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Are We Addicted to Economic Growth? with Chris Martenson– Episode 080

World society has become addicted to economic growth. We base our entire economies on the need of exponential economic growth and when that stagnates, the wheels fall off the wagon, the wagon burns to the ground, the banks go under, and we’re left with one big mess. We base our wealth building on tertiary wealth (intangibles such as stock and paper money) that has no real value unless the systems of primary and secondary wealth exist (the resources and marketability of what the earth provides). Unfortunately, those resources are limited and finite.

We are a throw-away society living in a world that increasingly demands conservation and management of assets in order to sustain existence. According to Dr. Chris Martenson, our guess on Off the Grid Radio today, our industrial economy is hitting the limits of sustainability or extraction rates. Those communities that are going to fare well in this new economic paradigm are those that are prepared and organized, and have faced the fact that the future is going to look vastly different in the new world that awaits us just around the corner.

Off The Grid Radio
Ep 080
Released: December 16, 2011

Bill: Welcome everybody, it’s Bill Heid. Today my guest is Dr. Chris Martenson. Chris has written a book called “The Crash Course.” “The Crash Course” is an excellent book. It comes to some conclusions about the economy, about our lives, about where we’re going – based on a systems’ approach – that’s because Chris is a toxicologist, pathologist, scientist – has a systems’ approach to his analysis. He comes to some of the same conclusions that we’ve been chatting about for a long, long time. Chris, thanks so much for being with us today.

Chris: It’s my pleasure, Bill.

Bill: If you could, take us down the road a little bit. A while back, you came to some conclusions, almost your own personal tipping point, as it were. You decided to make some personal changes in your life and how you see the world, our current paradigm. If you could, before we get going too much, take us back a little bit to what happened in your personal life that brought the whole “Crash Course” thing out.

Chris: It was 2002, I had a moment of enlightened self-interest. I was really tired of what was happening to my personal portfolio, so this is a story of self-interest. I didn’t understand what was happening. I was living the corporate life. I’m a vice president of a very large company, a Fortune 300 company. I’ve got a big house, I’ve got a boat in a slip. I’m doing the American dream. I started scratching at the economy to try and understand what was happening because my broker was giving me, I thought, fairly unsatisfactory answers. As I started to dig, the more I dug, the more I fell into this rabbit hole of data. I became extremely concerned about the direction of our country – this is in 2002, again. I was looking at things like debt levels and unfunded entitlements, what I thought was an unsustainable fiscal situation even then, with these very quaint $100 billion deficits. That was concerning enough to me and to my wife that we looked at it and we said “this is an unsustainable economic model. Sooner or later, this debt situation is going to catch up with us as a nation and it’s going to really upset the apple cart. Where do we want to be positioned?” As that started to form, by 2003, I’d started to wrap in an understanding of where we were with energy as a second “e” in this story – the economy, that first “e” concerned me enough but when I put energy into it I was like “uh oh. These two things together tell a really important story.” Then a third “e”, the environment. All of this was gelling and swirling for us in 2003. Sold the big house. Ended up renting a much smaller house in rural Massachusetts. Sold the boat, got a kayak. Put a garden in. Started to build resilience in our lives, because the summary of my investigation was the idea that the type of lifestyle that we had become accustomed to and upon which my wife and I were 100 percent dependent was drawing to a close, and that there would be enormous changes in the future and that some of those changes could be disruptive. Nature tells us that the way you avoid disruptions is by being resilient, meaning multiple ways of accomplishing the same task. We set about making our lives more resilient, both financially and what I’m going to call physically – our physical infrastructure – how our food, fuel, shelter, warmth – all those sorts of basic things are covered. Then we discovered along the way the importance of the emotional resilience as well – preparing our minds for the idea of change and not being attached to one way that the world has to look in order for us to be happy and secure.

Bill: I think, Chris, what I like about your story and what I like about where you’re going is, you talk about as another one of the “e’s” is this concept of exponentialism. I’m intrigued by the idea. It seems like we’re almost – we’ve drank, all collectively, drank this – no, we’re not drinking, it’s like a Keynesian Kool-Aid and it’s in an aquarium and we’re fish swimming around. I don’t want to blame it all on Keynes, but I’m saying this idea that growth – we were born into this idea – you and I especially, younger baby boomers but baby boomers nonetheless. We don’t know any other world. We have no paradigm. I don’t know how familiar you are with Kuhn and I think you’re the Thomas Kuhn of our generation in terms of the structure of scientific revolution. When paradigms change, it’s a little painful but I think it’s important for us to talk about what’s the world that we’re living in right now. I’m reminded of Mark Twain who said “it’s not what you don’t know but it’s what you know that just ain’t so.” What’s the false narrative? What are the kind of – if I can be so bold of saying – what are the lies or illusions that we’re living in today that made you make that change that we have to reconcile ourselves with at some point?

