I read an article by Paul Krugman (Nobel Laureate in Economics) in the New York Times (17.04.2014) entitled Climate Change:Salvation Gets Cheap. Referring to the glad tidings on the cost of saving the planet coming from the IPCC, Krugman wrote he thinks the climate threat is solved. He went even further. He wrote: “… there’s no reason we can’t become richer while reducing our impact on the environment.”

One could perhaps be hopeful about humanity somehow solving the climate threat at the last moment. But I think it is impossible that we can all become richer while reducing our impact on the environment. These are two different things, though related.

Are the renewable energies emissions free?

Krugman refers to a study of the Department of Energy entitled Revolution Now and comments: “That sounds like hyperbole, but you realize that it isn’t when you learn that the price of solar panels has fallen more than 75 percent just since 2008.” Let us assume that this particular piece of information is reliable. But what has that to do with solving the climate threat? In all cases of industrial production, there are costs, called externalities, that are not borne or not borne fully by the firms that produce the commodities in question and are therefore also not passed over to the buyers through higher prices. Atmospheric and maritime pollution are best examples thereof. Such costs are either not borne at all, by nobody, or they are socialized, i.e. borne by all members of a community – a village, a country, a region, neighboring communities, or the whole world community. As German ecologists say, prices do not tell the whole truth about costs. Socialized costs may involve some immediate money costs for the affected community, but it may also be that the future generations would someday have to bear these costs in some form or other – either as some money costs (e.g. for repairing the damages done) or as deteriorating health and/or as environmental destruction of various kinds.

Since in the case of climate change we are today suffering the negative impact of large-scale externalization of costs, both past and present, i.e. emission of green house gases in the atmosphere, it is particularly important to ask whether or not all the industries involved in the production (or extraction) of the raw materials and equipments used for producing the renewable energies – solar panels, wind turbines, rotors, palm oil etc. etc. – themselves emit green house gases into the atmosphere. There is no doubt that they do, because such industries mostly (if not wholly) use conventional energy generated by burning fossil fuels.

We also know that in the case of photovoltaic-solar and wind energy, at the very last stage of production, in which sunshine and wind are converted directly into electricity, no green house gas emission takes place. But the process of delivering that electricity to the consumers again generates green house gases, because copper cables, Transformers, storage facilities like batteries etc. etc. are produced by industries that use mostly (if not wholly) conventional energy produced by burning fossil fuels.

It may be argued that, on the whole, for producing and delivering a given quantity of electricity, the renewable energy technologies emit less green house gases than the fossil fuel burning power plants (because the former do not burn fossil fuels at the last stage of production). That may or may not be true. I do not know of any comparative figures on this question. It must be very difficult to work out reliable figures on this question. But we may get some indication when we consider the energy cost of production of renewable energies.

Price versus energy cost of energy, or the EROEI

Any economist knows that the price of a commodity depends on many factors: supply and demand, cost of production, the state of competition at the relevant markets, normal profit expectation, whether or not firms producing the commodity are getting subsidies and other favors (e.g. through protective duty) from their state etc. Cost of production of a commodity depends largely on the state of technology, wages and salaries, scale of production, prices of the needed raw materials and intermediate goods ( such as energy),which in turn depend on all these factors.

    But when we talk about production of energy, then we have to consider another matter. We want light in the evening, for which we spend energy (in the form of electricity or a flame on an oil lamp). Light and energy are two different things. We may be willing to spend any amount of energy to get the desired intensity of light. But when we want to produce energy by spending energy, then it would not make any sense if we produce, say, 9 units of energy by spending 10 units of energy.

    We also have to differentiate between different forms of energy. In thermal (or nuclear) power plants, electrical energy is produced by using heat energy obtained by burning coal, oil or gas (or by splitting atoms). Since we absolutely need electrical energy for hundreds of kinds of work – e.g. using a computer – we may be willing to spend any amount of heat energy to get the required quantity of electrical energy. We also produce electrical energy by using the energy of falling water (hydroelectricity). After electrical energy is produced in these ways, it is delivered to millions of factories, households etc, where it is used for various kinds of work.

    Now comes the point relevant to our present topic. Factories that produce photovoltaic panels or wind turbines or rotors use electricity. Even if they need some heat energy for particular steps in the production process, they generally use electricity to produce that heat. Since photovoltaic panels, wind turbines etc. produce electrical energy, i.e. the same form of energy that is used to produce these equipments, they only make sense if they produce in their lifespan of ca. 15 to 20 years more energy than what is needed to manufacture them – in other words, if their energy balance is positive. In our days, one also speaks of EROEI to indicate the ratio between energy return on energy invested.

    There is much uncertainty about the energy balance (EROEI) of both photovoltaic and wind-turbine technology for producing electricity. There are people (including myself) who doubt that the energy balance of photovoltaic technology is at all positive. As for wind energy technology, these people think that its energy balance is positive (2– ?/1), but not positive enough to successfully compete with thermal power plants.

    These uncertainties and doubts persist because it is very difficult, possibly even impossible, to work out exact figures on the EROEI of these technologies. Too many aspects of the studies made to arrive at the currently known figures had to be based on assumptions and guess work. I have been reading reports on these studies since about the early 1990s. I found that in 1991, some researchers asserted that, in European climates, the energy pay- back time (EPBT) of photovoltaic technology – the time it takes for a photovoltaic panel to harvest the quantity of energy that was invested in manufacturing it – was 1.2 to 2.1 years. These figures were by and large comparable to those of large-scale thermal and nuclear power plants; i.e. they were ostensibly already then competitive. But in 1995 – after four years of further research and development – another researcher stated that this figure (i.e. EPBT of photovoltaic panels in European climates) was 9 years. Similarly, while a study made in 1984 found that the EROEI of photovoltaic technology was 1.7/1 to 10/1 (obviously in different areas), another study ascertained in 1996 that it was 0.41/1 (that is, negative). The latest figure I have is from an article written by Ted Trainer (in April 2014), who too has been studying this matter since long. He writes cautiously: “… several recent studies have found that when all relevant factors are included, the ratio of energy produced by a PV[photovoltaic] module in its lifetime to the energy needed to produce it is not 10/1 as is commonly thought, or 60/1 as some advocates have claimed, but probably between 4/1 and 2.4/1.”  (EROEI and EPBT figures are from Sarkar 1999: chapter 4; Heinberg 2003: 152f., Trainer 2014)

    These results are inexact not only because they had to be largely based on guesswork and many assumptions, but probably also because the researchers did not use the same methodology. Also time (relevant for technological development) and place (relevant for quantity and intensity of sunshine) of the studies varied. In such a situation, I think it is permissible to apply logic and common sense in order to get an approximately true picture of the prospects and promises of renewable energies. Then one can’t help asking a few questions:

    If solar panels have become so cheap since 2008, why do energy companies still insist on building new coal- or oil-fired thermal power plants? And why do oil companies are still searching for oil at enormous costs deep under the ocean bed in the Atlantic or the Arctic Ocean? Why does the Japanese government want to recommission the nuclear power plants that had been shut down in the wake of the Fukushima catastrophe? Why hasn’t India, which is very rich in sunshine and wind and has a long coastline, yet decided to bid farewell to conventional coal and uranium based power technologies? Why is it still paying every year a huge oil import bill? And why must renewable electricity producers of Germany still demand and enjoy the privilege of guaranteed sale and guaranteed prices that are much higher than the prices of conventionally produced electricity? Obviously, renewable energy technologies cannot yet compete with conventional energies.

Prospects for renewable energies

But will they soon be able to outcompete the conventional energy technologies? Or can they in near future make the latter superfluous and supply all the energy needs of our industrial societies? I think the prospects are negative. We know that easily accessible and easily exploitable sources of raw materials, particularly those of conventional fossil fuels, are getting exhausted and new finds are unable to compensate for the exhausted quantities. The geographical and geological conditions under which these resources are being found and exploited are progressively worsening. We cannot change them. Think of extracting oil from the bottom of the Arctic Ocean! As a result, more and more energy has to be invested for extracting raw materials – coal, oil, gas, uranium, metal ores, rare earths etc. That means, their energy cost of production (also partly reflected in their financial costs) is steadily rising. Now it is exactly with such raw materials that all the equipments of all renewable energy industries –solar and wind power plants as well as bio fuel factories – are built. That means, the energy investment required for building such power plants is continuously rising. But the average energy content of sunshine and the fact that the sun does not shine in the night are cosmological constants. Climate scientists are predicting (and we are noticing it already) that, with climate change, wind velocity during storms will strongly rise. But that will be of little use to wind power plants, because in such cases the generators must be shut off. Such being the facts, the EROEI of renewable energy technologies cannot rise in future. It will rather go down – in spite of small technological developments that might still take place. Miracles do not happen.

    But one question still remains: How come prices of solar panels have sharply fallen? As stated above, prices of commodities depend on several factors. In the case of solar panels, it is well known that the main cause of the drop-off in price is that Chinese producers have entered the world market in a big way. They haven’t achieved any technological breakthrough. But their wages are much lower than those in Europe and America, they have less environmental and other conditions imposed on them, and the state is granting them subsidies and other favors. What is more, they are offering their products at dumping prices. The five or six German producers that recently went bankrupt and those that are threatened with bankruptcy, give these reasons for their misery. They complained to the European Commission and asked it to impose restrictions on Chinese exports of the product to Europe. The case ended with a compromise, but that did not help the German companies that were already bankrupt. Another explanation for the drop in prices is the enlargement of the scale of production, which was made possible by the promotional measures taken by states in the rich countries.

    I think the dispute will be settled in the next ten years through facts on the ground. "In the meantime also renewable energy enthusiasts concede", writes a Green Party intellectual, "that one cannot reckon with permanently profitable solar electricity production north of the Mediterranean Sea (Wiesenthal 2013: 29).

The difference between “feasible” and “viable”

 “But”, renewable energy enthusiasts ask me, “why do you altogether rule out that one day industrial societies will succeed in fully replacing non-renewable energies with renewable ones?” Of course, in principle, that too can happen. The future is in principle always uncertain. But we have to begin to act today in order to prevent foreseeable catastrophes in not all too distant future. That means, we have to act on the basis of less than 100 percent certain knowledge. In order to act effectively, we must then know, or try to infer from known facts, what is probable and what not. I think it is improbable that even the best renewable energy technologies of the future will someday be able to supply the whole energy needs of industrial societies.

    If we could be satisfied with light from oil lamps and do all work using only manual and animal labor power plus heat energy from burning wood, then our economy could be fully based on renewable energy. But that would not be an industrial economy, which cannot function without electricity and liquid or gaseous fuel. To get all of these latter forms of energy from sunshine or wind is not possible. A law of nature, the entropy law, stands in the way.

