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What non-scientist Paul Krugman doesn't understand about debt

Economists who say we shouldn't worry about debt, like almost all their colleagues, assume the U.S. will continue to grow. What if that simply isn't true?

Economist and New York Times columnist Paul Krugman's dissertations on whether or not we should all be tearing our hair out over the national debt are indispensable as articles of insightful thinking suited to the circumstances of the 20th century. But this is the 21st, and there's one key oversight in his reasoning: It's predicated on the notion that the U.S. economy will continue to grow.

Granted, the notion that America's growth going forward is going to be limited by declining supplies of net energy -- i.e. peak oil -- isn't yet a popular one. But as the work of economists like James Hamilton suggests, the price of oil has a powerful effect on our economy, and the explanatory power of energy supplies is indisputable for people with scientific -- specifically biological -- training.

Think of it this way: If the economy is a giant organism, and indisputably it is a biophysical system first and the abstraction economists call "the economy" second, then what comprises its metabolism? What's it eating? Natural resources like minerals, timber and water, of course, but also energy -- and half our energy comes from oil, a uniquely irreplaceable resource given the trillions of dollars we've invested in cars, highways, parking lots, sprawl and all the rest.

Economists who look at the world through this lens are sometimes called ecological economists, or biophysical economists, and theirs is a thankless task -- integrating economics, which includes the notoriously slippery field of human psychology -- with everything we know about resource availability and the flows of energy and matter through the entire earth system.

One species of ecological economist is the collapsonomist, whose name says it all. While I'm not sure he'd classify himself as one -- collapsonomics implies a level of fatalism that solutions-oriented thinkers might balk at -- energy analyst Gregor Macdonald is one of the clearest articulators of the tenets of this field. Here's what he has to say about Krugman's assertions that debt, in essence, doesn't matter:

If you want to be calmed about debt and find yourself turning to the whispers of the Keynesians and MMT-ers for comfort, at least recognize that included in every scolding article from Paul Krugman about debt fear-mongering is an admission that growth, yes, economic growth, will still be necessary to escape our current debt levels. Unfortunately, I must remind that the entire economic policy and business complex is still operating with the assumption that economic growth is inevitable and will resume. There remains alot of market risk, embedded in that belief.

In short, asks Macdonald, how will we service modern levels of debt if we can't obtain enough energy -- food for the economic beast -- to continue to grow the economy?

Now, obviously, thinkers since Malthus have been predicting what is essentially the same thing -- resource limits leading to the end of growth -- and up to the present they've essentially been wrong. And ultimately I agree with thinkers who de-emphasize limits to growth, because if we could transition to renewables, primarily solar and wind, there is more than enough energy hitting the planet from our sun to power human civilization a hundred times over.

The problem is getting over the gulf of reduced oil supplies (and eventually gas and coal) and to the next hill, where we start to grow again with renewables. That could take decades -- or centuries. In the meantime, what we're faced with, and what Krugman will never address, because he's accustomed to economic, rather than scientific thinking, is decline.

Here's what our immediate future looks like, accroding to Macdonald:

Zooming to a larger view, if you read the scholarly work on collapse from Joseph Tainter and Jared Diamond, and also study the myriad ways in which resource scarcity halts the growth of large systems, you will come to understand better that fast collapse is the anomaly and decline is the norm.

Macdonald's thesis doesn't lend itself to easy co-option by either the right or the left, since both Krugman and the deficit hawks on the right are missing what's essentially problematic about deficits -- and even more problematic about the transportation, food and physical infrastructure we built with those deficits.

Illustration by Mike Mccaffrey

This post was originally published on Smartplanet.com


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