Weekend Economists in the Children's Hour: Hallowe'en to El Dia de Los Muertos, 2014

[Demeter]

2. Dark Age America: Involuntary Simplicity

Last edited Fri Oct 31, 2014, 06:19 PM - Edit history (1)

The Archdruid Report


... the political struggles that pit the elites of a failing civilization against the proto-warlords of the nascent dark age reflect deeper shifts in the economic sphere—the economics of decline and fall need to be understood in order to make sense of the trajectory ahead of us. One of the more useful ways of understanding that trajectory was traced out some years ago by Joseph Tainter in his book The Collapse of Complex Societies...Tainter begins with the law of diminishing returns: the rule, applicable to an astonishingly broad range of human affairs, that the more you invest—in any sense—in any one project, the smaller the additional return is on each unit of additional investment. The point at which this starts to take effect is called the point of diminishing returns. Off past that point is a far more threatening landmark, the point of zero marginal return: the point, that is, when additional investment costs as much as the benefit it yields. Beyond that lies the territory of negative returns, where further investment yields less than it costs, and the gap grows wider with each additional increment. The attempt to achieve infinite economic growth on a finite planet makes a fine example of the law of diminishing returns in action. Given the necessary preconditions—a point we’ll discuss in more detail a bit later in this post—economic growth in its early stages produces benefits well in excess of its costs. Once the point of diminishing returns is past, though, further growth brings less and less benefit in any but a purely abstract, financial sense; broader measures of well-being fail to keep up with the expansion of the economy, and eventually the point of zero marginal return arrives and further rounds of growth actively make things worse.

Mainstream economists these days shove these increments of what John Ruskin used to call “illth”—yes, that’s the opposite of wealth—into the category of “externalities,” where they are generally ignored by everyone who doesn’t have to deal with them in person. If growth continues far enough, though, the production of illth overwhelms the production of wealth, and we end up more or less where we are today, where the benefits from continued growth are outweighed by the increasingly ghastly impact of the social, economic, and environmental “externalities” driven by growth itself. As The Limits to Growth pointed out all those years ago, that’s the nature of our predicament: the costs of growth rise faster than the benefits and eventually force the industrial economy to its knees. Tainter’s insight was that the same rules can be applied to social complexity. When a society begins to add layers of social complexity—for example, expanding the reach of the division of labor, setting up hierarchies to centralize decision-making, and so on—the initial rounds pay off substantially in terms of additional wealth and the capacity to deal with challenges from other societies and the natural world. Here again, though, there’s a point of diminishing returns, after which additional investments in social complexity yield less and less in the way of benefits, and there’s a point of zero marginal return, after which each additional increment of complexity subtracts from the wealth and resilience of the society.

There’s a mordant irony to what happens next. Societies in crisis reliably respond by doing what they know how to do. In the case of complex societies, what they know how to amounts to adding on new layers of complexity—after all, that’s what’s worked in the past... If too much complexity is at the root of the problems besetting a society, though, what happens when its leaders keep adding even more complexity to solve those problems?...Here in America, certainly, we’ve long since passed the point at which additional investments in complexity yield any benefit at all, but the manufacture of further complexity goes on apace, unhindered by the mere fact that it’s making a galaxy of bad problems worse. Do I need to cite the US health care system, which is currently collapsing under the sheer weight of the baroque superstructure of corporate and government bureaucracies heaped on top of what was once the simple process of paying a visit to the doctor? We can describe this process as intermediation—the insertion of a variety of intermediate persons, professions, and institutions between the producer and the consumer of any given good or service. It’s a standard feature of social complexity, and tends to blossom in the latter years of every civilization, as part of the piling up of complexity on complexity that Tainter discussed. There’s an interesting parallel between the process of intermediation and the process of ecological succession. Just as an ecosystem, as it moves from one sere (successional stage) to the next, tends to produce ever more elaborate food webs linking the plants whose photosynthesis starts the process with the consumers of detritus at its end, the rise of social complexity in a civilization tends to produce ever more elaborate patterns of intermediation between producers and consumers. Contemporary industrial civilization has taken intermediation to an extreme not reached by any previous civilization, and there’s a reason for that. White’s Law, one of the fundamental rules of human ecology, states that economic development is a function of energy per capita. The jackpot of cheap concentrated energy that industrial civilization obtained from fossil fuels threw that equation into overdrive, and economic development is simply another name for complexity. The US health care system, again, is one example out of many; as the American economy expanded metastatically over the course of the 20th century, an immense army of medical administrators, laboratory staff, specialists, insurance agents, government officials, and other functionaries inserted themselves into the notional space between physician and patient, turning what was once an ordinary face to face business transaction into a bureaucratic nightmare reminiscent of Franz Kafka’s The Castle.

In one way or another, that’s been the fate of every kind of economic activity in modern industrial society. Pick an economic sector, any economic sector, and the producers and consumers of the goods and services involved in any given transaction are hugely outnumbered by the people who earn a living from that transaction in some other way—by administering, financing, scheduling, regulating, taxing, approving, overseeing, facilitating, supplying, or in some other manner getting in there and grabbing a piece of the action. Take the natural tendency for social complexity to increase over time, and put it to work in a society that’s surfing a gargantuan tsunami of cheap energy, in which most work is done by machines powered by fossil fuels and not by human hands and minds, and that’s pretty much what you can expect to get...