Saturday, 7 June 2008

Energy Descent and the care and Support of Vulnerable People - Some preliminary thoughts

Health and Social Care

The aging population in industrial countries will be put under the hardest pressure of this change - and self care and care of the elderly will become a major political economic issue as arrangements for pensions collapse in a savings wipe out at the same time that state funding is drying up. While the older population has personal knowledge of wartime and post-war austerity measures this group is now the old elderly and often far too frail to bring their experience to bear in practical engagement. Nevertheless to a degree this group can be given a respected social role sharing their experience of living in a make do and mend world - as suggested in the Honour the Elders notion in the Transition Initiatives. Some of the 'young elderly' may be able, in the early stages of this process, through downshifting and early retirement, to contribute to the organisation of new local economic arrangements and may even embrace and pioneer alternative lifestyles and subsistence arrangements.

For the ‘older elderly’ the situation is more challenging. A major portion of health and care costs are in the last year of life - in Germany it is one third - current moves towards easier euthanasia in several countries should be judged in that light and will be a serious challenge to health and social services when budgets are tight.

Single vulnerable people

The ability of any individual to survive in times of difficulty is powerfully determined by the amount of social capital they possess. Major life style changes to meet more needs close to home, with less energy and within the local economy, will not be possible for individuals to achieve alone. While some individuals are well connected into supportive social networks there are many who are not. In recent years there have been major increases in the number of single person households; in the 2001 census of 21.7 million households in the UK 30% were single persons - 6.5 million. 3.1million of these were one pensioner - 75% being women. 3.4 million are under pension age - 60% are men and 40% women. Single parent households will also need considerable support - there being 2.3 million single mother households in the UK - not to mention all those other households where one person is a full time carer for another chronically sick or disabled person who may not have the time to grow their own vegetables or insulating their house.

Socio-ecological self help and support arrangements for single individuals extending to those who are more vulnerable will become vital initiatives if society is to retain any traces of 'civility'.

More generally the trend to single people living alone will need to be reversed. Anyone trying to do a personal carbon calculation will notice that if they live on their own their energy and carbon usage is much higher - for example, they are not sharing the heat in a room - and a bed!

Public health difficulties

For the public authorities at the most local level the evolving difficulties, peaking periodically in specific emergencies, could take the form of a succession of public health crises - encompassing both physical and mental health. Large numbers of people will continue to require health and social care - at the same time as local health services are finding it difficult to get the money to pay the salaries and wages of their workers and the big centralised hospital complexes, that use masses of energy and energy intensive technologies, will be in difficulties.

Depending on the speed and manner in which the crisis develops large numbers of people may be suffering under chronically worrying debt burdens and a sort of culture shock when they find that their anticipated secure futures, with all their plans, have become ever more unrealisable so that anxiety, depression and breakdown will be widespread.

On the practical day to day level, an occasional and then more frequent breakdown of grid electricity and gas supply could undermine the ability of populations to maintain basic hygiene and keep warm, fed and watered. Bed bugs, fleas and lice could become a more serious issue bringing with them typhoid and other diseases. Unemployment and disorientation would have stress consequences that weaken resistance to the new diseases that are now emerging ('ecodemics' like avian influenza, lymes disease, SARS, West Nile Fever etc) plus the geographical spread of diseases as a result of climate change. It can therefore be expected that community health services will be forced to try to play a major role in organising local level community support networks and basic shared facilities for basic needs.

Education and Children's needs

Schools and other educational establishments, plus child care will also have a major role in community organisation at a local level - for training children and older people in skills appropriate to the 'new domestication' - gardening, cooking, manual skills, metal work, woodworking, energy numeracy and literacy etc. They also have resources in their buildings and grounds to be used - e.g. Land for growing, kitchens, workrooms, meeting halls, showers and changing rooms (important for the hygiene of children in a society under stress) etc. The schools will have a lot to do - a recent article in the Observer pointed out that in the UK only 8% of households cook from basic ingredients every day... but teachers would be facing these tasks while, like health workers, finding if increasingly difficult to make ends meet themselves.