Chris: Bill, you’ve touched on the biggest one of them all – the biggest illusion is centered around this idea of growth. When I say growth, it’s something else you refer to, it’s exponential growth. Exponential growth simply means if we charted it – we have a chart, it looks like a hockey stick, it starts out slow and then shoots up suddenly. It turns out that our entire monetary system, our entire economy, is based on economic growth. All you need to get exponential growth, very simply, is whatever you’re measuring has to grow by some percentage over time. If it’s an economy, it needs to grow 3 percent over a year. That’s your percent over time. It doesn’t sound like much but it’s actually the miracle of compounding. Something that’s growing just 7 percent a year will fully double in size in 10 years. Really? Something doubling in size in 10 years? That’s extraordinary. Well, that exactly mirrors China’s energy demand over the 10-year period from 2000 to 2010. It grew at 7 percent a year. It doubled. It’s a massive doubling. Our economy is constantly needing to double and redouble and our debt loads are doubling and redoubling and our money is redoubling and redoubling. All this stuff is going on around us at a faster and faster pace. The paradigm we live in, and I use that word carefully because I think it’s often overused, but here I think it’s right. The paradigm we are locked in right now is we have an economy that performs well as long, if and only if, it’s growing by some percent – 2, 3, 4, 5 percent a year preferably. If it’s not growing, if it’s stagnant or worse, it’s undergoing what economists call negative growth, because that’s how steeped – that’s how much Kool-Aid is in the tank. We don’t have words for the opposite of growth except for negative growth. If it’s doing that, then you have a condition like 2009 and the world economy – the wheels fall off the wagon and the wagon catches on fire. It’s a complete disaster. Banks are blowing up. It’s a mess. So when I say our economy needs to grow, it’s not a law, it’s not written in a bank, but it’s a structural, systemic condition of how we’ve created our money and how we’ve put this whole thing together. Here’s where the paradigm really changes. We are, as a species, for the first time we’re over the 7 billion mark, but we’re facing something that we’ve never faced across the whole globe before. This is no longer a cultural story – I don’t care if you’re Chinese, Asian, from the United States, from the OECD, Persian, it doesn’t matter – we are now at the first period of human history where there’s no more borders to cross. There is no next horizon. There is no next unmapped deposit of energy that we don’t know about. We pretty much have this whole world scoured and we have every idea of where everything is existing from a resource base. So here we are, with an economy and a money system that absolutely has to grow in order to function. We have an energy system that no longer can grow in the same way that it’s grown historically. We can put those two pieces together. Look at oil, look at the concept of peak oil. Look at the concept that cheap oil is definitely in the rearview mirror and possibly the peak of all conventional oil is in the rearview mirror at this point. Yeah, we’ve got non-conventional stuff – tar sands and tar shales and all kinds of stuff, but that stuff is not cheap nor is it easy. We take the loss of cheap and easy oil or energy, which is how we fund our economic growth, and then we take that loss and we marry it with this concept of the idea that our economy has to grow to be happy and we can very quickly come to the conclusion that what’s probably going to happen here is our economy is going to be really unhappy. That’s the world we’re living in right now. When I look at the world through the lens of understanding the flow of energy and the loss of the flows of energy to which we’ve become accustomed, I now can make sense of Greek defaults and food stamp use rising in the United States and social unrest appearing across a variety of different countries. All of these things make sense when you say “that’s what we would predict would happen if you took a growing economy and you started to starve it of its essential fuel.” This story isn’t just about debts, bad debts, entitlement, unfunded liabilities – all these things that many people are reading about in the newspapers – that’s all true but the larger context is we have to understand both that world of all what’s happening in the economic and financial world and what’s happening over here in the natural world, in terms of natural resources. That has never had to be a part of our thinking before. We’ve been able to just exist over in the economic world. “Hey, we’re going to put more money in. We’ll increase liquidity. We’ll drive down interest rates. We’ll have some policies. We’ll do some stimulus.” Those have always worked in the past because we could count on – over here in the natural world – as soon as humans reorganize themselves, whatever we wanted, we could go over here and get and extract from the earth and put through our economic model. That’s not true anymore. That’s shifting. It’s not like it went away but I’m telling you it’s shifted and is shifting and the benefit in understanding this story is that for people who can understand where we are in this paradigm shift, there are as many opportunities as challenges in this story. It requires, though, that we understand really what that narrative is, what that primary story is. When you started this it was, I think, the perfect framing for this question is the idea that what’s really missing here is not – we don’t need more information, we don’t need new understandings, we don’t need more studies done, we don’t need any new technology developed. What we need is we need to make sure we have the right story running. Currently, nationally, globally, our story is “we have to have economic growth.” That’s it. We can’t even have any other discussion until we get our economic growth. Once we have the economic growth, now we’ll talk about your other concerns. I think that’s a broken story because we have to face up to the idea, even if it turns out I’m wrong and there’s a lots of ways this doesn’t have to be true, we should at least be considering the idea of and the implications of this: what happens if our economy can no longer grow in the ways in which we expect, require and even demand it to grow? There are huge implications in that story.