    Sun’s energy reaches us in a high entropy state, i.e. in a highly dissipated form. That is sufficient for agriculture and plant growth, from which we can get wood for fire. But for producing electricity we have to concentrate a large quantity of highly dissipated sunshine with the help of photovoltaic panels or aluminum mirrors. Production of these equipments themselves consume a large amount of concentrated, i.e. low entropy energy that we mostly get from fossil fuels found in nature. That means we can use this method of producing electricity only as long as sufficient quantities of easily extractable fossil fuels (or uranium) are available. That is why Nicholas Georgescu-Roegen (1978) called solar electricity technologies parasites. It is more or less so also with wind energy. That means, solar electricity technologies are feasible but not viable. They would only be viable, if the second generation of renewable power plants, i.e. all the needed equipments from A to Z – solar panels, aluminum mirrors, wind turbines, factories, roads, vehicles etc. etc.etc. – could be built/manufactured with solar or wind energy only. That would not be possible if the EROEI of (net energy produced by) solar and wind energy technologies remain so low as it is today. If we assume, as Ted Trainer writes, that the EROEI of solar panels is 2/1, then, after we have consumed this energy for our daily living and the other usual activities, no surplus would be left for investing in the production of the second generation of solar power plants. Trainer writes: “Estimates in the literature are that the ratio [EROEI] must be at least 7/1 for a technology to be viable.” It is very improbable that that would be the case in future, because, as I have argued above, the trend is pointing in the opposite direction.

    This problem cannot be solved even if we try to use the enormous quantity of high intensity sunshine available in the deserts of the earth. One such project, the Desertec project of some of the biggest European corporations, is today on its deathbed.

Conclusion

Today, in Germany, the result of years of promoting renewable energy technologies through subsidies (collected from the consumers including smaller businesses) and other favors is that electricity price has increased so much that tens of thousands of poor Germans cannot pay their electricity bills and are getting their grid connection cut off (coal price rises have also contributed something to it). The present federal government is therefore trying to arrest this extraordinary price rise by reducing to some extent the guaranteed subsidized prices paid to the producers of renewable energies. So we see that even the so-called “Energiewende” (energy-system-change) of the Germans aimed at reducing the emission of greenhouse gases is faltering, and the government is being criticized by pseudo-environmentalists for putting on the brakes against it.

    Krugman thinks we can all become richer while reducing our impact on the environment. This is also the mantra of many other pseudo-greens and pseudo-environmentalists all over the world, who propagate illusions of green growth, sustainable growth, green New Deal etc. etc. Edenhofer, the IPCC man, naively assumes in the midst of a stagnation-crisis that the world economy would regularly grow at a yearly rate of two percent (Süddeutsche Zeitung, 14.04.2014). But Krugman, the star economist, ought to have known better than to persistently demand policies for pushing economic growth. He argues: “Other things equal, more G.D.P. tends to mean more pollution. What transformed China into the world’s largest emitter of greenhouse gases? Explosive economic growth. But other things don’t have to be equal. There’s no necessary one-to-one relationship between growth and pollution.” That’s right. But other things can also become worse than before, so that the environment can also be destroyed without economic growth. Even at zero percent rate of growth an industrial economy continues its work of polluting and degrading the environment.

    The environment is more than just the climate, which Krugman thinks can be saved by substituting renewable energies for conventional energies. And the environmental crisis is a much bigger matter than the climate crisis. It includes, apart from the state of the climate, also the state of the oceans, the rivers, agricultural lands, forests, biodiversity and many other things. Krugman does not seem to know that if we all are to become richer, that will require much more than installing more solar panels and wind turbines. That will require extracting more fossil fuels, more mineral ores, building more dams, more factories, more roads, more houses, more stadia, more cars, more airplanes and so on. That will give the environment the final death blow. We shall then see that one cannot eat money.

    My hope is that it – all getting richer – will not be possible any more. For not only has oil extraction reached its peak, but also the other resources are getting depleted very fast. I recently saw a documentary film that shows that even the most ordinary resource sand has become so scarce that it is being stolen. For big building projects even sand on the seabed is being excavated, as a result of which the strands are vanishing under the water. Actually, we should be talking about preparing ourselves for a frugal lifestyle.

    Maybe we should be preparing ourselves for much worse things. Recently, a team of American scientists carried out a research project to ascertain the conditions that led to the collapse of past human civilizations. The project was partly funded by NASA, the organization whose purpose was to put man on the moon. The scientists concluded that there are strong indications that our present civilization is headed for collapse(Ahmed 2014).

Literature

Ahmed, Nafeez (Dr.) (2014) “Nasa-Funded Study: Industrial Civilisation Headed For 'Irreversible Collapse'?” in: www.the guardian.com/environment/earth-insight (14.03.2014).

Heinberg, Richard (2003) The Party’s Over. Forest Row: Clairview.

Sarkar, Saral (1999) Eco-Socialism or Eco-Capitalism? A Critical Analysis of Humanity’s Fundamental Choices. London: Zed Books.

Trainer, Ted (2014) Relax! Solar energy can save us.  Krugman says so. (unpublished article).

Wiesenthal, Helmut (2013) ''Der Solarstrom – Lackmustest grüner Energiepolitik', in Böll Thema – Es grünt, Berlin, Nr. 1.

 

 

The Ecological Clarity that the Ukraine War brings – A Paradox and Its Explanation

 Any modern-day war in and between rich industrial countries has bad ecological impacts. The amount of destroyed built-up material is a wastage that has to be replaced, which entails negative ecological impacts through mining and smelting of non-renewable resources. Same is the case with used up metals and other materials contained in equipment of war and munition. All this is known since long and applies also to the war in Ukraine. What, however, is especially remarkable in the case of the Ukraine War, is the clarity it brings to some dodgy ecological issues. 

Background of some recent Facts 

Facts are nearly always the best proof of the correctness or otherwise of political, economic, and ecological opinions and theories. So I want first to present here a selection of recent facts. Let me begin with two scenes from German TV broadcasts.

     After the beginning of the Ukraine war, many Europeans, but especially the Germans, who since long have been importing huge quantities of relatively cheap Russian natural gas for domestic heating and many industrial purposes, became panicky over whether the Russians would continue to deliver gas in terms of the contract in spite of the various economic sanctions imposed on them by the EU. In the course of his frantic search for alternative sources of natural gas, Robert Habeck, the Green economy minister in the current “traffic-Light” coalition government went to Qatar and met the equally young Emir of the small but gas-rich country. During the handshake – one could see that in the TV-Report – Habeck made a low bow in the style of an humble supplicant, while the Emir stood with his head held high in the style of a patron.

    The next scene: the former foreign minister Sigmar Gabriel of the SPD, now a political has-been, derided the present coalition with the words: “It is really a change of times when the economy minister Habeck of the Green Party breathes new life into CO₂-emitting coal-fired power plants, and the champion of an austerity policy finance minister Lindner of the FDP (Free Democratic Party) incurs hundreds of millions of Euro new debt.

    Fact is also that many other states are taking several retro-steps like building new coal-fired and nuclear power plants. They are doing this because they are anxious to keep their industries and infrastructures, and their whole industrial or half-industrial mode of living supplied with sufficient and sufficiently cheap energy. Worldwide, at present, 200 new coal-fired power plants are being built. In Germany, of course, they are not building any new coal-fired power plants after Datteln 4 (completed in 2019), but they are now repealing the earlier decision to close down all lignite-fired power plants soon. Moreover, they are planning to import from the USA large quantities of LNG extracted by the fracking method which was earlier much reviled by ecologists and the Greens for its evil polluting effects. Together with the Netherlands government, they are also considering gas extraction from under the mud flats of the North Sea – formerly, for ecological reasons, a prohibited zone for such purposes.

    As for nuclear power –  opposed by all kinds of ecologists and Green parties since 1974 –, it is enjoying a new lease of life. At present, eight European countries are building new reactors, or are seriously planning to build new ones. France has decided to keep all its nuclear power plants running. And the EU has decided to change its energy taxonomy, henceforth calling natural gas and nuclear energy green energy.

    Similar things are happening all over the world. China has recently been building more and more new coal-fired power plants. The tempo is increasing. For instance, in March 2020 alone, the authorities gave permission for building of more coal-power capacity (7.960 Megawatt) than in the whole year 2019 (6.310 Megawatt). India is pursuing a similar policy. This is manifested in the data on permission for opening new coal mines. Recently, some 40 such permissions have been given.

    All over the world, at present, also about 55 new nuclear power plants (NPP) are being built. The German Angst of nuclear power does not appear to be too great anywhere else, not even in the underdeveloped world. In India, e.g. at present, two NPPs are being built, in Bangladesh one.

    This worldwide trend has naturally led to very bad results for the climate. Instead of going down, total Co₂ emission is continually increasing. According to International Energy Agency (IEA), in 2021, globally, 36.3 billion tons of CO_{2 –}equivalents of green-house gases were emitted. That is two billion tons more than the figure for 2020. In Germany, after going down steadily since 1990, total CO₂ emission is again rising. Whereas in 2020 it was 644 million tons, in 2021 it was 675 million tons.

    In view of the above-mentioned facts and figures, Antonio Gutierrez, General Secretary of the United Nations, said in despair: “We are committing collective suicide.” Many Germans are thinking that the ambitious goal of energy transition has failed – among them are many leading politicians, such as Michael Kretschmer, Chief Minister of the province of Saxony. Chancellor Scholz and leading Green politicians however think that, despite the obvious setbacks, the energy transition can still be achieved. In their despair, many other European politicians – particularly the French President Macron – have recently declared nuclear power and natural gas to be “green energy”. The German Green Party, but also those of Europe as a whole, the main pillar of whose founding ideology was opposition to nuclear power, are of course resisting. But they may soon buckle. 

The Paradox 

Obviously, it is a paradox. The din of the Ukraine War, the embargo on Russian oil etc. and the fear of Russia turning off the gas taps are only four and a half months old, whereas the euphoric assertions of low costs and all round efficacy and adaptability of the renewable energies are quite old. Let us take three examples:

    The late Herman Scheer, the then President of Eurosolar, and high priest of solar energy, wrote in 1999: 

“For an inconceivably long time the sun will donate its energy to humans, animals, and plants. And it will do that so lavishly that it could satisfy even the most sumptuous energy needs of the worlds of humans, animals and plants experiencing drastic growth: The sun supplies us every year 15,000 times more energy than what the world population commercially consumes …” ¹

In 1999, this euphoria was a bit too far away from the then reality. Photovoltaic and other “renewable” and “clean” energy technologies were actually still too costly. But in 2014 came good news. Ottmar Edenhofer, economist and one of the three co-chairs of the third working group of the IPCC, said something that made us sit up and take notice. He said: “It would not cost us the world to save the planet.” The cost of limiting global warming to 2 degrees Celsius would, he said, be only 0.06 percent less yearly economic growth than what would otherwise be possible. And Paul Krugman, Nobel Laureate in Economics, wrote a few weeks later in NEW York Times an article entitled Climate Change: Salvation Gets Cheap. Referring to the glad tidings on the cost of saving the planet coming from the IPCC, Krugman wrote the [problem of] climate threat is solved. He even wrote: “… there’s no reason we can’t become richer while reducing our impact on the environment.” The reason behind this euphoria was that prices of photovoltaic panels were tumbling.