Community leaders

As the central institutions of the state prove more and more unable to help, people at a local level will be thrown back on their own resources. What then happens within an individual community will depend on the community leaders who emerge. This is why it is so important that local authorities and health agencies work together with the Transition Towns movement. These will need to be clear about what is happening and have the connections and networks to draw together initiatives to recycle and rebuild local community arrangements around basic needs, food production, health and hygiene and energy. Existing councils may be able to facilitate this, with the right guidance and vision. Some new community leaders may be workers from health, education, community and voluntary sectors - who may pioneer the new economy partly out of self interest as they find the state unable to guarantee their jobs and pay.

In this regard, socially cohesive responses to major collective shocks can also be a positive as people work together and develop mutual support and solidarity which may draws in and support isolated people. However there has to be a common orientation to what is happening for this to occur and a common purpose in regard to what must be done which gives some sense of hope and direction towards a liveable future. This collective purpose will need to be organised in and through local institutions where people gather together and which they trust.

Crime and Policing

However, there is no guarantee that people will come together around considered and rational community spirited responses to the ecological/energy crisis in a co-operative relationship. While people must band together if they are to survive, the new associations may take the form of criminal gangs, sects with odd and extreme religious and/or political views - or vigilante self defence organisations. Gangs and vigilante groups are most likely to arise where the public authorities and governing elites appear powerless, or even act in a way that exploits people's vulnerability for their own ends as the crisis evolves.

The greater intensity of dependency of people on each other at a local level could easily evolve into a loss of privacy and personal space as well as a pressure for loyalty and conformity characteristic of extended families, clans and sects – which might easily develop collective secrets as attempts to protect themselves against the authorities, compete against one another and/or exploited by groups seeking to channel mass frustration at scapegoats whose expropriation or expulsion/ethnic cleansing will be held up as a solution for all ills. Criminality may be a serious problem getting a new economy up and running - e.g. crop thefts from community gardens....

This is a description of a transition to a sort of feudalism – communities in thrall to strong men or mafias who thrive in the crisis – with other finding protection in enclosed communities held together by faith ideas.

On the other hand one should be aware that many of the current trends towards increased criminality will be thrown into reverse. There will be an increased need for skilled manual labour and therefore more respected and paying social roles for the currently disaffected young people who currently cannot find a place in an office and professional focused culture. The progressive erosion of globalisations long distance communications systems may also erode some of the channels through which illegal drugs travel.

Culture, the arts and Leisure services

As has been argued by David Fleming the future must also have some culture to it - some celebration, fun and something for which life would be worth living. This will be a task that local authority leisure services departments will need to look at. This has been a very doom and gloom scenario but if that is all that is on offer then there is little hope of any new sustainable social and economic arrangements emerging without crisis occurring first. In fact, the social and economic arrangements to replace the high energy economy are likely to have many positive features which the current society is lacking. Much of the current tension in some urban areas is the result of the loss of manual employment and the devalued status of what manual employment remains. That can be expected to change as skilled manual workers will be important to rebuilding the future. There will be plenty of reason to bring currently isolated and lonely people together and no lack of practical common purposes in the simple things of life - cooking, eating, growing, repairing and building together. While the transition will be painful the simpler arrangements that eventually replace our existing economic and social arrangements may at least lack some of the horrendous complication, the stresses and performance pressures of an accelerating 24 hour society.....As I've found myself, gardening with friends is much preferable to sitting in front of a computer screen and chasing targets.

Also on a positive note it is worth pointing out that irrespective of people’s belief systems they will have to eat, drink, keep warm and clean – so those people who provide a practical leadership at a local level, providing genuine practical solutions to these problems will exert an attractive force. If they prove able to construct coherent networks of project activities that genuinely support people they will find themselves very influential. That means sticking to the fundamentals at a local level. In this regard I think that recent authors in Permaculture Magazine, reviewing the various videos and literature about ‘Peak Oil’ have it right when they say:

“One of the things that struck me (on watching a video about peak oil) was that for all those people campaigning against globalisation, their time would be better spent beginning to put in place what will be needed after globalisation’s inevitable demise. Why campaign against something that will inevitably collapse, and soon? Building the sustainable, low energy yet abundant future offered by permaculture is imperative, and the alternatives too grim to contemplate.”(Rob Hopkins)

“Forget about saving the world. The world is bent on self destruction and we can’t stop it. Trying is a waste of time. What we can and must save is the knowledge that will be so essential afterwards. We must keep alive traditional skills which are now despised and being rapidly forgotten. We must also develop new skills, using the best of modern technology and design science. We must preserve as much of the vanishing biodiversity of the planet as we can, in order to rebuild as healthy a future as possible after the crash.” ((Patrick Whitefield)

Monday, 2 June 2008

Review Article of "The New Paradigm for Financial Markets - The Credit Crunch of 2008 and What it Means " by George Soros

This small book is full of insights - but from an ecological economics perspective frustratingly limited to the analysis of the financial markets.