Bill: There are huge implications. We’re going to take a short commercial break, Chris, and then let’s come back and talk a little bit more about this paradigm.

[0:11:58 – 0:16:12 break]

Bill: And we are back. It’s Bill Heid today. We’re talking with Chris Martenson, author of the book “The Crash Course.” As I said, an excellent book, coming from a little different approach than we normally come to on this show. We’ve been talking a little bit about this dangerous idea – the idea of assumptions, the idea of a story that somehow may be not true. We live our lives as if it were true. We make future predictions as if it’s true. For example, Chris was talking about exponentialism – if we all assume that we’re going to get a raise every year, a 10 percent raise, then something happens – and we go out and borrow money, we think we can afford a nicer car, a nicer house, nicer boat, whatever it is – based on an assumption and then we look at all the aggregate data that’s out there and it says “what if this doesn’t continue to go on as normal?” Chris, I’m wondering – I had this side note – I’m wondering if you ever run into any Austrian economists that continue to say that technology will bail us out. In other words, maybe you would go to one of the drilling stories about mining or something and say “there was these resources at the beginning, this particular period in time. The mining was easy, technology … then the mine went dry and then they went back in and drilled with superior technology.” So far in history, it seems like we’ve always come to the rescue through technology but what I hear you saying is, from your side, we haven’t been very good stewards of the earth or perhaps too good and we’ve taken everything. We’re at the point where there’s nothing left or it’s going – at least trending down the hill.

Chris: That’s exactly right. You know, it’s not just the Austrians. Technology turns out to be a form of religion that cuts across all sorts of different ideologies. It actually might be the dominant religion of our country at this point, if we look at it in a certain way. There is great faith in technology and technology has done wonderful things – it’s delivered incredible things. I’m a huge fan of technology and I also know, as a scientist and somebody who studied this pretty closely, technology’s never done one thing, ever. It’s never created energy. It can transform it, it can help us use it more efficiently, it can help us exploit it more effectively – it can do all kinds of things. When we look at technology’s role in oil plays, what it’s allowed us to do in many cases, the drilling technology has allowed us to simply get the oil that’s there out of the ground faster. It doesn’t allow us to get more out, necessarily, although we’re squeezing a little bit more out with some better technologies, but those are small incremental percentage improvement kind of things – we’re squeezing another percent or two out of a field. What we’re finding is that in many cases what technology’s allowed us to do is just get it out of the ground faster. That was great at the time but it means that we’re also facing the decline of that resource faster – the perfect example being the Cantarell Field in Mexico, formerly the #2 field in the entire world. It’s funded 40 percent of the government revenues of Mexico for years and years and years. They did this really fancy nitrogen injection where they were squeezing this with high-pressure nitrogen, extraordinarily beautiful technology, and it’s now collapsing at these stunning rates – 8, 9, 10 percent per year. So, yes, they got more out of the ground faster, sooner, but they didn’t ultimately get more entirely out of that find. So technology is great. Here’s the big sweeping view of where we are in the story and why I think technology doesn’t really have a savior role in this in terms of – by savior, I mean a technology will come along that will allow us to just continue to live exactly as we’re living without having to make any adjustments, forgetting for the moment that limitless energy, if we did discover it, might just mean the complete destruction of certain biospheres. Technology is simply up against something that we’ve not really faced before and that is that every time humans have gone through an energy transition – we were burning biomass once, that was all, there was wood, dung, peat, that kind of stuff. Then we discovered coal, so we moved from – coal’s a lot more concentrated, it’s a much better energy source – so we moved from biomass to coal. Nice 40-year transition. It took a long time for coal to fully get adopted and we discovered steam engines and that was great. Then we moved from coal to oil. Oil’s even more concentrated. It’s even denser. It’s a fabulous, fabulous substance. It’s liquid at average temperatures and pressures. It doesn’t explode unless you put it under the conditions that we can easily create a combustion engine. It’s a magic substance. But to make the transition from oil to “question mark”, a lot of people think “alternatives are in that question mark.” One thing we have to understand about alternatives – any solar, any wind, any biofuels – all of those represent moving the other direction in the story, which means we’re moving from a more concentrated energy source, which is oil, to a less concentrated energy source, which is wind and sun. That can be done but the cost of doing that is extraordinary. It’s a much different process. All of the embedded capital that’s in the other energy infrastructure has to be abandoned as we move into this new one and it’s going to take a lot of time. Even if tonight we said “that’s it. we’re only selling electric cars” – if that were possible, it’s not, but assuming that were true it would take 10 years to swap out half the vehicle fleet in the United States if we allow regular internal combustion vehicles to die a natural death and be replaced. These things take time. Then the scale involved – when we look at the quadrillions of BTUs that we derive from fossil fuels – coal, natural gas, oil – and we say “listen, whether we care about global warming, we care about CO2 emissions or we are about national security – we don’t want to be exposed to regions of the world that are unstable, we’d rather have our own energy security. Whether we care about economic security – we’d rather not be exporting money for energy. Whatever our concern set is, we can agree on something, which is that it makes all the sense in the world to move away from burning fossil fuels to something else. We have every motivation we can possibly do to move towards that, but we haven’t done it. One thing I don’t think is really widely appreciated yet is the reason we haven’t done it yet is because those are not – those are suboptimal fuel sources.