    And now a more recent example: Greta Thunberg founder-leader of the teenager climate protection group Fridays for Future, that is simply demanding that the politicians finally do something decisive about the problem, was once asked, what then the politicians should do. She is reported to have replied: Why do you ask me? I am only a schoolgirl. Ask the scientists (as if all that the scientists advise were so easy to do!). She once wrote, all the technologies needed for the solution of the problem were already there. They only needed to be used. This was nothing concrete, though many other young people are glibly mouthing concrete “solutions” like their radical elder brothers do: “shut down all coal mines immediately”, “let all fossil fuels remain in the ground”, “all energy supply must come from renewable sources only” etc. etc.

    And now, in 2022, this mad rush for alternative sources of natural gas – a fossil fuel, mind you –  and the US President Biden eating his words of making Saudi Crown Prince Salman a pariah and going to him with the request to increase oil supply on the world market. Inevitably, the question comes to mind: Why couldn’t the renewable energy technologies long ago replace the fossil fuels and nuclear energy? How do we explain this about-turn in energy policy? 

An Explanation of the Paradox 

This euphoria, which had begun much earlier than 1999, was all along baseless. For the sake of brevity, I shall here present only the main points of my arguments and won’t go into details, which the interested reader can find in my theoretical book² and many articles in my blog. ²):

     (1) India e.g. is a tropical sunbathed country. The sun nearly uninterruptedly shines nine months a year. Even in the rainy season the sky is not clouded all the time and everywhere. And the South-West and North-East monsoon winds plus our long coast line can provide ample suitable sites for setting up wind-power facilities. Highly qualified engineers and technicians are also not scarce. Similar are the conditions in China. So why don’t the Indian and Chinese capitalists ditch much reviled fossil fuels, coal in particular, as our main source of power and invest heavily in solar and wind-energy industries? Can’t they calculate chances of making profit? Of course, they can.

    (2) The reason why capitalists do not want to give up fossil fuels, particularly the super versatile petroleum, is that they are the most profitable sources of energy. That is mainly because their energy density is much higher than that of the renewable sources sun and wind. Since for capitalists the ecological and social costs of fossil fuels are mere externalities, they, not being idealists and fashion-conscious, naturally prefer the fossil fuels.

    Moreover, ordinary people are not willing to pay higher prices for energy, not even in rich industrial countries. This was demonstrated in France by the yellow vests movement, the participants in which even violently, and successfully, resisted the increase in prices of fossil fuels for automobiles.

     No large scale use of liquid hydrogen made by using “renewable” energy (so-called “green hydrogen”) is yet being tried. Through any conversion of energy from one state/form to another, a lot of the original amount of energy gets lost. So “green hydrogen” is much costlier and much less profitable than any original form of energy. The greater part of the batteries of e-cars of the world are for this reason still loaded up with electricity made by using conventional fuels, not with solar or wind electricity.

    (3) Krugman and all others of that ilk always look at the market price of solar panels (and wind turbines), which indeed tumbled in the recent past. But serious energy scientists, when they try to judge the basic cost and efficacy of energy technologies, compare mainly their EROEI (Energy return on energy invested) figures.

    The market price of any commodity is in principle a very uncertain thing. It can vary from time to time and place to place, and it depends on many variable and volatile factors: wages, taxes, subsidies, distances etc. But, given that technologies used for the manufacture of solar panels, wind turbines etc. are more or less the same everywhere, the amount of energy required to be invested, from A to Z, for manufacturing them (the EI of the term EROEI) must be roughly the same everywhere, and hence they can be compared. The ER of the term (energy return) varies from place to place, depending on availability of sunshine and blowing wind.

     To measure the ER of any energy technology is easy. We just need to attach a meter to the end point of the system. But to measure its EI is difficult. The equipment needed to produce e.g. solar panels have first to be produced themselves – beginning with all the mining machinery (excavators e.g.) for mining the necessary minerals all the way upwards to the metal frame on which the solar panels are mounted.

    Of course, an excavator e.g. is not used for producing just one solar panel. But the prorata energy consumption of any equipment used in any serially produced object can be estimated. In this estimating process many mistakes can be and indeed are made, many steps in the production line are ignored. This explains why different researchers can and do present very different, often exaggeratedly optimistic estimates of the EROEI (aka net energy) of renewable energy technologies. This is why many false hopes of 100 percent renewable energies, total energy transition etc. could be circulated – particularly by the Green Parties. How controversial the matter still is can be seen in a recent paper.³ But for me, the proof of the pudding is in the eating.

    One may now ask: why do we then hear (e.g. in Germany) that today renewable energies are cheaper than coal-fired energy? One brief reply: in Germany, electricity production in coal-fired power plants is almost entirely done with lignite excavated in Germany with equipment made in Germany by high-wage German workers. The solar panels e.g. used in Germany are however all made in China, by using coal-fired electricity and the labor of low-wage Chinese workers. State subsidies, tax benefits etc. also play a role.

    The atmosphere of the earth is a global affair. It does not matter at all where the green-house gases are emitted, they are distributed by the winds in the whole atmosphere. And the whole earth warms up as a result. 

Conclusion 

The truth of the matter has been sufficiently revealed in the months following the beginning of the Ukraine War. Industrial society is basically and mainly a product of fossil fuels. A whole industrial society cannot be run without these fuels. And, moreover, the global ecology problem, the various kinds of global pollution, cannot be reduced to the issue of climate change and green-house gas emissions. It is also and mainly a question of growing amount of resources that a growing number humans consume in an industrial way. Global warming and its consequences are just symptoms of too much consumption of fossil fuels and other resources.

    I have above referred to Greta Thunberg’s belief that all the technologies needed for the solution of the climate change problem were already there. That they only needed to be used. Below the article in which I read this opinion of Thunberg was a comment made by a reader. It read: “The greatest minds in the Western world are working on this. They have produced no solution, because there is none.”

    This comment is convincing, but only partly. There is no solution because nobody is prepared to ditch the industrial society that has made life so comfortable for so many people. “The greatest minds” have failed to find a solution because they all want to have their cake and eat it too. If they were prepared to give up their addiction to the industrial society and their self-sanctification, then the problems could be solved: with a steady state economy at a much lower level with just two billion humans living on the earth. 

References: 

1. Hermann Scheer (1999: 66) Solare Weltwirtschaft: Strategie für die okologische Moderne. Munich: Antje Kunstmann.

2. Eco-Socialism or Eco-Capitalism. A critical Analysis of Humanity’s Fundamental Choices. 1999, London (Zed Books).

My blog:

www.eco-socialist.blogspot.com

3. “Renewables K.0.-ed by EROEI?”

by Craig Morris

https://energytransition.org/2014/09/renewables-ko-by-eroi/

Once More on the Viability of Renewable Energies

For some years in the past, I more or less withdrew from the debate/discussion on the above subject. We were not making any progress. The optimists continued repeating like a religious mantra ("100% renewables") that in 20-30 years all energy needs of human society will be (can be) supplied by renewables. No arguments of the skeptics like me were being taken seriously. I gave up, saying "Just wait another 10 years! By then the issue will be decided." I started saying that about five years ago. But already now it appears that the optimists are no longer so sure. In an article written by Ugo Bardi¹, a member of the Club of Rome, also published in a popular Indian internet journal (Countercurrents.org), I read that more and more people, even experts, are expressing their skepticism. So I again joined the debate.
    Ugo Bardi and other optimists of today are of course still expressing optimism. But they are no longer as euphorically optimistic about renewable energies as, for example, the late high priest of solar energy euphoria Hermann Scheer (former president of Eurosolar). They are now roughly saying, 100% renewables is possible, but it will not be easy, and we must in future change the way we are living today in industrial societies; we must be satisfied with less. That is some progress. But the illusions still remain.
    So I intervened again, with two comments and a letter to a friend. They are appended below with several references.

Sarkar's 1^st comment:

I just read Ugo Bardi's article with interest. I am not a scientist, never tried myself to measure the EROEI or the EPBT (Energy Payback Time) of any energy technology. But I am very interested in the question, for obvious reasons. I am trying to keep abreast of the news on this matter. But I am not convinced that the EROEI of photovoltaic technology is that high (Bardi estimated 11-12).
    The proof of the pudding is in the eating. If the assertion of Bardi were true, then there would not be any reason at all for India, much richer in sunshine than Italy, to still build new (I stress new) coal-fired power plants and to import huge quantities of coal and oil and pay high amounts of precious foreign exchange to foreigners. If the matter were that simple, the problem of global warming would have been solved long ago.
    The first author of the paper Bardi refers to appears to be an Indian (or of Indian origin). Why doesn't he go to New Delhi and persuade the Indian government to cover all desert and semi-arid areas of the country with photovoltaic panels? After all, only a few months ago, at COP21, India was heavily criticized for obstructing the process of reaching a global agreement.
    I think most studies that paint a rosy picture in this question tend not to count all (I stress all) energy costs (investments) needed in building a solar module. That is why, already in 1991, some researchers who, commissioned by the EU, made a study in Europe came to the conclusions (a) that in European climates, the average EPBT for photovoltaic modules were as low as 1.2 years and 2.1 (meaning EROEI was very high) and (b) that the EPBTs of the PV technologies developed till then were by and large "comparable to that of large-scale electricity production in fossil and nuclear power plants".(quoted in: see note 4) We know that PV technologies, in spite of all subsidies and sundry favors, still cannot compete with fossil fuel based technologies of producing electricity.
    How researchers in this field ought to count all energy costs of an energy technology (not to be mixed up with money costs) can be read in a paper of Nicholas Georgescu-Roegen on this subject (see note 3)

Sarkar's 2^nd comment:

Dear Ugo, in real life it is very useful/necessary to take a round-about (indirect) way to reach a goal when there is no direct way to reach it. It is even scientific. James Lovelock (of the Gaia hypothesis) did that when he (plus many other scientists) was asked by NASA to figure out whether there could be life on the Mars. He could not land on the Mars to find out the answer. So he asked, how would the atmosphere of Mars be if there were life on that planet.
    We are today faced with a vital real-life question: Can someday in near future fossil fuels be replaced by photovoltaic energy etc.? We cannot answer the question directly by "rigorously" counting the calories of energy invested in manufacturing all the equipment of PV technology because it is nearly impossible. That is why every researcher is guessing. Guesstimates are anything but rigorous. That is why so many different results are on the table. Nobody, for example, really knows what proportion of the energy costs of manufacturing the truck that is transporting the sand to the silicon smelter should be included in the energy costs of manufacturing a PV module. I do not want to write more on this point. Georgescu-Roegen (1978) put it more clearly.

