Monday, September 15, 2008

Review of Reinventing Collapse by Dmitry Orlov

I love seeing the world through the eyes of people who look at the world differently from the rest of us - brain candy! Dmitry Orlov has an unusual background and does not take the usual view of how and why the Soviet Union collapsed or that the US economy is sacrosanct.

Dmitry was born and grew up in Russia but settled in the US, returning to Russian regularly during the fall of Communism and so has both an insiders and an outsiders perspective.

The ingredients for the economic collapse of a superpower, as learned from observing the Russian experience:

  • a severe and chronic shortfall in the production of crude oil
  • a severe and worsening trade deficit
  • a runaway military budget
  • ballooning foreign debit
Add to this a humilating military defeat and widespread fear of a looming catastrophe and the result is economic collapse.

In the Soviet Union the defeat in Afghanistan followed by the Chernobyl catastrophe against a backdrop of oil production collapse, foreign trade imbalance and the inability to produce enough food and consumer goods, led to it’s downfall.

Dmitry believes the US is poised to follow suit with oil peaking in the 1970s, trade imbalance, a huge military budget and foreign debit denominated in dollars but held by international creditors. While the US is theoretically self-sufficient in food, inputs of 10 calories of energy for each 1 calorie of food produced mean that loss of imports would lead to loss of food supply.

You will have to read the book to fully explore the arguments put forward, but they certainly give me pause for thought and I will be exploring the consequences more fully as part of the Localisation scenario that forms part of the Energy Scenarios for Ireland.

As oil supplies decrease in the US, Dmitry argues "less is produced, but the amount of money in cirulation remains the same, causing the prices for the now scarcer products to be bid up, causing inflation". I do believe (hope!) that Dmitry is overly pessimistic about the way in which people and businesses will respond to increasing energy prices and other finite resources. Given that we waste huge amounts of energy because it has not be cost effective to do otherwise, and we have grown lazy because of the low cost of energy, there is huge potential for reducing demand. I have a figure of 50% of the energy we use does not deliver useful work - for example, the heat your car engine produces, or the energy used in standby mode on appliances. My first challenge of this figure came recently from a energy consultant working with large businesses. His figure was 80% waste!

There are a few other points Dmity makes that I stuck in my mind.

Resource Wars - if nations decide to fight others over scarce resources, the wars themselves will require huge resources such that they will be futile and “victory in these conflicts will be barely distinguishable from defeat”.

In the event of economic collapse and hyperinflation, money ceases to have any purchasing power. I might swap you a bag of potatoes for a jar of honey but what would I do with a pile of cash that will be worth less tomorrow? From the Russian experience, Dmitry suggests “when faced with a collapsing economy, one should stop thinking of wealth in terms of money. Access to actual physical resources and assets, as well as intangibles such as connections and relationships, quickly become much more valuable than mere cash.” So consider a stockpile of, or the means of making, petrol and diesel, poteen, medicines and bicycle tyres.

Russia was in a MUCH better position to survive economic collapse simply because most of the necessities for life were provided by an inefficient state whereas the US citizen is largely dependent on the private sector for housing, transport, health care, education and care of the elderly.

Most Russians lived in homes owned by the state and so did not become homeless. Services such as heat, water, maintenance and rubbish collection was centralised, and were relatively cheap to run so continued to work. The extensive public transport system was owned by the state and kept running all through the collapse allowing movement of people and goods.

For those that enjoy US bashing, there is much food for entertainment in this book, though there are also positive statements about the US as well. This is one of my favorites: “the United States military does not know how to win. It just knows how to blow things up.”

And a few words of wisdom: “People generally find it hard to act on knowledge that contradicts their every day experience. The experience must come first, even if it is second-hand.”

This book has certainly made me consider the flip side of what would be considered desirable changes today. For example, an earlier blog entries firmly asserts that Demand Response and real-time pricing of electricity is essential to increase our use of renewables and maintain our economy. But suppose we did face economic collapse? The last thing we would want is for real-time pricing where the rich would price everyone else out of the market. In those circumstances we would want fair rationing and fixed prices. While I would not advocate holding back on real-time pricing, I would suggest that changes are flexible enough to work in more than one scenario.

I bought this book direct from the publishers and it arrived in a few days, quicker than Amazon.

No comments: