Home > Economics, Energy > Is economics a real science?

Is economics a real science?

If economics would like to consider itself a “science”, then it should be willing to be subjected to genuine scientific scrutiny.

The next 10-20 years will offer us perhaps the most damning expose of the fallacy of modern economics. The true test of a scientific theory is its ability to make testable predictions. Therefore we should compare the expectations laid out by mainstream economics with those from less orthodox origins.

Relentless (linear) growth is assumed to be possible, as long as mankind adopts the bureaucratic / technocratic prescriptions of the economic preisthood. This is the Solow growth model embeded in neoclassical economics.

By contrast in 1972 predictions of global economic growth, population and resources were made by the Club of Rome team’s “Limits to Growth”. The predictions made by this report are consistent with the field of Ecological Economics which places the human economy WITHIN the worlds natural resources. So far, their predictions are worryingly accurate:

(Chart Courtesy of Charles Hall’s Revisiting the Limits to Growth)

The Club of Rome’s model offers a considerably more plausible representation of the world economy than that postulated by traditional economics. The model relies on stocks and flows of various inputs and outputs, the rate at which is dictated by certain rules and feedback loops. Key aspects of the model are:
1) the world has a finite set of resources
2) industrial production requires resource inputs
3) the rate at which these resource draw downs are occuring are not underestimated
4) the consequence of resource extraction & consumption yields pollution

Therefore, the model does not disobey basic laws of physics, such as thermo-dynamics. So from a theoretical point of view it is superior to any Neoclassical model no matter how elaborate their mathematical prowess. Mathematics should represent reality, not replace it; and the Club of Rome model achieves this.

From a practical view, the model predicts world food per capita peaking in about 2010. Real world events are bearing this out. The model also predicts peak resource extraction (steepest decline of the blue line) between 2010 and 2020. Many in the “Peak Oil” community share this synopsis. Peak Industrial Output per capita, and Peak Services per Capita are also predicted to be on the cusp of steep declines.

If the next 5-10 years follow these trends then it will become even more untenable for the traditional economists to hold sway over the population and politicians.

But even more foreboding is that it is just as plausible for many in positions of power and influence to try and distract and deny these problems publicly, whilst privately understanding this dynamic. Instead of informing, educating and preparing the nation for the unsettling future, many in power may simply resort to hoarding wealth, influence and access to these dwindling resources.

Portentous times, indeed.


“From a physics perspective it seems natural to suppose that economic wealth is an abstract representation of a capacity to do something. If so, then economic value, adjusted for things like inflation, should be directly proportional to the rate ( in Watts) at which civilization consumes energy (e.g. coal, oil, uranium, etc.). Nothing in the universe happens without energy being transformed from one form to another. The global economy should be no exception.”

Thermodynamics of civilization growth


A more indepth discussion of the LTG book and the academic assualt against it see:



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Categories: Economics, Energy
  1. David Lilley
    June 8, 2011 at 10:10 pm | #1

    I read this because the author introduced it with a little of the truth about how we demarcate science from psuedo-science.

    Yes it is true that any theory, hyphothesis, guess, whatever you call it, is only useful if it can be corroborated and this can only be done if it is testable. This is Karl Popper’s “falsifiability criterion” for demarcating between that which is science and can be admitted into the world of “objective knowledge” and psuedo-science such as astrology or chartism which does not pass the test.

    Economic theories such as the law of supply and demand is testable and therefore science. Hence the use of the work “law”. All economic theory, provided it can make testable predictions is science.

    Prediction and prophecy are however different things. Mervin King never speaks without mentioning that it is imposible to predict the future as that would be prophecy. The chart above is prophecy and not scientific.

    We can predict that if population grows at the current rate it will lead to potential trouble but we cannot say it will do so because having identified the potential trouble we take action to mitigate it.

  2. June 9, 2011 at 8:50 am | #2

    Hi David

    Thanks for the comment. The article was aiming specifically at the nature and causes of economic growth.

    The traditional theory (Solow) model has a mathematical potential to show limitless growth (it also has a weak statistcial model fit which the authors merely brush aside by declaring that the residual must be due to “technical progress”, thereby assuming that progress can be limitless too – this is bad statistics AND bad science). Herman Daly’s “Ecological Economics and the ecology of economics” has an excellent chapter de-bunking this “model”.

