Those who would argue for economic recovery must answer two intractable questions.
The first is: Where will the energy come from, as more of the world’s net exporters become net importers?
Britain, Argentina, Indonesia, and others have become net importers in recent years. (Joining a long list of others) Mexico and Columbia are expected to follow suit within a decade. Clearly, we can’t all be net energy importers.
There is also the obstinate fact that aggregate net energy — the energy you get in return for investing energy in its production — has been dropping steadily. Oil net energy dropped from 100 in the early 1930s to 11 or less today. Net energy for natural gas is now in decline. We don’t have adequate data to know yet, but coal’s net energy is probably in decline too. Meanwhile, the net energy of all substitutes is low: wind, 18; solar, 6.8; nuclear, 5-15; all biofuels, under 2.
The second question is: If the creeping infection of sovereign default continues to spread to more countries, where will the money come from to bail them out?
The answer has been, and continues to be, more aspirin. Without more cheap energy, monetary tactics to play the game into overtime will not only be futile, they will only draw us closer to the edge of the net energy cliff.
Is it coincidental that the money multiplier is now less than zero? For every $1 increase in the monetary base – the money supply only increases by 79 cents.
Starting around 2012-2014, we will need to build the equivalent of the entire world’s existing renewable energy capacity every year just to replace the lost BTUs from oil.