Soros sees himself first and foremost as writing a book of philosophy and draws upon his experience as one of the very first hedge fund managers. In his own words he has worked "as a successful speculator" in the financial markets since the 1960s. Before that the formative influences on his thinking were having to survive as Jew in Nazi occupied Hungary with a false identity. Then he lived through the early years of the Communist period in Hungary. After that he came to the UK - where he was deeply influenced by the ideas of philosopher of science Karl Popper.

Popper had a philosophy about 'Open Societies' that, given his earlier experience, was deeply appealing to Soros. "Popper argued that the Nazi and Communist ideologies have something in common - they both claim to be in possession of the ultimate truth. Since the ultimate truth is beyond human reach, both ideologies had to be based on a distorted and biased interpretation of reality; consequently the could be imposed on society only by the use of repressive methods." (p15).

To Popper, and to Soros, there is no such thing as being in possession of the ultimate truth. One can work towards it, and have provisional hypotheses, but theories and interpretations must always be open to questioning.

Hence, at the core of the thinking of George Soros, is a radical notion of the fallibility of human thinking. That does not mean that "any narrative goes". He especially dislikes the notion that powerful individuals and institutions can impose their own version of reality. On the contrary, it is important to Soros that one strives towards the truth, even if one only ever has a provisional and tentative version of it.

This means that a healthy democracy depends on an electorate being actively engaged in a search for what is true. They must be actively be engaged in holding people with power to account in regard to truth, otherwise the result is disaster. Soros gives Iraq as an example of how things go awry when this does not occur - citing the spokesperson for Bush, probably Karl Rove, as saying that, given its power, America's political elite could create their own reality. People like Rove manipulated the truth as if this was the superior way to do things. Naturally things went wrong after this.

Prevailing biases - illusions creating realities

For Soros the central notion of fallibility also applies in economics and the analysis of the financial markets. He recounts how, as a student of economics, he noticed that the claim that competitive markets delivered an optimal allocation of resources, when there is assumed to be perfect knowledge in those markets, was at odds with Popper's notion of the inevitability of imperfect understanding. Since that time he worked from the opposite idea - that markets are always wrong.

Indeed, he goes further. In his thinking, markets share a view which he calls a 'prevailing bias' and the prevailing bias may be self reinforcing, thus driving them away from equilibrium rather than towards it. Eventually they reverse, the bias is inverted, and a self reinforcing process drives in the other direction.

Looked at in this way the very notion of "equilibrium" is paradoxical. Indeed, Soros holds equilibrium theory to be invalid. "The behaviour of markets needs to be interpreted as a somewhat unpredictable historical process rather than as one determined by timelessly valid laws" (p 52)

In real life supply and demand curves incorporate participants' expectations about events that are shaped by those very same expectations. For example, in financial markets buy and sell decisions are based on expectations about future prices - and future prices, in turn, are contingent on present buy and sell decisions.

Thus, expectations of future price rises may encourage decisions to buy and, in turn, current decisions to buy may condition expectations of future price rises. From this it follows that, instead of, as one would expect, rising prices leading to a reduction in demand, rising prices may lead to more demand. There may be a self reinforcing process whereby market sentiment creates the conditions for its own justification.

Such a self reinforcing process is given an even more powerful forward push if there is a market reversal but this reversal proves only temporary. When the upward movement is resumed a shared interpretation can take hold that the market has "withstood a test" on its way up and has now resumed the upward path. This is, in turn, interpreted to mean that "fundamentals" really are pointing upwards. It is in conditions like these that a collective sentiment takes hold that inflates the market even more powerfully, pushing it towards a "far from equlibrium" state. "Leverage" acts as a powerful force to shove markets even more into such "far from equilibirium" states. (Leverage is where speculators are enhancing their earnings using borrowed money. This magnifies the gains on the way up - but is very painful on the way down)


Processes whereby economic agents are influencing the outcomes that they forecast and expect through those very same forecasts and expectations Soros calls reflexivity. He relates reflexivity to his differences with Popper and argues that the notion has political as well as economic consequences.