    As the article above states, the LTG model is congruent with real world physical constraints. It is also congruent with Robert Ayres far superior mathematical growth model which demonstrates the role of energy inputs on growth:


    The four bullet points above are the key distinctions between Ecological Economics and mainstream growth models. In this respect, the next 20-30 years will offer the opportunity for us to test which of these models was more in keeping with real world outcomes.

    The point I make is that economics will keep on burying its head in the sand on these four points, up until it becomes completely untenable for them to sustain it. If they try and declare that our growth problems are caused by other factors, or unforeseen circumstances or human calamities etc., then indeed they have not adhered to the Popper stance of having a falsifiable theory. If reality disproves their theory and they resort to shifting goal posts, then they are not scientists but charlatans no different to astrologers.

  3. David Lilley
    June 10, 2011 at 10:09 pm | #3

    I did have a look at your hyperlink and I do get the drift of your Malthusinaim. But there is no clash between economists and ecologists. I’m sure that all ecomomists are green.

    I hope that I have established that economics is a science dealing as it does with the law of supply and demand and using the tools of science; maths, statistics, reason and testing.

    There can be no growth model just as there is no law of evolution.

    Growth is evolution but with a difference. We have a part to play in deciding where we are going and we certainly will not choose polution and climate change. We will mitigate the ill consequences of growth but this is not the concern of economists.

    The thoery of evolution was a theory (Erasmus Darwin’s) when introduced but it is now the established history of life on earth. It was a great discovery, discovering the truth always is, but it now only explains some history. It does not tell us about a growth model or permit any extrapolation into the future. We can identify the fittest in retrospect but we cannot identify today’s or tomorrow’s fittest.

    Similarly, we cannot hope to see a growth model in the last 100 years or extrapolate the future growth of our or any economy.

    David Lilley

  4. David Lilley
    June 10, 2011 at 10:36 pm | #4

    In thanks to your knowing about the falsifyablity criterion and posting and replying to my comments. Please let me introduce a growth model.

    Karl Popper introduced World 4, objective knowledge. World 1 was the Big Bang (something new in the world, matter). World 2 was life (something new in the world). World 3 was Descart’s mind (something new in the world).

    Popper considered our tried and tested scientific knowledge of the world that is put on the shelf marked “truth” (but always tentative) and not on the shelves marked “belief” or “opinion” (subjective knowledge) to be World 4 (something new in the world).

    World’s 5, 6 and n have yet to be identified.

    I propose that the public limited company is World 5. it has had a bigger impact on our wellbeing than World 4 because it has so multiplied the advantages given to us by World 4.

    World 4 underpins the FTSE 100 and all world beating companies and the wealth created by these companies underpins the welfare state.

    There is a growth model here; World 1, then 2, then 3 etc that contradicts the second law of thermodynamics.

    David Lilley

  5. June 13, 2011 at 9:48 am | #5

    Hi David

    The main premise of the article above was that we are quite likely to have before us in the coming years circumstances that will provide an opportunity to test two alternative models of economic growth.

    I would propose that each model has an objective “Falsifiability” test, as follows:

    1)The traditional economic growth model (Solow) is deemed to be a factor of labour and Capital, plus a somewhat nebulous concept of “technological progress”. The condition of falsification is if global economic growth severely slows (or even recedes) yet the input factors remain constant. Therefore if the availability of Labour continues, Capital is expanded (e.g. through economic stimulus) and technology “progresses” (for surely know-how can’t recede over time) yet by the power of these inputs the economy has a prolonged contraction, then we should reject this model.

    2) The Limits to Growth (LTG) has at its core the assumption that energy & resources are the primary fuel for economic growth. Bare in mind that the true test of the LTG model is not the specific predictability of the model in terms of the precise timings of the outcomes, but instead whether the behaviour of the system follows the prescribed dynamics. The falsifiability of this model would occur if resource inputs were to show declines but the economy were to maintain productive capabilities. In other words, even if we do hit problems with the supply of oil, gas, coal and other energy dense inputs, but the economy ploughs on regardless, then we should indeed reject this model. Actually the more recent Garret article (linked at the bottom of the post) estimates that 9.7mw of energy is required to generated one inflation adjusted 1990 dollar of wealth.

    We may well not be able to predict the future course of our economy, but by subjecting it to rigorous scrutiny we can at least hope to understand how we did indeed get to where we are, and perhaps help to plan better for where we might be headed.

