The recent unpleasantness in matters economic have led me to study finance, economics and capitalism a little bit. While it would be easy to start developing a response to the mythos of capitalism as criticism, it occurs to me that he Permaculture way is positive. Okay, we know what we don’t want- it’s everywhere. But what do we want? Thatcher’s claim that “there is no alternative” to post-Hayek apologistics is clearly a statement out of another time and place. There must be alternatives to the monopoly of neo-liberalism and it is up to us to create them.

So here’s  a stab at some ideas I’d like to propose instead. Look for further elaboration in posts to come.

1. Small is beautiful
2. Absentee ownership needs constraints
3. Legal and political jurisdictions should be based on watersheds
4. Capital accumulation is a resource like any other and therefore a pollutant in high concentrations (Orlov)
5. All economic activity has its basis in nature
6. Economics as a servant of society and community
7. Fractional reserve banking means capital is the least of the factors of production
8. Externalization of costs should be strictly curtailed by counting them as liabilities
9. Tax extraction, waste and pollution rather than production or consumption
10. Concepts of private property need drastic revision
11. Import replacement and its barriers
12. Return of surplus to Earth and people- surplus, yield, accursed share and profit
13. Human and natural capital as assets rather than expenses
14. Resource-use matrix for costing and taxation
15. why scale matters; human interaction defines scale boundaries
16. development of sustainable economics institutions
17. Design (planning) vs. Freedom
18. Permaculture as a general theory

Overview

Recent discussions on The Oil Drum and elsewhere have thrown the question of sustainability into stark relief. What is sustainability? What makes one thing or system sustainable and another not so? Is there a framework or model for comparing relative sustainability? How do we measure and account for all aspects of sustainable systems?

Permaculture offers a set of specific approaches to these questions, although in some cases more detail is needed. For example, the need to perform “careful energy accounting” is recommended (if not required) without any real guidance as to how one would actually go about this. Holmgren and Mollison seem to agree that Howard Odum’s emergy approach to this issue is the best available tool, but even Holmgren admits to never having learned it.

My goal in this article is to sketch out some of the issues that play into a more comprehensive and detailed approach to sustainability, starting from Permaculture approaches with which I’m familiar.

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“Hey Otto- let’s do some crimes!”

Sorry, I couldn’t resist.

I attended the Biophysical Economics 2nd International Conference in Syracuse on Friday and sat through a long day of very intensive, eye-opening presentations. The first part of the day covered ERO(E)I, with presentations by David Murphy and Bryan Sell.

Sell’s presentation, on the EROI of shale natural gas plays was most instructive. He studied and compared a conventional well region (Indian Cty, PA) with the longest-running shale play, the Barnett Shale (Wise Cty. TX). Both areas offer around 11,000 wells, and are mature, yielding good data sets.

The first thing to note was that the wells in the Barnett have a much greater initial yield than current conventional wells, about 10x the peak production, although lifetime volumes were not this high. Usually, this is the number the gas companies throw around- initial production, which comes online in the first year.

There is a linear ramp up to peak production, usually in the first year, followed by a very steep exponential decline. Most wells in the Barnett are done in 7 years or less. More disturbing than this is that the overall field has shown the same curve shape, in a fractal relation to wells and groups of wells. In 2000, production in the study area was peaking at 180 MCF / day and declining over 7 years. By 2007, production was peaking much higher at 300 MCF / day, but declining much more rapidly in 3-4 years. The EROI went from 84:1 in 2000 to 38:1 in 2007, and overall volume per well had also dropped to half over the same period. This trend suggests another halving in 7 years, a 10% decline rate. Despite initial positive EROI, Barnett will show lower EROI than the conventional PA play in about 10 years time.

Recent studies have shown only 28% of these wells have been profitable, and Sell showed costs per foot drilled in the Barnett at $150, three times conventional well costs. Shale plays also tend to be much deeper than conventional wells, driving up per-well cost.  The Marcellus and Haynesville plays are more difficult and deeper than Barnett, and cost per foot drilled is double or more what it is for Barnett.

While Chesapeake, XTO and others have touted that the Barnett will yield 26 TCF, Sell calculates that the actual recoverable will not exceed 8.8 TCF.

The numbers don’t add up. The earlier profitable wells, and new initial peaks are being used to pay off debt and early entrants’ royalties. Even in the Barnett, this Ponzi approach will not last, and the 8.8 TCF may turn out to be optimistic as the economics start feeding back.