Popper had insisted that the same methods and criteria apply to the study of social affairs as to the study of natural phenomena but here Soros disagrees. For Soros natural science can operate through disinterested observation and experiment but in the study of human affairs people need to be understood not only as observers but also as participants. They are not just detached searchers for the truth, using reason as their guide, they are also engaged in active manipulation of the world. This introduces elements of indeterminacy into events because participants in human affairs act on the basis of fallible understandings.

The pursuit of (an unattainable) truth

In regard to politics the pursuit of truth is still a requirement for an open society. The case for critical thinking remains unimpaired - to gain a better understanding of reality. It is only on this ground that there is a reasonably safe basis for making policy. However politics is a pursuit of power not of truth. There is a danger that politicians attempt to manipulate the perception of reality in the pursuit of their own agendas. This happened in the War on Terror and the invasion of Iraq on false pretences. Such manipulations end up badly and the results are liable to be radically different from the expectations of the manipulators. Thus "the only way in which politicians can be persuaded to pay more respect for reality is by the electorate insisting on it, rewarding those it considers truthful and insightful and punishing those engaged in deliberate decption." (p 39)

Soros is aware that this way of seeing reality is deeply paradoxical and contradictory. Precisely because humans are active in the world, they cannot possibly understand or know the larger whole of which they are a part. Their fallibility is thus inevitable, at least to some degree.

It is also the case that because people may interpret things in different ways, or they may attempt to deceive, there is an inevitable indeterminacy in human affairs. Soros compares this to the uncertainty principle in Quantum Mechanics. Despite this we must strive for the best understandings to get the best outcomes. Taking on board that we are all fallible gives rise to a critical attitude. The starting point is that all understandings are provisional. One needs to be on the look out for prevailing biases on the assumption that oneself and others can be wrong. There is a realisation that individual and collective illusions are shaping observed events too.

There is a terrible paradox in all of this. It is when markets feel that they are dealing with a certainty that they overreact and destroy the basis for that uncertainty. Soros describes this as being a bit like the Peter principle - just as people are promoted to that the point beyond which they no longer have an adequate competency to manage, so prevailing analyses and ideas become overused as the basis for actions to beyond the points where they are still valid.

Black Swan Events

The recent fall in US house prices described by the Investment Editor of the Financial Times, John Authers gives an example. The boom was overegged by the belief that a house price fall would not happen - which created the conditions for a fall after all!

"Much of the house price boom was based on buyers' belief that such a fall was impossible. Ben Bernanke, Fed chairman, said in 2005 that the US had "never had a decline in housing prices on a nationwide basis". Such a fall is under way.
Hence a national fall in nominal house prices is a perfect example of a "black swan" - an exceptional event that has not been covered in historically based models. Such events, widely discussed in recent months, can lead to extreme and unpredictable responses in financial markets. "
Popper would have loved the idea of a Black Swan event since the generalisation that all swans are white would be held by Popper to be true only provisionally.

This radically destabilises the economic theory assumption that markets must tend towards equilibrium. On the contrary markets are historical processes characterised by fluctuating degrees of understanding and illusion. Even worse for economic theory - the illusion is not just an abberation it is an inevitable and integral part of the cycle - created by a herd reaction to an apparent certainty which creates its opposite, uncertainty.

Market sentiment and market mental health

The idea that individual and collective illusions are also shapers of events is a very deep insight. Although Soros does not go as far as to say so, although he perhaps does not realise it, it means that economic reality can be approached with the same type of conceptual tools that one uses to understand individual and collective mental health. The dispassionate observer who is engaged solely in the pursuit of truth is, as Soros is well aware, a long way from the engaged participant who is anything but dis-passionate. Market sentiment or the "animal spirits" which Keynes wrote about, is clearly an emotional engagement with the market. When the market is "far from equilibrium" it is euphoric or in a panic - the emotions that dominate, energetic greed or blind fear, are influencing the thinking of market participants to the point of them ignoring what, to the "dispassionate" observer, might appear to be obvious. Another way of putting this is that, just before a crash, the markets are more than just wrong, they are likely to be actively delusionary. What's more the delusion is not an abberation it is an integral part of the cycle.