A Letter to a Friend

9.06.2016

Dear Johny,

many thanks for sending this article.² I, like all of you, got the reference through reading the comments on Ugo Bardi's article in Cassandra's Legacy.²
    I think the whole debate is a little out of focus. Which end of the formula should we pay more attention to? To ER or to EI? Counting both exactly would be good. But only ER can be counted exactly by attaching meters to every PV-module. Nobody can deny that ER may improve in course of time through technological improvements in the modules. But that does not help much because it is very difficult to exactly count the EI (energy invested on pro rata calculation basis) in every module. Even if you are satisfied with average figures at any given latitude and in any given climate zone, it is very difficult. How difficult it is can be realized if you ask the question: where should one begin the counting? Here a reading of Georgescu-Roegens 1978 paper³ is very important. (I did that in the 1980s and summarized GR's argument in my book.⁴) If one reads it, one would realize that most modern estimates of EI per module are wrong.
    My new idea has been to come to a provisional conclusion on the basis of a round about method following James Lovelock's method of intelligently guessing whether there could be life on the Mars (referred to in my second comment on Bardi's article. See above.). Coming to a provisional conclusion reg. the EROEI of both PV and Wind-turbine technologies is important because, all people agree, burning more and more fossil fuels must end if we really want to save the planet. So I asked (in my opinion the very important question) why India still wants to double coal extraction in the next five years although it is among the most sun-rich countries of the world.⁵ It must do that because Indian energy experts & engineers are not convinced that the EROEI of PV technology is sufficiently high to justify leaving India's coal wealth in the ground.
    Another point I made (see my article on Krugman's folly⁶) is that the energy cost (EI) of producing PV or wind energy modules (as distinct from money cost) is continuously and inevitably rising (even if you leave aside the equipment and processes for storing and distributing the renewable energies) because the materials (including coal and uranium) that are used to build/manufacture all the equipment are becoming increasingly difficult to access.
    And finally, the difference between feasibility and viability, that we should learn from Georgescu-Roegen. Renewable energies are feasible but not viable. This point was indeed made in a comment (by "foodnstuff")⁷ on Bardi's article. But it was unfortunately ignored by all (except me).
    Finally, I request you to retrieve the paper of Georgescu-Roegen and publish it in some website (it was published before the internet age). Then it can be circulated without any problem.
    I am also going to post this piece in your Simplicity Forum. But before doing so I must add the references. For that I need some time. In the meantime I am sending it to you and ...  as an e-mail.

With warm regards

Saral

Notes and References:

1. Ugo Bardi (2016) "But What is the Real Energy Return of Photovoltaic Energy?"
http://cassandralegacy.blogspot.de/2016/05/but-whats-real-energy-return-of.html

2. "Energy Return on Energy Invested (ERoEI) for photovoltaic solar systems in regions of moderate insolation", by FerruccioFerroni a,n, RobertJ.Hopkirk
in: Energy Policy
journal homepage: www.elsevier.com/locate/enpol

3. Georgescu-Roegen, Nicholas (1978) "Technology Assessment: The Case of the Direct Use of Solar Energy", in Atlantic Economic Journal, December.

http://www.peakoilindia.org/wp-content/uploads/2013/10/Georgescu-Roegen-The-Case-of-the-Direct-Use-of-Solar-Energy.pdf

4. Sarkar, Saral (1999) Eco-Socialism or Eco-Capitalism? London: Zed.

5. Sarkar, Saral :
A Historic Event or a Fraud?....
http://eco-socialist.blogspot.de/2016/01/a-historic-event-or-fraud-critical.html

6. Saral Sarkar (2014)
Krugman's Illusion …..
http://eco-socialist.blogspot.de/2014/04/krugmans-illusion-we-becoming-richer.html

7. Foodnstuff : comment/questions:

foodnstuffMay 23, 2016 at 7:53 PM

I still want to know if the following can be done and does the EROEI quoted include it all (plus extra energy demand I haven't thought of):

(1). Mine the raw materials using equipment powered by solar panels.
(2). Transport and convert metal ores, eg bauxite -> aluminium, using equipment run by solar panels and in a factory built using the energy from solar panels.
(3). Make the finished panels in a factory run by solar panels, including building and maintaining the factory.
(4). Transport, install and maintain the solar panels using equipment running on solar panels.

All this is presently being done with the energy from fossil fuels. How will it be done when they are gone?

 

Understanding The Present-Day World Economic Crisis -- An Eco-Socialist Approach

 

 

 

By: Saral Sarkar

 

The current economic crisis that, roughly speaking, began in January 2008 and is, in July 2010, still going on, has shaken the world. Politicians, economists, and publicists are using superlatives to describe it. It has been described as the severest economic crisis since the Great Depression of the early 1930s. Seen superficially, similar, though not equally severe, crises have also taken place in the past few decades. There have been share market crashes, bank failures, crises in the finance market, credit crunches, strong recessions, state insolvencies etc. I have described them in my book Die Krisen des Kapitalismus (2010). But the scale, depth and spread of the current crisis has been so great, that all concerned got panic Many observers feared for the survival of capitalism. The question came up: is it only another crisis in capitalism, or is it the crisis of capitalism that Marxists, communists, socialists and other critics of capitalism have been waiting for since long. At least on one point all agree. Capitalism will never be the same again as it has been before the crisis, i.e. unbridled globalized neo-liberal capitalism will henceforth be bridled, more or less. That work has already begun.

    I assume that the readers of this essay are well informed on the main facts and events of the crisis. Here I only intend to present a deeper and comprehensive understanding of the crisis and do not want to repeat in detail the currently available superficial analyses and speculations about the future perspective.

I. Superficial Explanations

Economists belonging to the various present-day schools of standard economic thought did not differ much in explaining the crisis. Their explanations, which I consider to be superficial, are surely also well known to my readers. Nevertheless, I present below the main elements of their explanations in order to show the contrast between them and my explanation.

    (1) The main element in their explanations is that the greater part of the huge number and amount of bad debts that were the root cause and starting point of the crisis in the USA were the so-called subprime mortgage loans. Such loans were granted by commercial and mortgage banks to house buyers, who in normal circumstances would not qualify for those loans because they were people with low income and/or insecure job. Those risky credits were nevertheless granted because of the faulty structure of the US finance market. The local banks did not hesitate to give such risky credits, because they knew that they would very soon sell them away to the huge mortgage banks (Freddie Mac and Fannie Mae). The latter in turn issued securities based on bundles of such subprime credits, which were sold to banks all over the world who wanted to invest their surplus liquid cash for some profit.

    (2) The Federal Reserve (the central bank of the USA) kept the prime interest rate very low over a long period and thus made it easy for banks to borrow from it huge amounts of money and lend them further to undeserving borrowers as well as to speculators, who were attracted by low interest rates. This is how a real estate boom and then a bubble came up.

    (3) Bankers were greedy. Since a large part of their remuneration consisted of bonus payments, which depended on results, they were extra keen to take risks – both in lending business and in speculative transactions.

    (4) There was too little regulation of the finance and banking industry, and also the globalization of the same had happened in an uncontrolled way. As a result of these two facts, a huge amount of highly risky, highly complicated and barely understandable securities were sold all over the world, mainly to banks

    These elements do not refer only to the situation in the USA, but also to the situation in most leading industrialized countries.

I find these explanations superficial and unconvincing. No doubt, they were facts when the crisis broke out, but they do not give a satisfactory answer to the questions why the crisis became so severe, so widespread and so long-drawn, and why it could not be overcome as easily as the previous similar crises: the stock market crash of 1987, the East Asian crisis of 1997–98 and the crisis of 2001–03 (for details see Sarkar 2010). They do not explain why the crisis is still persisting, and why the outlook is still so gloomy.

    Moreover, two of the facts are really banal. That bankers were greedy does not explain anything, because greed is an essential pillar of the capitalist economic system. All participants in this system are expected to be greedy, more or less. And deregulation of the finance industry is only an essential element of globalized neoliberal capitalism, which is in place since the 1980s.

    The other two elements were indeed somewhat unusual. Bankers have always given some credits that were a little risky, and some of such credits have always had to be routinely written off. But this time, the extent of the subprime credits was so huge that business could not go on as usual when in the USA the housing boom ended, house prices began to fall and thousands of mortgagors defaulted. The creditor banks could not, as before, recover their money by selling off the houses.

    The Federal Reserve's policy during the period in question was also unusual. Generally, the Fed (and, in the neoliberal capitalist regime, almost all central banks) starts tightening money supply as soon as the economy starts heating up, which can be manifested as an above-average inflation or the emergence of a bubble in the stock exchange or the housing market. The usual instrument for this purpose is to cause the market interest rates to rise, which it generally achieves by raising the prime interest rate. In the period in question, however, the Fed let the bubbles continue to grow by keeping its prime interest rate low.

    Both the banks and the Fed have been criticized for pursuing these unusual policies, which, according to their critics, were the main causes of the severe crisis. But to blame the crisis only on them is unjustified, it is an obstacle to finding the true causes and understanding the true nature of the crisis

    It has been reported that the ruling politicians, in fact, wanted a real estate boom. Greed is not a character trait of only bankers and speculators. Also ordinary people, especially ordinary Americans, want to become wealthy. That belongs to the so-called "American dream". And owning a house, as showy as possible, is an ordinary poor man's way of becoming wealthy – especially because it was said that house prices, unlike stock prices, can only go up. Politicians, naturally, wanted to promote the fulfillment of this dream. After all, from poor to middle class citizens made up the majority of the voters. Particularly the Democrats had a special interest in pursuing this policy, because they thought workers and other poor Americans belonged to the group of their (potential) voters. In 1997, the administration of the Democratic president Bill Clinton got a law passed which made profit from selling real estate exempt from taxation. This encouraged speculation..

    But also the Republicans wanted a real estate boom. President George W. Bush (2001–08) said he wanted every American to become a house owner. Politicians in general, therefore, applied pressure on the banks, directly or indirectly, to give housing credits to the poor.