This need to keep ratcheting up production explains the tremendous pressure to open up the Marcellus, but it is clear that if Barnett doesn’t pay, none of the others will either.

I got word yesterday that plant tests sent to Cornell Cooperative Extension from our Brighton Community Garden showed positive for Late Blight in tomatoes. Late Blight became an ongoing topic of discussion over the weekend as I taught the second module of the PDC with my friend Kai. Friday I was on the phone to David from Providence and he asked how the weather was up here in Rochester, meaning “has it hit yet?” Same day, the NYTimes had an article on the blight.

Kai told me the Late Blight was the same fungus that wiped out the potato crop during the Irish Potato Famine. Michael Pollan’s book Botany of Desire goes into some detail about this. Apparently the Irish discovered that potato and cow’s milk formed a complete protein, and were able to operate this agriculture “under the radar” of British rule. Potatoes were looked at as somehow beneath Europeans, at the time, and were cited as evidence that the Irish were an inferior race and culture.

In doing my research on a theory of localized economics, I’ve started reading Jane Jacobs, and there’s a Potato Famine connection there as well. The British were successful in Ireland, in a way they weren’t successful in the American colonies, in preventing the emergence of a network of cities. Such a network, according to Jacobs, is the basis for dynamic city growth, and therefore national economic dynamism. According to Jacobs, there were no effective ports, replacement crops, or replacement industries or trades that could have absorbed the shock of the crop failure. The Irish economy of the time was anything but resilient.

Back at the PDC, we had a discussion going about what resilience is. This is one of the central tenets of both permaculture and Transition, that we should build resilient systems. But what excactly does that mean? I read from Odum and Barrett’s Fundamentals of Ecology on two types of stability. Resistance stability means the ability of the system to resist external shocks. Meanwhile, resilient stability means the ability of the system to absorb and recover from such shocks. These two modes appear to be mutually exclusive from an ecological point of view.

From this it emerges that the concepts of stability and resilience are quite different. A piece of glass is quite stable- some windows in my house probably date to its construction in 1902. Yet an external shock could easily shatter the glass, and broken glass is pretty hard to piece back together into a window. At least it requires significant energy input as heat and full remanufacturing process as well as purification. On the other hand a piece of raw dough or a bucket of “Slime” is resilient but not stable. I can mash it all day with my hands or whatever and it maintains its integrity, without the ability to have a stable shape.

Ahh, the headache, the nausea, the dry heaves of economic hangover. I hear everyone saying “why should the taxpayer bail out Wall Street?” I ask, why not the taxpayer.

Who else but the taxpayer is responsible for this mess? Back in 2003 we set the precedent by ceding Congress’ Constitutional authority to declare war. We have given Bush endless blank checks in the past- why stop now? Who else but the taxpayer gave the power of the purse to special interests- the Enrons, Haliburtons, Cargills, Monsantos, Bechtels and the like- or approved the tax cuts to rich folks, or tanked the dollar by rubber-stamping Republican irresponsibility in budgets since 2000?

It’s fun to listen to the speechifying on the House floor, as I’m doing right now. The claim that cutting Capital Gains Taxes to 0% is a responsible, free-market approach to solving the crisis that arises out of free-market approaches is, well, laughable. They also suggest an FDIC-style insurance scheme. How to fund it? The FDIC may well be massively over-leveraged, and functions on the idea that Confidence is supported by a 10% asset coverage of deposits. It’s probably no coincidence that they are called “confidence men.”

Our Constitution starts “We the People…” We authorize the state and federal governments and fund them. We bought the Reagan-Thatcher line and haven’t let go yet. Ultimate responsibility lays nowhere else but with us. You and I gave this sucker away- we should take the heat.

Jerome a Paris has an interesting post over at The Oil Drum this morning, suggesting that the $700 Billion is not about propping up the banking sector per se, but is in fact about re-capitalizing the Fed, which is now over-extended due to previous ad hoc moves.

As horrifying as that sounds, it’s not nearly as bad as one of the comments to the story, which suggest that troops are being redeployed from Iraq to USA for duty in case of civil unrest. Is this really happening?

My most recent trip to the Catskills revealed even more frenetic activity than was evident in June. This includes massive infrastructure, especially in the form of pipelines and right-of-way cuts over forested ridges for feeder branches. The new Millenium pipeline, which will run from Corning east then south and eventually to New Jersey is a mammoth 36″ natural gas replacement for a current 12″ line. That’s a 10-fold increase in capacity. Not one well has been drilled in New York State, yet the writing is on the wall.

