The nature of debt is to borrow from the future to spend in the present. The explosion of global debt – and the financial economy on top of it – therefore relies on the implicit assumption that it is sustainable because economic growth will continue forever. If global economic growth reaches a point where it cannot continue, the debt does not decrease and it will have to be written off. That will cause catastrophic damage to the global financial system, as debt and growth are at the very core of modern financial capitalism.
The exponential growth of our productive capacity and corresponding resource exploitation will also soon run up against the limits of the physical world. We are not separate from the biosphere and the natural world as so many seem to believe – we depend on it for the survival of our entire civilization. Endless economic growth is impossible, and the extraordinary expansion of the global economy since the industrial revolution was on the back of a yet-untapped resource base and exponential population growth, conditions that cannot be replicated. The nightmare of climate change is ever-looming, and it demands enormous changes in how we harness energy, structure our societies, eat, produce, consume, and travel that are incompatible with capitalism itself. We are already locked in to a 1.5-2 degree Celsius increase, which sounds small but will cause unimaginably large problems, and more emissions are generated every day. In the ‘Business As Usual’ scenario, we could be seeing 3-5 C warming by 2100. 6 C cooler is the difference between our world and the last ice age. War, migration, species extinction, drought, natural disasters, sea level rise, and food/water scarcity can and will devastate many parts of the world, bringing changes that are hard to even conceive of. More on that later.
Energy is what drives and upholds the complexity of a given society – they rise together and fall together. The more energy that can be harnessed, the more complex a society can become. And when the complexity of a society is reduced, energy is necessarily reduced as well. Complexity is a measure of how specialized, technologically advanced, interdependent, coordinated, and large a society is. Complex societies develop infrastructure and they rely heavily on symbolic and abstract communication (written language, printing press, internet, etc) to coordinate the complex functions of the society. Complexity in human societies also tends to create fragility, which is when a failure in one constituent part of a system can cause failures to cascade until the system collapses – sounds like 2008, right? Here, the word “collapse” means something rather specific – a rapid decrease in the complexity of a system.
The level of complexity that global industrial civilizations have achieved is only possible because of fossil fuels, which have a very high energy density. Fossil fuel use allowed an exponential increase in the ability to produce things, extract nonrenewable resources and exploit fertile land with industrial agriculture because of inventions like the steam engine, industrial power tools, mechanized farming, pesticides, and fertilizers. However – the benefits of complexity are subject to diminishing returns, and so is the extraction of resources in a finite world. There is an energy and resource cost to maintaining complexity, which is the cost to extract resources, maintain infrastructure, provide for the population, and coordinate ever more complex functions. As complexity rises, so too does the cost to maintain it – but at a certain point, the productivity of resource extraction begins to decline. In the beginning, all societies go for the “low hanging fruit” – the highest quality and most easily accessible resources. But of course, once the low hanging fruit is gone the only things that are left are the less accessible and lower quality resources. That’s why we are now mining copper at ore concentration of tenths of a percent, when in the copper age there was nearly pure copper just lying around on the ground. Another example is extracting oil from tar sands and natural gas with fracking. For energy resources in particular, this is a huge problem – the Energy Return of Energy Invested (EROEI) is the measure of how much energy you need to expend in order to gain a certain amount of energy. When it costs more to extract the resource than the resource can give you, there is no point in extracting it. Combine the diminishing returns with the exponential population growth since the 20th century, and it is obvious that the cost of exponential resource extraction is unsustainable.
The beginning stage of the collapse of global capitalism has been underway since the Great Recession in 2008. There was a fundamental shift in the economy since 2008 – growth is propped up only by increasing debt and financial gimmickry that has increasingly diminishing returns (do you notice a pattern?). The titans of the global economy – large, developed nations/regions like the US, China, Japan, and Europe – all have increasing dependency ratios, which means more resources/energy will have to be produced by a smaller working/youth population to support a larger elderly population, placing a check on growth. Global trade, the engine of capitalist expansion since the 1980’s recovered after 2008 but now has been drifting lower. Financialization also plays a key role in diverting investments to financial asset markets rather than expanding production, wages, and productivity improvements, which saps the growth of the real economy in favor of moving money around electronically. Neoliberalism and its program of austerity and expanding the wealth of corporations and the rich has decimated the disposable income of households, and at the same time the cost of essential needs like housing, education, and healthcare increased dramatically. Productivity has been stagnant. In order to maintain living standards, households took on ever-increasing amounts of debt which causes consumption, another core component of capitalism, to be unsustainable. Even without the threat of climate change, it doesn’t seem like it is possible for growth to continue much longer.
But the risk of financial collapse pales in comparison to the threat of climate change. Fossil fuels produce CO2 and other greenhouse gases, meaning that there is a hard limit on how much we can use before catastrophic consequences – the carbon budget. Because the complexity and growth of global capitalism is built on fossil fuel use, climate change is therefore an existential threat to capitalism. Most importantly, it is an existential threat to the human species. At 3+ C warming, it would cause metropolises to be abandoned, mass migration in the hundreds of millions, vicious resource wars, revolutions, and unimaginable famine, thirst, and disease. This would likely be the end of human civilization as we know it, and we are on track to be there within many of our lifetimes. This is at the heart of the dilemma that capitalist world leaders find themselves in today – they aren’t willing to break the rules of capitalism, even to save humanity.
Capitalism may have been able to survive in some form past the end of growth or climate change, but not both. Climate change demands that society is organized around sufficiency rather than endless growth, sustainability rather than exploitation, conservation rather than consumption, and simplicity rather than increasing complexity. And the end of growth will cause a financial crisis the scale of which the world has never seen before. Finance has for a long time pretended it could create something from nothing, which has created increasingly severe financial crises as bubbles formed and popped and formed again. The impossibility of financial alchemy will be laid bare over the coming years.
But there are more factors in this system. Even if growth could hypothetically increase forever, it doesn’t happen in a vacuum. War, famine, migration, drought, natural disasters, etc can all cause economic contraction, and with the effects of climate change becoming ever more severe the risks of such things are ever increasing. A major conventional war between great powers could plunge the economy into freefall. The Pax Americana since the collapse of the Soviet Union has ended, and as the strength of the American empire is wanes we’ve emerged into a new multipolar world that has more room for instability. With the onslaught of a large number of major challenges – any one of which would be challenging on its own – it is hard to see how the global system can survive intact.
So where does that leave us? I believe that the 2020’s are the very last chance for fundamental corrective action. We already have a very serious amount of warming locked in, so any corrective action will have to be immediate and drastic. The very best case scenario, in my opinion, is a global economic collapse that leads to sustained economic contraction (which reduces carbon emissions immediately), combined with a series of climate problems that affect people’s everyday lives. If capitalism fails to provide an adequate solution to its crisis, as I expect, then people will make a psychological break with the system and look for alternatives. I can only hope that the prospect of ever-increasing climate disruption combined with economic crisis forces people to make a clean break with capitalism and create sustainable societies based on de-growth or steady state economics, localism, sufficiency, conservation, health, cooperation, and appropriate technology. The worst case scenario is almost too horrific to imagine. The elites who have benefited so much from the system will not give up without a fight – we must be ready for it.