Bill: Exactly, Chris. You just said “let’s all plug our cars in. Let’s take half the fleet and plug them in.” The question is – and I’d like to hear your views on this – what are you going to plug them into? I had Porter Stansberry on the show a little while back and he was talking about the fragile nature of the grid from the perspective of the power companies who now rely on coal. I’ve been to China. I travel in China. I look at these coal-fired plants. I know that they’re building one every week. We have people here in our office that are from India. They tell me that same thing’s happening in India. Our coal in Virginia and West Virginia is being harvested and sent there. Of course we have politicians, we have bureaucrats that say we’re not going to build any more coal-fired plants. We had Vice President Biden say “we want to shut that industry down.” We have people say “we’re never going to build a new nuclear plant.” So what in the world would you plug your car into at some point? The whole thing – it’s an insane line yet it’s talked about on the periphery as “oh, it’s just a matter for some technicians to work out.” That’s a typical American response – “they’ll all work it out.”

Chris: Yeah, it’ll happen somehow. If you just scratch at the story with your fingernail, you hit primer so quickly it’s startling. The idea here is that the electricity has to come from somewhere. Right now it comes mostly from coal, secondarily from nuclear, thirdly from hydropower and then fourthly from natural gas and then finally, it’s coming in at a really distant fifth, would be renewable – wind and solar. If we said we were dead serious about this, we want to be able to plug in half the vehicles – we want half the vehicle miles traveled to come from some form of electrification – we have to upgrade all of our grids. We’re going to have to build a lot more plants because we don’t have the capability there – capacity yet. If we wanted to do that with solar and wind, we haven’t solved those issues yet. Here’s the deal, one guy – I was at a conference – this guy, Rick Ruhl, said “listen, I love solar. I only have one objection to it. Night.” That was the one word summary. What he was really saying, the longer story was, we don’t have any way of storing electricity yet that’s effective. We don’t have a giant battery farm that we can stuff all the daylight solar into and then use at night. When wind is blowing, it’s blowing, that’s great, but when it’s not, it’s not. We don’t have ways yet of storing electricity so you have to understand that the base load cannot technically yet come from renewable.

Bill: Chris, I just want to tell you, we’re in that business. We sell solar – we sell solar not as a way that you can necessarily pencil out. In other words, it’s for the purposes of what we do – it’s solar as a backup system, solar for ways to “what do we do if we lose the power over the weekend?” But sustainable solar – DiCaprio and people like that – they can do solar because if you’ve got $1 million you can throw at making everything – and the battery technology’s not great but you can make it work. But the people listening to this, I don’t have that kind of money. I don’t know about you but it’s – you can’t pencil it out. That’s back to that issue that we first started talking about. It’s not what people think that it is, in terms of a long-term answer. What about the grid? In those terms, where do you see the power grid? You take your exponential – your theory, your paradigm shift theory – and you take a culture that demands more and more, you take a culture that wants more and more, we’re using more electricity and at the same time you take this dysfunctional belief that we shouldn’t produce more – where do those two lines meet on the graph? No more power plants versus “I want more power.” What happens when those lines converge?

Chris: And they will converge at some point. Our hope is that somehow we’ll wake up to the idea that we have some really adult-sized challenges here that requires adult-sized conversations to occur. I think that over the long haul – in a thousand years, guess what? We’re living off whatever the sun gives us because all the fossil fuel will be completely gone, long ago. Sooner or later we end up living on what we’ll call our natural budget. Can we live on our natural budget? Absolutely we can. It’ll take some changes though. We’ll have to change a lot of things about our consumption patterns. Using a lot less energy is something that I think is in our future. The good news is Europe uses about half the energy per capita. They seem to live a perfectly fine lifestyle, by my standards. I can’t detect any deprivation there. So there are things we can do. I think our first, biggest gains – honestly, it’s not sexy, but it’s in conservation. Those are the areas that I’m really actually most intrigued with, are companies that are finding ways to really help with conservation.

Bill: Chris, let’s take a little break here and then come back and talk about conservation and stewardship. I think that’s a great segue into that. We’ll be right back with Chris Martenson.

[0:28:00 – 0:32:15 break]

Bill: And we’re back and we’re talking about conservation and what a lot of our listeners would call stewardship, with Chris Martenson. Chris, you seem to light up there when we start talking about how do we make this work. One of the issues near and dear to the listeners that listen to this is “how do we do this?” We might call it better stewardship, maybe just terminology, but how do we become better stewards? How do we lower our footprint for the day-to-day life that we have?

Chris: We were talking about conservation before and efficiency – technology efficiency helps – we can have more efficient technologies, but without the two of those together – efficiency alone, I don’t believe helps us unless we can actually use less energy as a consequence of that. Maybe for a lot of listeners on this program they’re already familiar with the idea that once you do move towards solar, what you do is you decide you want to be an off-the-grid house, what you do is a full energy audit. You look through everything and you really start to become consciously aware of how you’re using energy in every single appliance around you. Once you have that awareness, it’s really not that big of a shift to really dial down your energy consumption. But you have to have that frame of mind in order to do that, otherwise it’s just too easy to walk in, flick a switch, have the lights go on and forget about them. That’s been part of our life for a long time. The future I see is one where this concentration of energy, where we built one big plant and it services the whole state or something like that, that’s going to become more distributed over time. I’m really excited by the idea that the biggest efficiency improvements that I see are in the cogeneration plants where you produce the electricity onsite and then the heat that comes out of that is not a waste product, it is a valuable product – you can use it to heat, or you can use it to cool, but it’s something that is used. This means that it’s actually a – we’re using more – we’re getting much more efficiency out of whatever it is we’re burning, whether that happens to be a biomass cogen plant or it happens to be a typical fossil fuel plant, or whatever it is that we’re actually burning there. I see distributed technology as being really the way of the future. I’ve modeled that in my own life here. For instance, the first thing we did when we bought our house in 2009 was we put solar thermal panels on to give us hot water. I don’t see any reason why we should be burning hydrocarbons to heat water. The sun does an extraordinarily good job of it. It’s ‘70s technology. It’s not complicated. It’s relatively easy to install and it makes all the sense in the world. I am a big proponent of solar thermal panels. As well I also have solar photovoltaics with batter backups, primarily because I live in a part of the world that seems to lose power every month, here in New England, for whatever sets of reasons. Those, I think, are not just personal steps I’m taking, I believe that as the national energy grid finds itself unable to cope with the demands, finds itself unable to produce the capacity of electrical generation that’s required because we’re going to be moving towards this electrification process, it makes all the sense in the world to me to have personal family resilience around this. I would love to have more community resilience as more of my neighbors get involved in this, or maybe there are community projects that we can put together. Maybe even at the state level, I see this as moving from a more concentrated to a more distributed environment.

Bill: Sometimes it becomes that way – you see political entities like the Soviet Union where I think we can apply your concepts of exponentialism in a way too. Then what you see, Chris, is the breakup. When the Soviet Union broke up, exactly what happened to them happened to the larger group. In other words, you’ve got this giant control grid and it’s forcibly put upon people, with guns. Ours is not forcibly put on us, but we have a giant control grid. When it breaks down – when it broke down over there – people were on their own. They went from state issues to local, church, family, community and the paradigm shifted for them. It’s like “alight, there’s no money from this organization so now what are we going to do?” – at the local level – “how’s this community going to solve …” because the problems don’t go away. You’re always going to have crime, people are always going to get sick, all these things are going to exist no matter what the economy is. The burden shifts then to the smaller groups. I guess I hear you saying something that’s rather positive. How can we get ready, with respect to these smaller groups, and brace ourselves for some shifts that I know that you see coming.

Chris: Absolutely there’s shifts coming. Some of them are just so obvious, it really boggles the mind – my mind anyway – to try and figure out why is it that other people aren’t talking about this? Some of them are completely obvious. The baby boomers of – we might be at the tail end of that, but here we are, the boomers are retiring. The fiscal demands that the boomers are going to place on our health care system or Medicare system, our social security systems, our pension systems are extraordinary and still it’s not really being openly talked about. As I look across this larger landscape of the three “e’s” plus maybe exponentialism is the fourth “e” – we have economy, energy, environment plus all these exponential curves coming together. It simply says we have a very large period of change and adjustment coming. When I peer into that, it’s very unknowable what’s going to happen and when but we can say there’s certain things that make sense that we can do that no matter how things turn out, these are smart things to do. Of those, the most important one I know about is, I believe that some communities are going to fare relatively well and some are going to do really poorly. The difference between those two types of communities will be the degree to which they organized and decided to, on their own terms, use the time that we’ve got to face these problems before they actually arise. Community to me was really one of the prime determinants when my wife and I were looking around saying “we’re going to sell this waterfront house in Connecticut. Where do we go?” We didn’t end up in western, rural Massachusetts randomly. We ended up here because there’s strong communities here that we felt would be great ones to move into and become part of, rather than trying to recreate our own out of a place where community – life is not really a strong part of their historical ??[0:38:57] in Connecticut. So, yeah, community is the big one. Honestly, the steps are simple. First you have to know what we’re facing. You have to face it straight on. It’s uncomfortable for a lot of people. You have to be open to the idea that huge disruptive change could be coming and then look at the systems one by one that are going to get impacted. We’re back to Maslow’s Hierarchy bottom pyramid rung – food, fuel are going to be the biggest ones going forward for most people.