  6. June 13, 2011 at 10:35 am | #6

    Hi David

    In reply to your growth model suggestion; I find it intriguing but not feasible. It seems implausible to declare that mankind (and therefore economics) can expand and progress merely by will power and appropriate social structures (the PLC example you give). The wealth increase you refer to was powered by energy use, not ingenuity as such. Mankind, society & corporations merely EXPLOIT energy resources available in the natural world, we can’t CREATE energy at will. Science is a trigger action for wealth creation, but is not the motive force. It is the spark, but not the fuel.

    World 1 is matter and energy formation. World 2, is a means whereby the tendency of energy and matter to degrade is overcome by life forms. Life doesn’t spring forth through will-power, but through chemical conversions requiring energy inputs. Energy is consumed in the process of overcoming entropy (look up Maxwell’s Demon). Starting with plant life, photosynthesis converts solar energy into complex carbohydrates. Higher life forms consume these as part of the interconnected food chain. Worlds 3 & 4 are processes that operate both individually and socially within the physical body of humans.

    Each World as you describe feeds off the layer before, but this doesn’t mean that they can become sustainble in their own right. Take away solar energy and life dies off. Take away life and human consciousness and social structures dissappear. To believe otherwise, is to believe in perpetual motion. And certainly, motion created by the fictions of the human mind is highly implausible. To correct Descartes, it should be “I am, and I think”. I can’t “become” merely because I think. I need the physical presence of a brain to create the preconditions for thought. It can’t work the other way round.

    You risk falling into the trap of letting philosophy, science & maths replace reality, when in fact they should be representing (modelling) the real world.

  7. David Lilley
    June 13, 2011 at 9:01 pm | #7


    I am in this discussion because the falsifiability criterion was mentioned and I wished to answer the question “is economics a science?” That would of course be mainstream economics.

    I hope that I demonstrated that economics is a science. And like all science it has served us so well. An example is that in the first few months of our engagement in Afganistan we save 150,000 children simply by vaccination which was banned by the Taliban.

    Popper drew a line demarcating between science and psuedo-science, the falsifiability criterion. If it does not make testable statements it is not science.

  8. David Lilley
    June 13, 2011 at 9:50 pm | #8

    To continue.

    I hope that I demonstrated that there can be no economic growth model as demonstrated by the fact that evolution is entirely unpredictable. The fittest can only be identified in retrospect.

    Man’s evolution, including his economic welbeing, is only evolution. We have raced forward with the Greeks, we have gone backwards in the Dark Ages, the UK jumped ahead thanks to excommunication, Oxford and Cambridge, Hume and the printing press (historians have moved on from the histiry of mass murderers to social history but they completely miss ideas and technology). We were able to give citizens a better life post the industrial revolution and freedom post Mill (everything you value about the UK). The advent of the limited company gave us more again and our great companies float the welfare state whilst its founders never put a penny into something that costs £400b pa. Our great PLCs put in every penny in corporation tax, income tax and NIC.

    The authors of the alternative economics paper might mention a great mathematician and a bit of thermo but in the mainstream world od scientific economices they are very welcome to put their theories to the test. They might start by asking why oil reserves are currently 50 years when they had been forty years for several decades.

    Science demands the truth. You write a new paper and thousands are testing it within days. If it fails we go forward assisted by knowing what fails. Truth is that elementary thing “correspondence with the facts” (Alfred Tarski, 1930s).

    The biggest single factor supporting our wellbeing in the last 100 years has been science and its immediate application by PLCs. We are the greatest in so many state of the art ventures in the world; mining, oil and gas exploration and production, pharma, insurance, financial services, chip design (ARM Holdings designs all the chips in mobiles including Iphones), retail etc. Our FTSE 100 collect 70% of their wealth abroad beating the competition. We also gave the world so much more. The list is endless.

    Saudi had 70% of the world’s know oil reserves and even today it has 60% despite oil and gas being found all over the world. Did it give them economic growth, freedom or spirtual wellbeing (something that comes from giving). Categorically NO.

  9. David Lilley
    June 13, 2011 at 10:15 pm | #9

    On the subject of Worlds 1,2,3,4 and 5.

    You should check out Popper’s book “Objective Knowledge” and its essay on Worlds 1,2 3 and 4. I have checked out your references.

    We all now know about the Big Bang (it goes back to the greatest, Kant)-World 1- the introduction of matter and time.