    It would however be wrong, if one concluded from these facts that only narrow electoral considerations of self-interested politicians led to the massive expansion of subprime housing loans. It also made macro-economic sense. We have to remember that both in the early nineties and in the early years of the new century, the USA suffered a recession. The GDP growth rate fell from 3.5% in 1989 to -0,5% in 1991. In 2000 and 2001 the so-called new economy broke down. Along with a long-drawn stock exchange crash, also the real economy suffered a recession, The GDP growth rate fell from 4.4% in 1999 to just 0,8% in 2001. Between 2000 and 2002 the telecom companies retrenched half a million workers. The official unemployment rate increased from 4% in 2000 to 5.8% in 2002 (figures from OECD 2000, OECD December, 2004, and Brenner 2003). Confronted with this recession even the Republican president George W. Bush had to take typically Keynesian measures to stimulate the economy, which also started to recover in 2003–2004. A housing boom promoted through subprime credits perfectly fitted such Keynesian efforts. It promoted growth and employment at a time when more and more American companies in the manufacturing industry were relocating their production in cheap-wage countries or even closing up shop. Producing houses for Americans cannot be relocated in cheap-wage countries, nor can they, unlike e.g. cars, be imported wholesale from abroad. They had to be built in America. Moreover, a house is an essential commodity. Yet, around 2006, observers started warning about a housing bubble and soon thereafter, the market began to cool down.

II. Why Did the Housing Bubble Burst?

It is too simplistic to say any bubble will burst sooner or later. It is necessary to differentiate between a housing bubble and a stock exchange bubble, which too burst in America in October 2008, i.e. after the former had burst.

    It was said that in the first seven days after the stock exchange crash, wealth amounting to 2.5 trillion dollar was lost, and since the stock exchange peak of one year earlier, stock owners lost 8.4 trillion dollar (Wall Street Journal, 10.10.2008). But what does that actually mean? One says in such cases, the wealth vanished into thin air. But in reality, nothing concrete vanished, no house, no car. What vanished into thin air were only some numbers on paper, some zeros after a digit. The 8.4 trillion dollar were only fictitious wealth. A year before the stock prices peaked, the same stocks were valued much lower. Only speculation had driven the market value of the stocks upward. After the crash, what was in any case fictitious wealth ceased to exist.

    The real value of a stock ultimately depends on how much demand in the market there is for the product(s) of the company in question. In case the company has to be wound up for lack of sufficient demand for its product(s), the price of its stocks can fall to zero. Houses are however very concrete things with eminent use value. Generally, there is no dearth of demand for them because almost all over the world population is growing and people are desiring better housing (only particular houses may not find any taker).

    In our concrete case, the subprime mortgage crisis in the USA, it is not as if the mortgagors lost the desire to live in the houses they had bought on credit. They, at least the great majority of them, were not speculators. It so happened that under changed circumstances beyond their control hundreds of thousands of them could not service their debts any more. When they defaulted, they were evicted by the creditor banks and the houses were offered for sale, which set off a chain reaction leading to falling house prices and a falling number of new houses being built. The crucial question for understanding the present crisis is, therefore, why the ordinary people who had bought houses on credit lost their ability to service their debts.

    When the crisis in the housing market caused a contagion in the stock market, and the tumbling stock prices in turn reduced, through the negative wealth effect, the borrowing capacity and purchasing power of millions of stock holders, the total effect of this downward development worsened the recession in the real economy, which, according to American economists, had already begun in December 2007. Like houses, cars, inter alia, are concrete things with eminent use value. It is not as if Americans suddenly lost the desire to own and drive big cars produced by General Motors etc. It was simply the case that many people lost the ability to pay the high price of such cars, and rising petrol prices increased the cost of driving them . They simply could not afford such cars any more.

III. The Deeper Causes of the Crisis

We then have to understand the changed circumstances under which the ordinary people who had bought houses on credit could no longer service their debts.

1. Limits to Growth

Despite several similarities, the present economic crisis differs from the previous ones in one very important respect. The present crisis developed and is continuing against a fundamentally different kind of background. Whereas the crises of the past were addressed by the powers that be with a consciousness occupied by the belief that limitless economic growth is possible – I call it the growth paradigm –, the present crisis has broken out in an intellectual atmosphere and against the background of a public discussion in which even the leading politicians of the world and government leaders are greatly worried about the ecological balance of our planet and the dwindling resource basis of industrial societies. Of course, the authors of the first report to the Club of Rome, Limits to Growth, had forecast the coming of such a situation already in 1972. But humanity could ignore this warning for a long time. Now, however, many political leaders seem to have woken up. Thus, Al Gore, the former vice-president of the USA, has made it his life's work to motivate humanity to seriously try to stop global warming. And the new president of the USA , Barak Obama, in his very first speech after winning the election, on 4^th November 2008, spoke of the "planet in peril".

    The planet is in peril not only because of global warming. The ecological balance of the earth is being undermined since long, e.g. through progressive deforestation, especially through the progressive destruction of the rain forests, through progressive decline of biodiversity, through increasing environmental pollution of various kinds.

    The contraction of the resource base of industrial societies is most clearly manifested in the fact that oil extraction has, according to most experts, peaked or even crossed the peak. That is why the price of crude oil, by far the most important resource of modern industrial societies, had been rising continuously in the few years before the present crisis broke out. In July 2008, it reached over $140 per barrel. Also the price of other important resources – the energy resources coal, gas and uranium as well as industrial metals like copper, zinc, iron and steel, tantalum etc. – rose sharply. Even the prices of foodstuffs, for hundreds of millions of people all over the world the main source of energy for recreating their labor power, rose exorbitantly. After the recession began and deepened, the prices of these resources fell again, but they never reached the low level in which they were, say, in 2000. Today, in July 2010, despite the fact that the recovery from the recession is very slow, crude oil price is fluctuating around $80.

    These price rises must not be mixed up with the usual inflations of the past, which were triggered mainly by excessively high wage demands of the working people (the so-called wage-price spiral). As we know, for quite a few years now, the real wages and incomes of most workers in all parts of the world are falling (or stagnating). These price rises are also not being caused only by rising demand from China, India, Brazil etc. If this were the only cause, a corresponding increase in supply by the corporations of the respective branches of the mining industry could stop the inflation soon. No, the main cause of the said price rises is the rise in the extraction costs of the most important raw materials. These cost rises are being caused by the fact that the raw materials in question must increasingly be extracted in geographical and geological regions and layers of the earth which are getting more and more difficult to access (think of extraction of oil from the bottom of the frozen sea at the West coast of Greenland!). For such extraction activities, necessarily, more and more energy and material input is being made. In the case of extraction of energy raw materials, what is most decisive is the energy balance, i.e. the net energy made available at the end of the process. We humans cannot change the geographical and geological conditions. (for elaboration of this point, see Sarkar 1999, chapter 4, and Kern 2010)

    Also the environmental services provided by nature for us are important resources for any kind of society: its ability to absorb a certain amount of man-made pollution, its ability to regenerate the fertility of arable land, the health services provided by clean air and water etc. The costs of maintaining such resources in an industrial society have also increased along with the costs of extracting important resources like the ones mentioned above

    The rising costs of extracting or conserving these resources mean that less and less of them are available to most people. Only those fortunate few, whose real incomes are rising or are not falling despite these circumstances, can consume the same amount of these resources as before. Nobody can know exactly how much of these resources are being consumed by particular persons. But if one says that a person has lost his job or is working only part-time, if one says that a person's real income is going down, then it is tantamount to saying that this person is getting less and less resources, which include the labor power and services of other people (e.g. that of a doctor or railway workers).

    This exactly is happening today in most parts of the world. Even in Germany, one of the richest and economically most successful countries of the world, the real income of the average working person is falling for several years now. In 2006, just a year before the present crisis began in the USA, German official statistics confirmed that since a few years earlier, real standard wages in Germany had been falling (Frankfurter Rundschau, 29.07.2006). Moreover, a large and growing number of workers are finding only temporary and part-time jobs. On the situation in the USA in 2006 it was said by three authors that also there, the real wages of the majority of the workers had fallen despite satisfactory economic growth (cf. Krugman 2006; Luce and Guha 2006). The middle class felt this national-economic growth personally as a descent down the social ladder. A trade union leader described the material situation of workers as a "race to the bottom" – more work for less pay, bad health care etc. But what roused his ire more was the fact that the good jobs were being slashed and that highly qualified technicians were being compelled to take up lowly jobs in Burger King, Wal Mart etc.(CNN, 3.09.2006; my personal notes.)

    It should not, therefore, surprise anybody that in 2007, in the USA, the housing boom came to an end and home-owners began defaulting. It began with the subprime mortgagors, but soon also the established working class and then the middle class started losing their ownership homes.

    Trade-unionists and all kinds of leftists may blame the current misery of the working people on brutal capitalist exploitation, on the weakness of the working class, on speculators without any conscience, on greedy bankers, on globalization that has caused the relocation of many production units in cheap-wage countries etc. Of course, at first sight, all these explanations are partly correct. But on closer look one cannot but realize that when, on the whole, there are less and less resources to distribute because it is getting more and more difficult to extract them from nature (think of oil exploration at the west coast of Greenland!), then, even in a better capitalist world with a strong working class, at best a fairer distribution could be achieved, not more prosperity for all. It is now necessary to think in totally new terms; a paradigm shift is necessary, a shift from the former growth paradigm to what I call the limits-to-growth paradigm.

    We can further explain the matter in the following way: Workers in the broadest sense produce goods and services by using resources (including energy resources), tools, and machines, which are also produced by using resources. If due to diminishing availability of affordable resources a growing number of workers lose their job or are forced to work only part-time, then they are producing no goods and services or less of them than before. Now, since most goods and services are, in the ultimate analysis, paid for by (exchanged with) goods and services, it is unavoidable that these workers can get less goods and services from other people.

    We know that today, because of a higher level of automation and rationalization, less (or less full-time) workers are necessary to produce a given quantity of goods and services from a given quantity of resources than, say, twenty years ago. It is possible to employ more part-time workers for the same amount of production. That would ensure a fairer distribution of the required quantity of paid labor among those who can and want to work. But the capitalist system of production may constitute an obstacle to this idea.

2. Illusion of Growing Prosperity – False Indicator GDP

In his article referred to above, Krugman (2006) speaks of a "disconnect" between wage stagnation, even fall in real wages, on the one hand, and satisfactory national economic growth on the other. The term "disconnect" seems to suggest that it is inexplicable, or that the trade unions are too week to take advantage of the national economic growth. I, in contrast, have said above that the limits to growth have been reached. This is certainly confusing. So let me try to clarify the matter.

    Just as it is possible that real wages are falling while nominal wages are rising, so it is also possible that real national income is falling while real GDP is growing. Real GDP is generally understood as a measure of a nation's prosperity. But, strictly speaking, it neither measures a nation's real income, nor does it indicate a nation's level of prosperity. What it measures is only the real value (i.e. value after correcting the distortion caused by inflation) of all, and all kinds of, goods and services produced in a country in one year. Of course, goods and services produced but not exchanged through the market – for instance, the services of a housewife given to her family – are not included in GDP because they are not sold for a price. But they can be included, if one wishes to do so. Statisticians could impute some reasonable value to them, estimate the total, and add it to the official GDP. Then the same GDP will be expressed through a higher figure. That's all. But that is not the point here.