Soros does not draw these parallels with mental health but why should he? Medically dominated psychiatry gives a misleading account of many mental health problems by a reductionist methodology that locates the causation of mental health issues in faulty brain chemistry. If one understands mental health problems in the medical way one will find no parallels or similarities to the account of Soros. Also, mental health issues are common assumed to be about the problems of individuals - so that collective processes, like the evolving interplay between market emotions and market cognitions, are not looked at as having any obvious similarities with the mental health problems of people. However, psychotherapeutic accounts of mental health problems contain many useful parallels which help us understand market processes. (see my Mental Health and Financial Market Cycles at )

The notion that market expectations can create the conditions for their own justification is a situation that will surprise no therapist. It is a very typical topic coming up in therapy. A paranoid person, expecting the worse in regard to the motivations and actions of others, will interpret quite innocent situations as hostile and act to defend themselves, thereby provoking the very aggressive counter actions that they feared.

Self fulfilling prophecies - the profitable economics of paranoia

In that sense it is not just that the War on Terror was promoted by a misleading and untruthful practices. It is also that the War on Terror helps create the very events that could then be used to motivate and justify its further prosecution - because it is one pole of a process winding up tension in the world.

Nor is this just a matter of politics. The War on Terror is associated with a powerful economic sector - that of the military establishment, of private armies, security companies and mercenaries, of armaments and military logistics. The operations of this sector, if unchecked, make huge profits out of a self reinforcing process of economic, social and political destruction. There is a danger that an ever larger volume of economic resources get sucked into a paranoid vortex - particularly in those circumstances where the economy turns down - for example when distributional conflicts occur due to periods of greater scarcity, when serious imbalances occur that cannot be bridged or when defaults on agreed arrangements take place.

When markets and politicians are more than wrong - when they are ignor - ant

Making use from ideas from clinical psychology we can go further and claim that the market is not only wrong - it might be more accurate to claim that it is ignor - ant. By separating the word, to highlight the "ignore" in ignorant, the intention here is to emphasise that "being wrong" may take place in different ways.

One can be wrong because, although dimly aware of other possible ways of interpreting reality, one prefers not to explore those possibilities in any depth - holding certain interpretations and realities at arms length because they are too unpleasant to contemplate. One may ignore other interpretations that one is dimly aware of because these interpretations are views which are widely disparaged in the media and one does not want to risk finding out more. To ignore some viewpoints is to avoid the risk that one will end up with the inconvenience of finding oneself supporting people who are ostracised for their views and who are, in the conventional wisdom, "obviously wrong". One may ignore an idea because it is held by people who are younger, of lower status, people who one assumes must be wrong because their lack of status or different mind-set or profession denotes a lack of experience, connections and information of the sort that the powerful group, that one is oneself a member of, are party to. Or one may ignore an idea because, even without going into that idea in depth, one senses that its implications would be too far reaching to take on board superficially, when one is already overcommitted. One does not want the added stress of taking on big changes and challenges. In these cases markets (or politicians) can be wrong because they are actually avoiding looking at things for what they are - they are ignor -ant.

The world is always more complex and there is always more to learn than one knows - but frequently one has only limited time before one must act. It is therefore often most convenient to believe what one's peers believe - because not to do so is a source of immense frustration and conflict. From this point of view fundamentalism, of any kind, simplifies. (See my "Fundamentalism in Communities of Belief. Closed mindedness and the human condition" at )

In all of this one can say that one definition of socio-economic and political power is that one can ignore others and get away with it because one's own judgements and interpretations are given special and predominant weight in the society in which one lives. In our society that means that one's views are predominant in the discourse conducted in the mass media - and therefore in the collective decision making about resource allocation in business and government.

More specifically, the judgements that are made in this world are overwhelmingly judgements made in the language and concept system of orthodox economics which Soros, with justice, disparages.