    We all know about the introduction of life on earth. We have moved on from “vulgar” Darwinists and have a great many people very familiar with this history-World 2-the introduction of living things.

    We are less fammiliar with World 3-Descart’s mind-the ability to reflect that is not present in grass.

    We should all get familiar with Popper’s World 4. Our discussion here is world 4. See my recommended reading. this work has fallen deadborn from the press like Hume’s Treatise.

    But more crutial to our discussion. We should all get real about the massive benefits to our welbeing brought about by the PLC.

  10. June 13, 2011 at 10:44 pm | #10


    Thanks for the reply. I will indeed follow up on the references. I have a Popper book on my shelf gathering dust, but also look up “Objective Knowledge” too, along with Hume.

    There is a risk though that you could be bestowing the PLC with almost mystical powers. I’d be intrigued to know whether you consider the PLC as flawless or whether there are certain context driven circumstances for which this might not always apply?

    For instance, do all PLCs perform such majestic benevolence to society? Do PLCs need regulation and oversight to ensure fair play in terms of externalities (e.g. the bankruptcy of TEPCO would not be conducive to resolving the Fukishima disaster)? Will the PLC model always deliver growth (however we may retroactively assign the notion of progress as you suggest)? Will the PLC deliver a socially optimal solution under circumstances of severe resource constraints?

    To not ask these questions is to assume the “end of history” and the limit of knowledge.

    However, we digress somewhat. Comment 5 offers the basis for potentially assessing the falsification of two (alternate) models of economic growth. Do you accept that each model has a falsification “test”? I realise that we would need to define the basis of growth, but surely we can both agree that (inflation adjusted) GDP is a sufficient yardstick of progress or growth? Even if you don’t consider this a true measure of “growth”, we can at least agree that each model is based on an understanding of the relationships between a clear set of input metrics and output measures, can’t we? These are the very axioms from which the models are built and thus without agreement here we have no foundation for testing, surely.

  11. Anonymous
    June 14, 2011 at 12:34 am | #11

    This is great. I live to argue. But I am not in the business of defending a cause or defending a belief. I’m in the business of omnicisience. Folk can have their opinions and beliefs but if it fails the evidence test it is rubbish and as such is of no interest to me.

    I am getting bostrous. But the biggest question in the world has always been the episomological question “how does knowledge grow?”. And if you are asking different questions that is OK if you are in a discipline like cancer research but even then you should be aware that there is a bone-fide scientific method. Trial and error.

    I shall respond tomorrow.

  12. David Lilley
    June 14, 2011 at 10:36 pm | #12

    It has been a pleasure talking to you althought I don’t know who you are.

    I have also left some comment on another page, “Wall of Illusion”, where I introduced the post capitalism scenario of “state interventionism”. We didn’t go from capitalism to the rich get richer, the poor get poorer and eventually there is a revolution and we arrive at an end state of communism. “To each according to his needs, from each according to his ability”. This never happened. The theory was wrong. It made a prediction that failed. We move on.

    State interventionism became almost all powerful following the introduction of universal sufferage. Parliament made the laws and individuals and the new quasi-individuals, PLCs had to obey the law. Money didn’t lead to power and absolute power and corruption of power.

    I can only get so much on your page. See new page.

  13. June 15, 2011 at 9:40 pm | #13


    Likewise it is enjoyable to discuss such profound matters with someone, even if they see things differently! As for who I may be, then here is a little clue buried within:


    You say that “Money didn’t lead to power and absolute power and corruption of power.” This perhaps is where we disagree. Money has corrupted many walks of life, especially regulatory bodies, the economics profession and aspects of Government.

    If you’ve not heard of the film “Inside Job” then I heartily recommend it. The film won an Oscar for best Documentary this year, but for some reason a moderately balanced view of the financial crisis (by a successful US entrepreneur no less), was crowded out in our media by Colin Firth:


  14. David Lilley
    June 15, 2011 at 9:52 pm | #14

    I am sorry that my computer is quite old and after making a very large reply I lost it entirely and will have to start over using word.

    PLS’s are far from perfect and we need the regulation that we have put in place. We are indeed surounded by oligopolies and not perfect markets. If you are banned by anti-trust laws from having a monopoly you go for the next best thing (worst thing for the public) and that is an oligopoly (few suppliers or few customers). We have them in supermarkets, petrol, banking, tobacco etc.