Defensive and Compensatory Costs

 When one wants to think of real income, prosperity, wealth, wellbeing or welfare of a nation, and not just of the formal GDP, one has to examine the nature of the goods and services produced. A large part of them do not add anything to the income or wealth of a nation, in contrast to those of an individual or individual firm. For instance, the work of a soldier, who is getting paid although there is no war, the work of thousands of people who are producing weapons, the work of doctors who are treating patients, the work of those who are rescuing flood victims – such elements of the GDP are, for the nation (in contrast to the individuals involved, i.e. the soldiers, doctors, rescue workers etc.) actually expenditures, not incomes or additional wealth. They are costs. They are called "defensive costs" by economists who do not want to be victims of an illusion.

    When a house that has been destroyed by a flood is replaced by a newly built one, then that is no addition to the national wealth. Only the loss has now been compensated for. The energy, materials and labor involved in this process are really costs. The same has to be said of all repairs. They are called "compensatory costs". All defensive and compensatory costs are included in the GDP. The 32 billion dollar, that are estimated to be the cost of repairing the pollution-damages caused by BP's oil spill in the Gulf of Mexico, will also be added to America's and Britain's GDP in 2010. The GDP thus loses some of its value as an indicator of prosperity.

    In our context, the damages caused by ecological degradation are more relevant, because they happen mostly as a consequence of the same process that is supposed to be generating prosperity, i.e. industrial production. In China, officials of the national Bureau of Statistics estimated that in 2004 the costs arising from ecological damages in their country amounted to 3% of the GDP of that year. They estimated that it would cost the country 106 billion euro to remove (or repair) the environmental damage. This sum amounted to 7% of the GDP of 2004 (Financial Times, 8.09.2006) The report is a bit unclear. 7% of the GDP of 2004 may have been necessary to remove the environmental damage  accumulated over past years and not only that caused in 2004. (My Chinese readers may do a little research and find out the facts.) The point I want to make here is that all the glorious growth percentages are not really growth in real income.

    The huge damages that have been caused in China this year (2010) by the extreme weather events– prolonged drought, incessant heavy rain causing devastating floods and landslides – are most probably results of global warming. How much it has cost China will be estimated by statisticians only later. But it is safe to say now that these and other similar costs would reduce the real national income substantially.

    But costs arising from single events or in one particular year are not so important for our inquiry. More important is the trend. In 1971, K. William Kapp, the first scholar to study this phenomenon, thought that it is necessary to enlarge the concept by adding to it the costs of damages inflicted by industrial production on the social environment: costs arising from occupational diseases, death, damage to health, physical and psychological suffering etc. due to bad work conditions, all of which, like ecological damages, can also be irreversible. Kapp came to the conclusion that "in spite of the problems that … render estimating social costs difficult, it is justified to say that the dangers to environment and the costs arising to society from that show, both in absolute and relative terms, a rising trend parallel to growth in production and consumption" (Kapp 1979: XIII: retranslated).

    Krugman (2006) wrote in his article that in the USA, wage stagnation and falling real wages in spite of satisfactory GDP growth began already in the 1970s. That was roughly also the time when Kapp came to his above-quoted conclusion. Costs arising to society at large must be borne by members of society. Since in capitalism the rich are powerful and the workers are poor and weak, it is unavoidable that the workers and the poor have to bear the greater part of such costs. Krugman wrote further that the allowances paid by employers to their workers began to be reduced already in the 1980s. The correlation between growing social costs and stagnating or falling real wages is obvious.

    In Germany, the country I know better, a similar phenomenon can be observed today. To take just one example, health care costs are rising continuously(a growing part of such costs arise from mental and psychical sufferings.). While, on the one hand, employers are refusing to increase their contribution to the statutory health insurance system, pharmaceutical companies are refusing to reduce the prices of medicaments, and doctors are regularly demanding and getting higher remunerations, workers' contributions, on the other hand, are being increased by law. That is part of the explanation for the falling real income of the workers and the poor.

    Let me finish this section with a statement of the government of Great Britain, in which it presents a perspective on the future and gives an example of defensive costs. It says that Britain must reduce its emission of green house gases by 80% in the coming 40 years and that it must therefore use more nuclear, solar and wind power. But then citizens must be prepared to pay 300 pound Sterling more per head per year so that the lights remain on (The Daily Telegraph, 28.07.2010)

IV. Obsolete Profound Crisis Theories – Marxist, Keynesian, Schumpeterian

If the readers realize that my argumentation presented above gives a deeper explanation for the present-day crisis and for the fact that the world economy is having great difficulty in coming out of it, then they must also realize that all the other crisis theories that were formerly regarded as profound, namely those of Marx, Keynes and Schumpeter, are now no longer relevant, however illuminating they might have been in the past. Those theories were indeed profound, although in parts wrong. But they were all conceived within what I have called the growth paradigm. As long as this paradigm was seen as an axiom, a self-evident truth, these theories were valuable. But today the growth paradigm has become only a very dubious belief, just as the Ptolemaic geocentric paradigm of astronomy became obsolete after Copernicus convincingly presented his heliocentric theory of planetary movements.

    The earliest of these profound theories, those of Marx and his followers, were propagated with strong conviction by generations of socialists, communists and trade- unionists. Yet, even before anybody spoke of the limits to growth, many doubts were raised about the validity of the Marxist crisis theories – not only by establishment theorists, but also by a few Marxists, Paul Sweezy, for example (see Sweezy 1942).

    The more important among the Marxist crisis theories consists of two interconnected statements: (1) that economic crises regularly plague capitalism because the average rate of profit has a tendency to fall and (2) that this is caused by the rising tendency of the organic composition of capital. Marx and the Marxists thought that all new value is created by labor (variable capital) only, and that machines and raw materials (constant capital) do not create any new value. In this short essay it is not possible to go into the details of the complex arguments (for which see Sarkar 2010, chapter 1 & 10). Suffice it to say that this thought led to the failure to realize the importance of availability of easily accessible, and hence cheap, natural resources, especially energy resources, for the creation of wealth.

    Both Marx and Engels could observe the ecological devastations caused by the industrial mode of production. But in a famous passage in Capital, Vol.1, Marx, attributed this to "capitalist production", which saps "the original sources of all wealth – the soil and the labourer" (Marx 1954: 506f.;emphasis added). One could conclude from this that once capitalism is overcome, the problem would be solved. Faith in the immense power of scientific and technological development caused one to generally think that all material problems could be solved sooner or later. That is why also Marx and Engels were not overly worried. Engels, who even spoke of the "revenge" of nature, also wrote:

"… after the mighty advances made by the natural sciences in the present century, we are more than ever in a position to realize and hence to control even the more remote natural consequences of at least our day-to-day production activities." (Marx & Engels 1976, Vol. 3: 74f.)

    So far as the resource problem is concerned, in Marx's days, and also until a few decades ago, a shortage of important natural resources was no serious topic of discussion. Nobody even thought of such a possibility. So Marx and his followers had no reason whatsoever to question the growth paradigm.

    We, who are today observing the massive oil spills in the Gulf of Mexico and the Yellow Sea near Dalian, and the ravages of droughts, forest fires, and deluge-like floods in America, Russia, China and Pakistan, all caused by global warming, and those who have experienced the catastrophic blow-out of the nuclear power plant in Chernobyl and the pesticides plant in Bhopal, can only shake our head in disbelief when we read the sentences of Engels quoted above. But Marx and Engels lived in the 19^th century. We cannot criticize them for not knowing things we know today. However, we cannot forgive those Marxists, communists and socialists of our times who have not understood yet that there are limits to growth and that there are limits to the power of science and technology (for the latter point see Sarkar 1999, Ch. 4 & Sarkar 2010, Ch. 10).

    Another failure of Marx, Engels and their followers was their refusal to accept the basic truth of the assertions of Malthus on the population question. Marx considered Malthus's essay to be a "libel on the human race". Engels wrote that "economic laws are … [only] historic laws which arise and disappear". Engels and Lenin declared that the limitless advance of science and technology nullified the law of diminishing returns, on which one part of Malthus's theory was based. (This summary of the views of Marx, Engels and Lenin is based on quotations contained in Meek 1971). That population growth and falling or stagnating per capita resource availability, the most important of which is food and water availability, are contributing to all aspects of the present-day crisis of mankind have today become obvious. If the peoples of the world have to spend more of their income on food and water – that is again the case in August 2010 – , then no wonder that demand for other, less important goods cannot rise, and then also the present economic crisis cannot end.

    Another Marxist theory of crisis in capitalism is the underconsumption theory, which can also be seen as an overproduction theory. Keynes's crisis theory is similar to this. He too sees the cause of recession, depression and, more importantly, secular stagnation essentially in deficient aggregate demand. According to Keynes, the more people in industrial societies become richer, the smaller is the proportion of their income they spend on consumption, which consequently discourages investment by entrepreneurs. His witty phrase "paradox of thrift" is a call on the state and the people of rich industrialized societies to consume more and save less. They can make debts and consume more and pay off the debts later from future income that is then expected to rise. Unfortunately, Keynesians of today still adhere to this policy recommendation. But how can more income be generated in future if resources are declining and becoming ever costlier?

    Today, Keynes's theory as well as the Marxist underconsumption (or overproduction) theory must be rejected on two grounds. Firstly, they are not convincing as an explanation of the present crisis. It is, since long, simply not true that the people in the rich industrialized countries are consuming too little and saving too much. In the USA, before the present crisis broke out, the savings rate had fallen to below 1 percent, and even workers and poor people had been, since long, indulging in high consumption with borrowed money. As we have seen, they were even buying on credit showy houses they could not really afford. The same had been the case in all rich industrialized countries, although the savings rate had nowhere been as low as in the USA. The crisis in the US housing market (2006/2007) did not arise from overproduction of houses. All houses produced were also sold to eager buyers.

    Secondly, standard Keynesians as well as standard Marxists have not realized even today that it is the high consumption level of the peoples of the rich countries that is the main cause of global warming and other ecological degradations and damages. Fortunately for mankind, if it is not already too late, the resource crunch and the resulting long stagnation in the world economy will mitigate the ecological crisis a little. We have experienced it already. When, in the first half of the 1990s, industrial production almost totally broke down in the former Soviet Union and the East European countries, their emission of green house gases and other pollutants also went down. There indeed is a contradiction between the industrial mode of production and the health of the earth's environment.

    Schumpeter had accepted economic crises and depressions as an integral part of the process of economic development. Unlike Keynes, he did not recommend any policy for preventing economic crises. On the contrary, he even thought they had a positive function, namely that of "creative destruction", without which economic development and growth of prosperity would not be possible. Present-day Schumpeterians, therefore, see in the current crisis a great opportunity. They hope that the "destructions" would start off a wave of creativity, a wave of innovations pioneered by visionary and dynamic "entrepreneurs", as Schumpeter had defined them. And that, they hope, would be the beginning of a new "long wave", the first phase of which would be one of high growth rates and rising prosperity.