Bill: So you need to prepare for that but you need to prepare for – if you stop growing, Chris, doesn’t that affect … if our predication is that jobs are forever, that we’ll always need “x” in certain markets, don’t we have a shift with respect to what we can and should be doing with respect to skills too?

Chris: Absolutely. Huge shifts. Over this past four decades, five decades, what we’ve done in the United States is we’ve shifted away from being what I’ll call a productive economy, where we’re manufacturing things – we’re taking raw goods, intermediate goods, manufacturing them, assembling them and selling them in the marketplace – to a service-based economy. The shift was extraordinary. We went from 70 percent manufacturing to 80 percent service over that period of time. It’s just a stunning reversal. That giant pendulum of re-skillification that swung over toward the service side, in my view, inevitably will swing back. What does that mean? It’s a really loaded statement. It means – think of our service jobs that we have. Are you a lawyer? Do you work in a restaurant business? Do you walk dogs? Is there laundry being done? The service jobs are important but we’ve really overdone it, particularly in the financial sphere. We have way more financial capacity – this is mortgage companies, banks, hedge funds – all the financial companies that arose as direct consequence of having a really massive exciting fun credit bubble. That was great. We’re going to have to undo that. I do see that there are extraordinary opportunities, particularly people who’ve got real skills – engineering skills, mechanical, electrical – real new skills in growing food that can make do with less of these synthetic inputs that really help juice returns but require less thought and care than if you don’t have those inputs available. These skills that are coming up – this is going to be really – we’re going to be asking for people to bring their best and their most fervent attention to some really, really extraordinary challenges. I think that gives a sense of purpose and I’m actually quite excited by all the things that need doing. There’s a huge opening in areas of really helping people make this adjustment to what I think is going to be a turbulent period. It’s going to be interesting.

Bill: It is going to be interesting. We’re going to take another break here, Chris. When we get back I’d like to talk about – you mentioned what in your book you call tertiary wealth. I’d like to talk about – if you’re a derivatives trader maybe you ought to be looking or at least taking some night classes learning how to be an engineer or something. We’ll talk about that on the other side of this break.

[0:42:12 – 0:46:27 break]

Bill: We’re back again. It’s Bill Heid, speaking today with Chris Martenson about the economy, about some of the changes that are to come and, of course, his book “Crash Course.” When we left we were talking a little bit about what I think you call tertiary issues and maybe we can segue a little bit about wealth. I know are listeners want you to touch a little bit on land and so forth, but talk about – we talked about Maslow – talk about a little bit in the hierarchy there. You’ve built a wealth hierarchy in your book, do you want to describe that a little bit? How people ought to be looking at that as they look into the next decade?