    We have created these quasi-citizens with lifetimes that can be very short of far greater than ours. They have no will (isn’t this a bit Hegelian) they just get down to the age old business of surviving. Their profits go to the citizen in the form of divi to pension funds and paying corporation tax, PAYE and NIC and UBR and many other taxes.

    Every penny that the state spends comes from PLC’s and SME’s. They are the golden goose. They also provide jobs and the brilliant products and services that we all consume.

    David Lilley

  15. June 17, 2011 at 7:57 am | #15


    Sorry to hear about the posting troubles. I know how frustating it can be!

    Glad to see that we agree on the role of regulation, and that some aspects of coporate means and motivations can be of concern.

    However, we both digress a little again. The PLC is, unfortunately, not a perpetual motion machine. Therefore I’m still not clear whether you accept the falsification “tests” laid out in comment 5.

  16. David Lilley
    June 30, 2011 at 11:08 pm | #16


    Soros never speaks without giving homage to Popper but he never seems to know Popper. In “Soros on Soros” he explains why he destroyed the ERM and made £1b from selling sterling only to loose it on the Yen. But now he tells us it was to make money. He is an unreliable witness but this can be forgiven because he gives more than this country and this has now only been exceeded by Bill Gates.

    I’m affraid that your test in comment 5 cannot happen for the reasons given in comment 3. You cannot have your economic model but at the same time you can delight that nobody can have an economic model.

    You can neither come back on the thermo stuff as we have never had such known reserves of oil and gas as we have today (50 years) and given that nuclear offers unlimited supplies the thermo model would offer unlimited growth rather than a cap.

  17. July 7, 2011 at 9:42 am | #17

    Hi David

    Thanks for the comment, and sorry for my delay in replying. I’m a bit confused by your reply. I still don’t understand what your problem is with the tests set out for the two models in comment 5. They are both “scientific” models with inputs, outputs and relations between these. They are also falsifiable models. Your reference to comment 3 just introduces a somewhat obscure hypothesis of your own and I don’t understand how it either relates to the tests in comment 5, or nullifies the very basis for them, or is itself “falsifiable”.

    Orthodox economics proclaims itself a science. One of its main tenets is the Solow growth model, whereby these so-called scientists proclaim to have a formal mathematical model for economic growth. My article aimed to summarise the key criticisms of this model. Namely that it is ignores physics (thermodynamics), and is statistically flawed (high error residual). I conclude by providing further supporting evidence, such as that by Garret & Ayres. I also suggest that we might witness an opportunity in the next 5-10 years to formally test the two models (if energy resources fail to grow).

    Certainly you may want to hold the view that energy resources are unlimited and therefore growth is unlimited (I don’t agree with this view, but you are welcome to hold it, and I’d value any evidence you have that supports the infinite resources view of yours). But does this mean that you do indeed accept the model structure of the LTG (that energy does indeed determine economic growth), but not the parameter values laid in the original article (i.e. that resources are about 50% consumed by the early part of 21st century)?

    You are more than welcome to prepare a full article outlining your thesis if you wish, and so please email me on russell_bradshaw at yahoo.co.uk to discuss further.

  18. David Lilley
    July 8, 2011 at 1:14 am | #18

    This is good. To me there is only argument and may the best argument win.

    Aristotle give us the law of contradiction, you cannot hold A and not A at the same time.

    Hume told us that you cannot derive ought statements from is statements.

    Kant told us what is right and wrong for a rational being and many other things about the world we live in.

    Poppor told us what is true and what is rubbish with a simple litmus test.

    Taski told us that if it doesn’t corresepond with the evidence it is rubbish.

    These are blinders.

    You cannot have a growth theory

  19. July 8, 2011 at 8:39 am | #19

    Hi David

    I presume then that your position is as follows: “You cannot have a growth theory”. If this is so, then how do you respond to these 3 questions:

    Question 1 (from Aristotle): Have you not contradicted yourself? You state here that one cannot have a growth theory and yet above you declared that “given nuclear offers unlimited supplies the thermo model would offer unlimited growth rather than a cap”. Which is it to be; a no growth model, or unlimited growth?

    Question 2 (from Aristotle again): Given that you declare Economics a Science, and the economics profession has at its core a “growth model”, then how can you hold these contradictory views? If your application of scientific rigour concludes that “you cannot have a growth model”, then even Orthodox Economics (let alone the alternatives from Club of Rome, Ayres and Garret etc.) cannot be science.