    They particularly address the twofold problem with fossil fuels serving as the main energy basis of industrial economies: the problem of their exhaustion (peak oil, rising prices) and the problem of CO₂ emissions as the main cause of global warming. They believe that soon, thanks to further research and development as well as to initiatives of dynamic entrepreneurs, renewable sources of energy – solar, wind, biomass, geothermal etc.– would rapidly replace the conventional sources. There is already much talk about the coming green industrial revolution.

    In our concrete case of the current crisis, when, about a year ago, the three great US car companies, particularly General Motors, were in danger of going bankrupt, Schumpeterians with their credo of creative destruction advised the US government to let them go bankrupt. A German publicist, Thomas Steinfeld, wrote:

"Schumpeter helped us realize that crises belong to capitalism just like wheels belong to a car. … In the past, hundreds of great companies have perished, often with very bad consequences for their employees. But then, till now, again and again, new companies have taken their place. Then why should now a few companies get an existence guaranty? And why particularly these ones, and why now?

At the end of his article, referring to the greatest worry of the car industry, namely the supply and price of oil, Steinfeld wrote:

"Whole sectors of the economy will now have to reinvent themselves. Politicians should not hinder them in that process. … capitalism does not need any particular resource. It needs just resources. Maybe it would not even need oil, but would be ready, without any problem, to switch over, with the money earned in oil business, to alternative energies if only the profit is satisfactory. In this complete indifference of capitalism towards the materials entrepreneurs deal in lies a lot of hope." (Steinfeld 2008)

I shall come back to this point further below.

V. The Current Keynesian Dilemma

The way the governments of the major industrialized countries reacted to the current crisis was typically Keynesian. It was not only that the central banks poured money into the finance sector to provide urgently needed liquidity to the banks and other financial companies, which had also been the case after the stock exchange crash of 1987. This time the state too became directly involved. It put hundreds of billions of dollar and euro at the disposal of companies, which were in danger of going bankrupt, and also allocated billions for spending (in the USA 790 billion dollar) in order to stimulate the economy and thus avert a catastrophic recession. In some cases, the state, in effect, also temporarily took over some large corporations which stood on the brink of bankruptcy: e.g. Fannie Mae, Freddie Mac, the AIG and General Motors in the USA, the Royal bank of Scotland in the UK, Hypo Real estate in Germany etc.

    This has been usual practice even in earlier decades, albeit at a smaller scale. This time, however, there are two new and big problems: Firstly, the immensity of the amounts of money thus provided raised fears of unacceptably high inflation, because much of the money was newly created by the central banks (in old jargon, printed). And secondly, this came at the top of already existing mountains of public debt. In May 2010, to give only a few examples, the ratio of total public debt to GDP stood in Germany at 76.7%, in the USA at 92,6%, in the UK at 78.2%, in Greece at 124.1%, in Japan at 227.3% (Süddeutsche Zeitung, 19.05.2010).

    A state can go bankrupt, although it cannot be wound up easily like a company, especially if a large part of its debts is owed to foreigners and if simultaneously its economy is in a bad shape. This has happened many times in history, even in recent history. In the case of Argentina in 2001, one could say it was an especially bad case of mismanagement. But this time even Greece, a member of the EU and the Euro-zone with their strict rules and regulations, stood in May 2010 on the verge of bankruptcy and is still not out of danger. Because of too high public debt, 99% of which are owed to foreigners, and bad economic fundamentals with a budget deficit of 8.9% (ibid), the credit-worthiness of the country in the world finance market was recently downgraded to junk status. Also the credit-worthiness of Portugal, Spain and Ireland, who too are a member of the EU and the Euro-zone, has been downgraded. They all have difficulty getting their new state bonds sold and rolling over old bonds falling due for repayment. They must therefore offer high effective interest rates.

    All this means that states can no longer spend their way out of a recession. They must cut spending in order not to go bankrupt. But if they cut spending in a recession, they deepen it. Spain, for instance, suffering from a deep recession with unemployment rate standing at 20%, has thus been forced to cut public spending, because its budget deficit, 7.3 percent, is too high (ibid) . But this has not helped her in the world finance market. The rating agencies downgraded her credit-worthiness again; this time with the argument that the massive cuts in public spending dim the hope of a recovery from the recession.

    This intractable dilemma has led to a controversy between the policy makers of the USA, who want to pursue the Keynesian policy of increasing public spending for some more time, i.e. until a convincing recovery has started, and those of the EU, led by Germany, who are afraid of the other, long-term consequences of growing public debt in the member countries. They are especially worried about loss of investors' confidence. The Europeans have now decided to pursue a policy of reducing budget deficits. Keynesian economists are, so to speak, campaigning against this conservative austerity policy of the EU. Paul Krugman, for instance, wrote recently: "We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [of 1873–1896] than the much more severe Great Depression [of the 1930s]. But the cost – to the world economy and, above all, to the millions of lives blighted by the absence of jobs – will nonetheless be immense" (Krugman 2010). David Leonhardt wrote: "The world's rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s – starting to cut spending and raise taxes before a recovery is assured … " (Leonhardt 2010). Another critic commented: if now many states simultaneously dig holes in their budget, they will dig themselves together into a deeper hole.

    The severe austerity measures that have already been imposed on the Greek people have led to massive protest demonstrations, violent riots and strikes that are further crippling the economy. In Spain too there have been demonstrations and strikes. But the majority of the people in these countries seem to understand that their governments have no alternative, that they must tighten their belt. They are only demanding that the necessary sacrifices be distributed fairly, that also the rich bear their share of the burden of the austerity policy.

    The American policy makers are, of course, hoping that the worst will soon be over, that a strong recovery and then an upswing will set in. But this hope of the Americans is unfounded. In the middle of 2009, the US economy indeed started to grow again. But after growing in the first quarter of 2010 at the annualized rate of 3.7%, it could grow only at the rate of 2.4% in the second quarter.* And no new jobs were created (Süddeutsche Zeitung, 2.08.2010). The unabated high unemployment (9.5% at the time of writing) have disappointed all concerned.

    It is now obvious that a people cannot indefinitely go on living well by spending money they have not earned. There is a limit to private borrowing. Similarly, a state cannot go on stimulating the economy by borrowing and/or printing money. At some point, the old public debts due for repayment cannot be repaid because would-be lenders would not give new loans to a state the economy of which is stagnating or even suffering from a recession. And if there is only modest and uncertain growth, which is today, in July 2010, the case in several countries (there are a few exceptions, e.g. China, India, Brazil etc.), the state cannot increase taxes out of fear of stifling the growth, nor can it hope that the modest and uncertain growth will generate enough tax revenue, so that new borrowing would not be necessary. A modest growth, moreover, is not enough to create new jobs, as the US data quoted above show.

    Early Keynesians had even hoped that growth brought about through implementation of their recommendations would generate so much tax revenue that also accumulated past debts could be paid off or at least reduced. But their recipes work only if real growth potential was earlier remaining unutilized. That is no longer the case today. They were (today's Keynesians still are) totally unaware of the limits to growth and the defensive and compensatory character of much of GDP growth. They did not face them in their days. Today, however, we can not only see these limits, but are also feeling the pinch. Of course, there have been some cases of prosperous and newly prospering countries that could in some years boast a balanced or even a surplus budget, but there is no case of accumulated public debts having been fully paid off.

    There is, of course, a difference between the USA and Greece. Because the USA is by far the largest economy of the world and because the US-dollar is the number one world currency, it will be able to attract people with money to invest, who will for some more time buy US state securities. And because Greece does not have a currency of its own, it cannot solve its problems by devaluing its currency or by simply printing new money. The USA can do both. But even the USA will one day face the problems that Greece is facing today. (For a detailed discussion and my critique of Keynesianism see Sarkar 2010: Ch. 3, 5, and 7.)

VI. Perspective

Let us now try a little intelligent speculation on the shape of things to come.

    As I have argued above, in the ultimate analysis, it is the limits to growth that are today preventing the world economy from coming out of the present crisis. Since the objective limits to growth cannot be overcome, it is most likely that the rich industrialized countries would suffer from a long period of stagnation (anemic growth or no growth) like Japan in the 1990s. I am not saying here anything very new. Even many establishment economists are nowadays saying that. For the immediate future, some economists are even seeing the danger of deflation (International Herald Trubune, 7.08.2010), which is worse news for the economy than inflation. In Japan it is already the case, and policy makers don't see any option for them to utilize (Süddeutsche Zeitung, 3.07.2010; International herald Tribune, 24.8.2010). Of late, among economic experts, the number of "doomsayers" is increasing and they are being seriously listened to (Thomas Jr. 2010). The difference is that while these experts are mostly speaking of a decade or so of stagnation, I think it will be a continuous contraction until at some point a steady state will have been reached. That is the logic of limits to growth. Those who do not explain the present crisis with this logic, i.e. those who think that a clever mix of various policies could ultimately overcome it, they are naturally looking forward to a new long period of growth and prosperity.

    Many among them, the optimists, are hoping that soon a new "green" industrial revolution will begin that will generate a strong economic growth, which will be sustainable – both ecologically and in respect of resources. If that hope materializes, then not only would the present crisis be over, but capitalism would also get a very sound basis for eternal growth. For then there would be no problem any more with energy supply and availability of other resources. After all, the sun will shine for a few billion years more and give us everyday, gratis, 15000 times as much energy as the world consumes today, a great part of which is claimed to be already economically usable. And with this much renewable energy available, nearly 100% recycling of all materials could be possible.

    In two of my books (Sarkar 1999 & 2010) I have presented my arguments for not sharing this hope. They cannot be repeated here, But three facts can be mentioned that strongly indicate that the powers that be also cannot share this hope: Firstly, nowhere is any great effort being made to recycle all waste materials, except in very poor countries where labor is damn cheap, and except in case of the very highly priced metals gold and silver. On the contrary. For example China, not a rich country as a whole, is making great efforts for several years now to build up in Africa and Australia a solid source of all kinds of minerals. To use the title of a book that appeared in 1975 in German, the planet is being plundered. Secondly, despite all the din about renewable energies, massive investments are being made all over the world to build conventional power plants including dangerous nuclear ones. And the search for oil and gas is being extended to deeper and deeper ocean bottoms including at the North Pole. Thirdly, the giant oil company BP, which for some time changed its name to "Beyond Petroleum" in order to say that it is beginning the transition to renewable energies, has now decided to bore for oil in the deep waters near the Libyan coast instead of building solar power plants in the Libyan desert. And that soon after the oil spill catastrophe in the Gulf of Mexico.