© 2008 Russell Honicker

What does this sort of approaching resource extraction orgy have to do with the Third World? After all, as a spokesperson for the NYSDEC said, “this isn’t Wyoming; this is New York!” We are the new Third World. Having raped the rest of the world, time to start in earnest at home. Of course there’s a long history of this here: coal, railroads, oil, highways, farming etc.

The so-called economic growth we’ve been experiencing here in the North-and-West has been subsidized by resource extraction over the last 35 years in places like Ecuador, Zambia, Angola, Sudan, East Timor and the like. Murder, authoritarianism, theft, lies, and squalid urban poverty accompany each new “discovery.” Nobel-winning economist Joseph Stiglitz calls this the “Resource Curse.” John Perkins, in Confessions of an Economic Hit Man calls it unofficial U.S. Policy. There was a recent news story about Indian farmers unceremoniously removed from their lands to make way for a new 900 acre Tata plant. This is our real economic engine.

While op-eds to the NYT place the blame for poverty on proponents of biofuels and opponents to Genetically Modified (GM) foods, and praises the efforts of our good friends at the World Bank, the reality is that our wealth has been, and is being stolen from distant parts of the world. We have been exporting poverty to the Third World for decades. While death squads are palatable or at least ignorable in some of these places, somehow the idea of mercenaries in Delaware and Broome Counties seems ridiculous. Nevertheless, residents report that Haliburton and Blackwater have arrived, along with military helicopters performing alarming seismic testing. Exporting poverty is no longer limited to other countries; we’re bringing it to the Catskills and Southern Tier.

Others have made this point before, but our agriculture is now more of a mining operation than anything else. We frack for natural gas to generate nitrogen fertilizer, applied in massive doses to sterile soil as anhydrous ammonia, most of which washes off into the Mississippi and then the Gulf of Mexico, spawning a “dead zone” (one of 150 worldwide) the size of Massachusetts. Phosphate fertilizer is mined in the Caribbean and in Canada.  Diesel and Gasoline comes from Canada, Venezuela, Nigeria and Saudi Arabia, by way of Port Arthur and Beaumont. The irrigation water is thousands of years old, mined from the once-huge Ogalalla reservoir, which is being rapidly depleted. All that produces starchy corn and soy beans that then act as inputs to other industrial food production processes like livestock, vegetable oils, soft drinks, and yeah, biofuels. It’s hard to find any actual food in our food systems- that is food that comes from rain, soil and sunshine. Rather, it’s all predominantly the end product of “drill, baby, drill.”

Finally, let’s tie this all back to the current global financial crisis, which is immediately a crisis of real estate and foreclosures, a crisis of land. Naturally, it is a crisis of much more. Ultimately, it’s a crisis of dissociation of money power from reality. All the working business models involve slavery, theft, monopoly or addiction.

Okay, that’s pretty negative. In order to end on a positive, a huge Greenerminds Congratulations and Thank You to Maura Harrington, who stared down Royal Dutch Shell last week.

[UPDATE 15:30 EDT] The Guardian Weekly has another success story- native Peruvians protect the Amazon basin.

This is going to be a bit of a long post, so let me get quickly to the heart of my thesis. The idea I want to put forward and test is the idea that, from a resource use and allocation standpoint, every natural resource price and therefore every derived commodity price is wildly inaccurate or wrong.

This idea is supported by three arguments. First, as Karl Polanyi points out, natural resources (land) as a factor of production can only be priced as if it were a commodity, when in fact it is not a commodity. Second, costs and values associated with resource extraction are based on the idea of opportunity cost, that is the cost for the next best single use for the resource. Finally, both upstream and downstream costs are externalized and not reflected in the resource price.

Since natural resources such as fossil fuels, metals, water, timber and food drive much of the pricing in the economy, if their prices are wrong, then all prices everywhere are wrong.

The consequence of this basic error, if it is true, explains a number of phenomena, such as Matt Simmons’s assertion that even at $100 a barrel, crude oil is massively underpriced. But I will save that for a later post.

My purpose here is to float an idea and hold it up to see how resilient it is. I will admit that it is only partially formed and not well researched at this point.

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When are they going to start talking about this instead of pigs, dogs, lipstick, etc?