In the economic mind set there are certain assumptions which, if one tries to articulate another view, one is not considered worthy of being listened to. Above all one is not considered worthy of being listened to if one questions the idea of economic growth and asserts the notion that there are ecological capacity limits to the growth economy. Growth is an article of faith for the economists - where by "faith" I mean a collection of beliefs and taken for granted truths which, to contradict, marks one out as particularly worthy of being ignored because "one has already been proved wrong".

Ignor - ance and growth fetishism

Soros is quite right to attack the misleading simplifications of market fundamentalism. There are other simplifications around too. Another one is growth fundamentalism - the growth fetish.

To Soros the natural sciences are unlike the human sciences because it is possible for their to be processes of disinterested inquiry in the natural sciences. Yet this is a simplification if ever there was one. The natural sciences explore in directions where scientists and scientific research establishments can get the money and resources to explore and research. Getting the money is not uncontaminated by human interests. And climate science, in particular, is anything but uncontaminated by political and economic interest groups. Thus, for example, David Wasdell has analysed the way in which drafts of the Climate Science Reports described as "Summaries for Policy Makers" drawn up by the Inter-governmental Panel of Climate Change have been edited before the final version of that report appeared. As he shows the editing took out the ideas which suggested that climate change was accelerating and the reasons why this was so because of positive re-inforcing feedbacks in the climate system.
(See )

In fact, in the interplay between the economic system and the ecological system the boundaries between natural science and social science and human affairs cannot be understood as clear cut. Thus climate science is attempting to understand the impact of human economic activity on the climate system and, just as markets always get it wrong, so there are good reasons to believe that there are prevailing biases, dangerously erroneous ones, in the climate policy field too. Just as there are prevailing biases in the financial markets so there are prevailing biases in climate policy - which are based on wishful thinking and what is convenient for economic interests. These prevailing biases are in turn buttressed by the very dangerous illusion that the climate system operates in way that similar to the way the economy is supposed to operate (and doesn't) - moving from one supposed equilibrium system to another.

Climate science and economics - complacent illusions for equilibrium theorists

One can see this in the Stern Review. Its methodology is based on an assumption that for each "stabilised" level of greenhouse gases in the atmosphere at some point in the future (measured as CO2 equivalents) there will be a certain temperature rise above the pre-industrial. To be sure it is only possible to give a probability distribution of what the temperature rises might be for each stabilised level of CO2eq but, in principle, it seems possible to estimate the temperature rise from the level of greenhouse gases in the atmosphere. From these concentrations and temperature rises, in turn, further estimates are then made of the climate impacts (on sea levels, food supply, weather patterns including extreme events etc). From these, impacts, in turn, further estimates are made for the economic costs. Thus, for each stabilised level of greenhouse gas there are estimates of economic costs of the climate change that occurs at that level. So the theory.

This makes it possible for Stern to apply a (low) discount rate to compare the costs of different levels of greenhouse house gases and temperature rises with the costs of different strategies for mitigating emissions - all in net present values. From this he arrives at his famous conclusion that is worth spending 1% of global production to prevent a loss of between 5 and 20% of global production every year.

Leaving aside the huge difference between 5 and 20% the real flaw in this whole chain of reasoning is the idea of stabilisation levels of greenhouse gases corresponding to specific increases in global temperatures. Here the economists are conceptualising the climate as another system that tends to stable equlibriums. In reality climate scientists are looking at the climate in a quite different way - they are now saying that the global climate is stable only within relatively narrow temperature bands - and that it tends to whipsaw between different states and is highly volatile to small initial changes. This is because over substantial ranges the climate is subject to a great deal more positive, re-inforcing feedbacks than negative, stabilising, feedbacks.

Now that humanity has started the climate changing through CO2 emissions there are real dangers of an avalanche effect. Factors such as changing albedo (declining reflectivity as ice and snow melts) and methane releases accelerating the climate change process appear to predominate.

So, while economists fantasise that we have a choice of options between different levels of temperature increase and associated costs, compared to climate change mitigation costs, it is more accurate to say that we are in the opening phase of a global emergency and we only have only a few years to cool the planet by taking CO2 out of the atmosphere if we can find the ways to do so. This is more akin to a war emergency where we have to throw everything we have at the problem otherwise humanity is unlikely to survive.

The complacency and ignor - ance of the economists is blocking the way to this realisation - their illusions are very damaging, and not just in the financial markets.

Brian Davey

June 2008