    This being the situation today, there is little probability that Obama's big talk of last year about the USA coming out of the crisis stronger than before will come true. It is proving more and more to be empty talk. I have mentioned above the job crisis in the USA. The growth rate in the second quarter of 2010 has fallen short of the minimum growth rate of 2.5%, that, according to US economists, is necessary to just hold the unemployment rate constant (Süddeutsche Zeitung, 5.08.2010). How high must the growth rate be to reduce the unemployment rate, say, by half? What is worse, the job crisis is threatening to become also a bad social crisis. 6.6 million Americans are looking for a job, without success, for more than 27 weeks. They are defined as the long-term unemployed. About one million of them are unemployed for more than 99 weeks, the limit after which the state stops giving them any aid. These people will now become destitute. Many of them will land on the streets (Süddeutsche Zeitung, 5 & 7.08.2010).Also the finance industry has not yet overcome the crisis fully. In the first seven months of 2010, another 103 banks, albeit smaller ones, went bankrupt. This leads to big banks becoming bigger. This shows that the government has failed to attain its declared goal not to allow any bank to become too big to fail. All in all, today, the spectre of a second financial crisis and a double-dip recession is haunting both America and Europe.*

    Also in Germany, the much vaunted welfare state is on the decline. I have mentioned above the higher health insurance costs that working people have to bear alone. As for the unemployed, the poor and people with low pensions, several benefit payments to them have been cut or are being proposed to be cut. For example, it has been proposed by politicians that unemployed people who get their accommodation paid for by the welfare office must now accept a smaller (up to 25 square meter only) apartment than the 48 square meters they are entitled to at present. This can be easily explained in macro-economic terms. The gross profit expectation of business (e.g. that of Deutsche Bank) is at present 25%. If real GDP grows at the rate of only 2% and real national income – after deducting the continuously rising defensive and compensatory costs (see section III.2 above) – not at all or at a still lower rate, then the aspirations of business can only be fulfilled by depriving the poor and the weak.

    The situation of the welfare state is equally bad, if not worse, in the other countries of Western Europe. One observer, Steven Erlanger, writes:

"Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism". But now, he continues: for western Europe, "the lifestyle superpower, the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis … has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II (Erlanger 2010).

This is not an ephemeral phenomenon. As to the future, Erlanger concludes: "The deficit crisis in Europe spells doom for the welfare state" (ibid). I agree. To take a concrete country as an example, Spain, reporter Sebastian Schoepp writes: "The crisis has spoilt their wish to beget children. Compared to the previous year, the birth rate fell in 2009 by five percent. Three out of ten Spaniards look without hope into the future" (Schoepp 2010).

    There is also one good news, for the Germans. In the last one year, Germany has recovered much lost ground in the area of exports and the further prospects, at least in the short term, are now very good. But in the media reports and comments celebrating this strong recovery two facts had also to be mentioned: Firstly, Germany's strong export-driven recovery is taking place at the cost of its EU partners. The French Economy and Finance Minister recently reproached Germany for letting its economy grow at the expense of its neighbors. Subsequent data corroborated her criticism. In contrast to Germany's strong recovery – the GDP grew there in the second quarter of 2010 by 2.2% – the economy of the whole euro-zone grew in the same period by only 1%, that of France by only 0.6% (Süddeutsche Zeitung, 14.8.2010). Secondly, the leaders of the German economy are worried about the world-wide shortage of raw materials (Süddeutsche Zeitung, 10.08. 2010). What should be added here is that while the German managers are again looking forward to better business, especially abroad, and while the share market index is rising, private bankruptcies are also rising. More than six million Germans are recognized as too heavily indebted (Süddeutsche Zeitung, 23.6.2010).

    Up to now I have concentrated my attention mainly on the rich industrialized countries. The picture is the opposite in some newly industrialized countries: China, India, Brazil etc. The growth rate in these countries is very high. But we should not forget that much of it has been possible because, since long, labor-intensive industries are being relocated from the rich industrialized countries to these low-wage countries. China has been (and still largely is) the "factory" of the world, India the back-office. Part of the prosperity of these countries is only the result of a zero-sum game. Moreover, the reason why the Chinese economy is booming despite the stagnation in Europe and America, its main export market, is the great real-estate bubble, which has been created by the state through its 450 billion euro stimulus packet at the height of the crisis and which is now threatening to burst (cf. Wagner 2010). Moreover, nobody thinks here of the horrendous social and ecological costs of growth, although they cannot be hidden. Only the recent prosperity of Brazil is not much dependent on these phenomena. Brazil is a vast country with a (relatively) very small population, an enormous area of fertile land and enormous natural resources. That is an exception.

    The social costs of the of prosperity of the middle class of China and India are escalating and manifesting themselves in some or the other kind of class struggle. In China, for several years now, it has taken the form of local revolts, sometimes violent, against the authorities and the entrepreneur class. Recently, it has also taken the form of some (till now) successful strikes for higher wages. But it also took the form of physical violence against doctors in hospitals where poor patients were neglected (International Herald Tribune, 10.08.2010), and even deadly attacks on school children of the urban middle class, presumably perpetrated by losers in the struggle for existence. Some recent cases of suicide of frustrated factory workers may also be interpreted as a form of protest against the prevailing situation.

    In India, in a large underdeveloped swathe of the country, called by the media "the red corridor", "Maoists", i.e. the ignored or exploited local people, who are moreover being threatened with eviction from their land, have taken to arms and are fighting against the state. In the more peaceful regions of the country, in the last ten years or so, about 200,000 bankrupt small farmers committed suicide. In Bangladesh, the country with the cheapest labor, textile workers, who produce garments for the rich of Europe and America, have had to resort to violent strikes to get a slightly better deal.

VII. Conclusion

It is now time to come back to the question whether this is just another crisis in capitalism or the crisis of capitalism. Already in October 2008, in San Francisco, an international conference of some selected left and liberal intellectuals discussed the question: will capitalism be soon over? In the last quarter of 2008 and a few months thereafter, due to the severity of the international financial crisis then, it seemed to many that capitalism might breakdown, others thought it would not be able to recover from this crisis. I was not convinced. I argued, its financial system is only one of the more important mechanisms through which capitalism functions, it is not the system's foundation. A defect mechanism can be repaired, but not an irrevocably eroding foundation. If the foundation remains strong, the system will survive. The foundation of today's capitalism is its material resource base. And I think it is eroding fast and irrevocably.

    The manifestations of class conflict mentioned above – including those in Greece and partly in Spain – hearten traditional Marxists and communists. But they do not yet understand that this crisis is not simply the crisis of capitalism. It is the crisis of industrialism altogether, in whichever socio-political frame it might be packed. Happily, it is also dawning on some of them that they cannot simply hark back to the good old conceptions of communism or socialism. The severity of the ecology crisis and the limits of resource availability cannot be denied by them any longer. And some among them are no longer convinced that further progress of science and technology would enable mankind to carry on with the quest for ever more prosperity through the development of "green" technologies. They now feel compelled to make the necessary adjustments in their theory as well as in their practical politics. They now call themselves eco-socialists, sometimes eco-Marxists. I welcome this development very much.

    It is beyond the scope of this essay to present the views of the eco-socialists (other than me) and eco-Marxists. There are, moreover, different degrees of ecological radicalness among them.. But I think it is necessary to briefly say why I consider the term "eco-Marxism" inappropriate for the contents of eco-socialism. The term "socialism" is very much open and amenable to the revisions necessary today. In contrast, "eco-Marxism" is, and logically has to be, connected with Marx's thoughts as laid down in his texts written in the 19^th century. That can hinder our theoretical and practical work. Marx's works are, after all, no holy scripture!

    I am aware that prominent Marxologists, e.g. John Bellamy Foster, have taken pains to prove that it is "possible to interpret Marx in a different way, one that conceived ecology as central to his thinking, …" (Foster 2000: vi, emphasis added). After painstaking study, Foster even "came to the conclusion that Marx's world-view was deeply, and indeed systematically, ecological (in all positive senses in which that term is used today), … " (ibid: viii).

    Whereas it takes a lot of painstaking study and interpreting to come to the conclusions that Foster has come to, there are many clear words of Marx himself that show that Marx's conception of emancipation of humanity was "Promethean" or "productivist". For example, the following famous words:

" The development of the productive forces of social labour is capital's historic mission and justification. For that very reason, it unwittingly creates the material conditions for a higher form of production." (Marx 1981: 368)

Obviously referring to such words of Marx, Ted Benton concludes that Marx's vision of capitalism as "preparing the conditions for future human emancipation" shares "the blindness to natural limits already present in … the spontaneous ideology of 19^th century industrialism" (quoted in Burkett 1999: 148). He interprets Marx as follows:

"Modern industrial production … is a precondition for the future communist society. The 'historical task' of capitalism is precisely to transcend the conditional and limited character of earlier forms of interaction with nature. … Elsewhere there is a recognition that some element of 'struggle' with nature for the necessaries of life is inevitable, the content of emancipation being given in the reduction to a minimum of the time taken up in this struggle. Either way, the possibility of human emancipation is premissed upon the potential for the transformative, productive powers of associated human beings to transcend apparent natural limits, and to widen the field of play for human intentionality." (quoted in: ibid.)

Burkett, who wants to defend Marx against such criticism, argues "that Marx's belief in the historical progressivity of capitalism is not based on an anthropocentric preference [of Marx] for material wealth over nature" (ibid: 149).

    Be that as it may, it is not our duty to defend Marx, nor is it necessary to criticize him for not having said things in the 19^th century that it is our duty to say today. It is our duty to make a convincing synthesis of socialism and the ecological insights that science has achieved. And that is possible, as follows:

    Under capitalism, but also under the Soviet model of socialism, development of the productive forces has gone so far that the latter have become destructive, for nature as well as for humans. Therefore, generally speaking, not only must this development be stopped, but also, again generally speaking, the world economy must be brought down to a level that is truly ecologically, and in respect of resources, sustainable. In other words, world economic production must contract. But such a contraction is not compatible with capitalism with its growth compulsion. That is why it must be organized through a planned economy with socialized means of production. Moreover, this would definitely entail sacrifices in material standard of living. In any society, it would be rejected by the majority of the people of the lower strata, who constitute the majority of the population. In an egalitarian society – that is the defining characteristic of a socialist society – the necessary sacrifices would also be distributed equally and would, hence, be more likely to be accepted by the majority. That is why our vision should be eco-socialism, with or without Marx.

    As stated above, we have seen that in Greece and Spain the majority of the demonstrators against the recent austerity measures of the government have realized that they must accept cuts in their standard of living, but they are demanding that the necessary sacrifices be distributed fairly, that also the rich must sacrifice part of their income and profit and thus bear their share of the burden. The present world economic crisis is thus preparing the ground for the vision of an eco-socialist society. Our duty is to utilize this situation.

 

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* After closing the text and sending it off to the editor, I received the information (CNN, 28.08.2010) that the US growth rate for the second quarter of 2010 has been revised down to only 1.6%. This naturally increases the fear of a second recession.

 

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Written in July–August 2010. Manuscript closed on 28.08.2010.