Chris: Absolutely. That’s a set of ideas that really come from E. F. Schumacher and “Small is Beautiful.” What I’ve done is paraphrased it in my book. The idea is simply that primary wealth, what we would call primary wealth, is what the earth has available for us to use. That’s the primary wealth – it’s a thick soil, it’s a concentrated ore body right near the surface, it’s rich fishing grounds, it’s thick timber. All of those things have a primary value, very intrinsic value in them, but they don’t really have value to us as humans until they come to market somehow. Secondary wealth is taking the fish from the fishing grounds and bringing it to market. It’s converting the trees into lumber. It’s taking the concentrated ore out and turning it into concentrated metal – steel, say – that comes to market. Secondary wealth then are those physical expressions, goods that have been transformed and brought to marketplace. Tertiary wealth is what we layer on top of that – a stock in a company that happens to mine – that mining company actually owns some primary and secondary wealth, but we have access to those primary and secondary wealth sources because we own the tertiary – the third order form of wealth – which is the stock. All the paper that we’ve got on going out there – derivatives, money itself, stocks, bonds, you name it – all of those have no value unless there’s secondary stuff that we want to spend it on. Imagine a world where you had a trillion dollars but there was nothing to buy with it. What’s the value of that trillion dollars? It’s zero. The thinking is this, without primary wealth, there is no secondary wealth. And without secondary wealth, there is no tertiary wealth. They have a dependence on each other. The story is, that we can clearly see a story of depletion that’s existing in the primary sources of wealth. As there’s less of that, there will be less of the secondary sources of wealth. And as there’s less of that, the third order, or tertiary wealth, will have less and less value. The conundrum in this story is that what we’re doing with our magic money printing presses is we are rapidly increasing the number of tertiary claims because the central banks of the world don’t want to see our asset markets go backwards. They’re fighting it tooth and nail, deflation scares the bejeesus out of them. So what are they doing? They’re just cranking tertiary, they’re cranking expressions of wealth like crazy, as if the real value existing in the tertiary wealth. It doesn’t. It’s all the way back there in the primary wealth. Here’s some very simple statistics that I think should catch – anybody who’s got a view to the future – should really catch their mind and they should think about them. Here’s one: somebody who’s 22 years old, has been alive when half of all the oil ever burned in human history has been burned. OK, so what are we going to do for the next 22 years? And how about the 22 years after that? How do we keep this story going? We can see a story of depletion now for critical elements, for critical minerals, that says that within the next 10, 15, 20, 30 years, we don’t know where we’re going to get more of these things because the known reserves of them will be depleted. Yeah, maybe the ice caps will melt and we’ll find there’s abundant natural resources where the arctic used to be, but barring something crazy like that, we have to come to grips with the idea that the industrial economy, which we all know and love and has delivered extraordinary standards of living for all of us, is hitting some real limits. These aren’t limits – like before, let’s frame this carefully – I’m not saying these things run out, “it’s all over.” I’m saying we can’t constantly increase our extraction rates of those things. We can’t pull a million more tons of copper out this year than last year. At some point, we will hit a limit and then we’ll pull the same number of tons, and then a few less, and then a few less. Everything we know about how the world works, and I’m putting air quotes up “how the world works – everything we think we know about that, has been fashioned during a period of time when we were always getting more and more and more and more out. The paradigm shift is that that story is nosing over. It’s just nosing over right now. Already we see the signs of stress – in the credit markets and debt markets don’t work and monetary policy isn’t working. It’s very confusing what’s happening. What’s happening is, is that we’re at that stage of our species development, if I can be that broad, which says we’re going to have to face up to the idea that we can no longer count on, assume blithely without looking into it carefully, that more and more and more of everything will be available to us, all we have to do is organize our economy appropriately and it’ll be there. We now have to bring this real world stuff into the story and have it exist there alongside of all of our fancy economics and we have to look at those two pieces together. The implications of that though are pretty serious because every indication I have, Bill, says that we’re not going to do that. You and I might do that and individuals might do that, and I have wonderful conversations with private people who work on Wall Street and they all get it, but somehow when the doors open and we get out in public and these people are managing money they say “as long as the music’s playing, I have to keep dancing over here.” What I see happening is that the attempts to preserve business as usual, the attempts to recreate, preserve and maintain the status quo, are just vastly dominant in our national and global landscape. The story I see unfolding is that we will, at the expense of the future I believe, we’re going to continue to preserve the status quo. We’re going to try and pretend as if these limits don’t exist. We’ll come up with rationalizations about why technology will save us or what policy tweak or if we vote the right person in, whatever the story is – we’ll come up with something to help us believe that we won’t have to make any adjustments. The problem in the story is that nature reality is a really harsh mistress and doesn’t care about our belief structures.

Bill: Sure. When you have an addiction to growth, an addiction, and you make assumptions about the future that may not be true – if you look at something practical, for example, Chris, I think if you watch Squawk Box or some show on TV and they may give you some negative news but if they gave you a constant barrage of the issues that you’re speaking of, they couldn’t afford advertisers because their advertisers are brokerage companies. The system has to have more juice constantly. That’s not necessarily – the juice is a psychic kind of a juice that perpetuates the lie. In other words, there’s no incentive for media sources, especially highly concentrated media sources – like the petroleum issue that you’re talking about – to give you the real news. You’ve got to go find the solar sources, the less concentrated sources, your website, hopefully our website – Off the Grid News – that can give you the data because no one else is really telling you. There’s nothing in it for them. They need to perpetuate what they see. Chris, I’ve got to tell you, when I was thinking about this, your hierarchy of wealth, I started thinking the other day – did you read the story about the “MF Global delays US farm seed and land deals”? Did you see that story?

Chris: Yeah.

Bill: It’s as if the tertiary wealth handlers – they’re not attacking but were so intermeshed with these other stories that the tertiary wealth, the paper handlers, are pulling down – and a lot of these farmers, as they lost billions of dollars in their commodity counts, they weren’t speculating they were just hedging. When that hedging becomes decoupled, you’re going to see spikes in prices. A lot of consumers don’t realize that you see prices in airline flights, in copper, in other things, based on contracts that were made 18 months ago. Those things have to … those things expire at some point.

Chris: Yeah. There is a tail wagging the dog effect in our paper markets and one of the things that – another illusion that we have that we have to be careful about and hold at bay as much as possible, because if we pull it in it leads to a really wrong set of assumptions and actions, I believe – that illusion is the idea that we have free markets. A free market means that there’s willing buyers and sellers and the prices that you see reflect some native demand and supply balance. But that hasn’t been true in a long time because there’s been so much concentration of capital on the tertiary side that now those – it’s not the farmers growing what they grow meeting a negative price that we find in the markets that’s really setting the value of what corn is trading at or what wheat or anything is trading at, at this point. What’s really setting that is the degree to which speculators have decided that what these contracts are worth. The Federal Reserve and the other central banks of the world have colluded to drive down the price of money to all time historical lows. It is at zero percent on the short-term end for big banks and governments. Is that the correct price for money? We don’t know because the markets didn’t set that price, a group of 12 people sitting around a mahogany table set that price. They decided that that was the right price. When you set the price of money, everything – if the price of money is mispriced, everything that follows off of that, by default, is mispriced. With cheap money you get speculation. Think about a pension fund. You’re responsible for developing returns. You have an implied or assumed rate of return of 8 percent. You have to get that or you are being compounded into the dirt in a negative way if you’re not meeting that. All of a sudden you’re getting zero percent or 1 percent on your safe returns – what do you have to do in the rest of your portfolio to make up for that? You have to take extraordinary risks. You have to put money where you wouldn’t otherwise put it. You have to close your eyes, hold your nose and hope for the best. That’s the world we’re really living in because we have so much that’s mispriced and with mispricing comes misallocations. This is the housing bubble story. Stop me when you’ve heard enough because this is the world we live in where we have central planning around our most important economic functions which includes the price and the quantity of money. That’s the world we happen to live in and it means that we’re getting really, really poor information. When we have poor information, we make poor decisions, not the least of which is gasoline priced at $3.50 a gallon in the US. That is not even remotely close to what it’s actually costing us in this country when we include the other burdened costs of the subsidies we provide and the military expenditures we put forth to securing our access to Middle East oil. When we add all those back in, we should be paying $7, $8, maybe $9 a gallon for our gasoline and we don’t. Because of that, we make decisions about cars we buy, how far from work we live, the kinds of industries we decide to skill ourselves up in. Everything flows off of that. The summary of this story is we have massive mispricing of money and because of that we’re making bad decisions and we have, I think, a misadjusted sense of what the real risks are out there.

Bill: Let me give you, Chris, as we wind down, let me give you a big challenge. There’s always the issue in economics of timing and most economists are wrong about what they say in the long run. It’s really hard to pinpoint. As we see this deleveraging, decoupling, unwinding of the economy of the division of labor that we’re currently involved with, give us a timeframe, if you can, as we close here, how’s it going to look? Do we have 20 years? Do we have four years? I mentioned that you had talked about peak oil maybe being a very common topic in just a couple of years. Is that still your perspective?

Chris: It absolutely is. 2013 is still my preferred window for when the world wakes up to the idea of peak oil as a concept. Countries have, individuals have, companies have, but it’s not really a globally recognized feature yet, as something that’s going to really drive and shape national behaviors. 2013 is my right timing for that. In some respects, Bill, we are already – the future has arrived, it’s here. You can see it in the Occupy Wall Street protests, you can see it in what’s going on in Greece and Portugal and Spain, Italy. We can see it in what’s happening in Japan right now. It has arrived. I do believe that my preferred model for how things are going to unwind is what I would call a bowling ball going down a staircase. When’s that next staircase tread coming to us? When are we going to drop off and go down? My guess is within – certainly the peak oil event would be a main trigger event – we have extraordinary risks in Europe right now. There is stuff going on behind the scenes there which is really beyond the pale. We could have another drop here, another drop – we’ll have another reorientation of our perspective coming up within I would think the next six to 12 months. It’ll be a pretty serious one because we have not unwound anything. In fact, we’ve created higher levels of risk. We have more debts. We have larger imbalances. We have more concentration of risks than we did in 2008 and that’s because we failed as a nation, also globally too, to use that crisis as an opportunity to unwind some of those poor practices. In fact, we doubled down on many of them. I’m a little bit – I personally look at that and say that has a very high chance of unwinding. It all summarizes into my personal motto around becoming resilient and becoming prepared which is I’d much rather be a year early than a day late.

Bill: Well, Chris, that’s great advice as we close. I want to thank you again for your time. I want to tell everybody that – read Chris’s book “The Crash Course” – information you can’t live without. Also, go to his website at chrismartenson.com. Chris, Merry Christmas and thanks again for being with us.

Chris: Bill, it was my pleasure.

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