    Question 3 (from Popper & Taski): What empirical (& falsifiable) proof do you offer that one cannot have a growth theory?

    I look forward to your cogent reply.

  20. David Lilley
    July 13, 2011 at 12:06 am | #20

    Excellent. The vital ingredient of democracy is debate and scrutiny. The UK failed in the 13 year Labour period because Labour MPs didn’t attend debate of Finance Bills so they did not provide scrutiny. They only attened to vote and their majority rather than the best argument won the day.

  21. David Lilley
    July 13, 2011 at 12:16 am | #21

    Growth theory.

    I have explained that evolution was an alternative theory to creationism, that it is not a scientific theory but simply history, there is no progress graph that can be extrapolated, we can go backwards as in the Dark Ages, we can rediscover a mountain of knowledge from 2,000 years earlier and go forward at a pace and then have set-backs like WW1 and WW2.

    You and others cannot have a growth theory. Greenspan and Benankie firefight.

  22. David Lilley
    July 13, 2011 at 12:27 am | #22

    Question 1. Yes Aristotle gave us the Law of Contradiction; you cannot have A and not A at the same time.

    But I am not. No-one can have an economic growth model. Evolution tells us about the past but cannot predict the future fittest and we reject “the fittest shall survive” and choose our own laws and embrace the welfare state.

    I am rejecting your thermo model which makes growth dependent on energy by pointing out that we have never before had 50 years of know oil reserves and that nuclear energy offers unlimited energy but not unlimited growth.

  23. David Lilley
    July 13, 2011 at 12:38 am | #23

    Question 2. This is a repeat of question 1.

    I am not declaring that economics is a science. I am not in the business of promoting subjective knowledge (opinion) or belief. I am in the business of promoting truth or objective knowledge. The stuff that passes the falsifiability criterion and has been corroborated by independent critical testing and yet remains available to be shot down by a better theory at any time if it allows predicting that can by refuted by evidence. truth is correspondece with the facts/evidence.

  24. David Lilley
    July 13, 2011 at 1:06 am | #24

    Question 3. You come back to growth theory all the time. There is no growth theory and can never be a growth theory as explained above. China led the world, then Islam led the world, the Greeks led the world, then the west led world for the past 500 years and now the east is regaining the lead. Microsoft and Nokia were doing great but an adopted child, Steve Jobs, comes along and topples Disney (still flicking hand drawn cards) with Pixar, returns to the dying Apple and gives us non beige PCs, the Ipod, more record sales than every record shop put together, the Iphone, the Ipad and apps. Was Steve in your growth model? There are no growth models.

  25. David Lilley
    July 13, 2011 at 1:24 am | #25

    None of it could be predicted. But we became the dominant species (relying of billions of bacteria in our gut), we gained technology in the form of agriculture, fire, the wheel, bronse, iron, steel, steam, oil, internal combustion, credit, the gold standard, fiduciary issue, insurance, IT and IM to bring us up to date. But none of this could be predicted.

    We also leapt ahead in moving from animism to poytheism to monotheism to Socrates to democracy (argument) to Hume, Kant, Mill and Popper. From its God’s will to its our will.

    We can see the big stepping stones in retrospect; World 1,2,3 and 4 and maybe my 5 but there is no graph.

  26. David Lilley
    July 13, 2011 at 1:30 am | #26

    Just to say that the Greek lightning speed event came before Islam and to point out that “proof” belongs to maths and in the real world the best we can get is “well corroborated by independent testing and the facts”.

  27. July 22, 2011 at 9:42 pm | #27


    Apologies for the delay again, but so many disparate threads require an appropriate response. I’m deeply concerned that you consistently fail to grasp the fundamental point that this thread was making (comment 5). Your alternate theory of “no growth theory” fails to explain the invalidity of the two propositions laid out in comment 5 and is an overt diversion from my question which I put to you:

    “Even if you don’t consider this a true measure of “growth”, can we at least agree that each model is based on an understanding of the relationships between a clear set of input metrics and output measures, can’t we? These are the very axioms from which the models are built and thus without agreement here we have no foundation for testing, surely.”

    Every attempt of mine to frame a proper and falsifiable test is met with obfuscation. You are not engaging on the very terms for which you seem to hold so dear. Instead you merely seem to postulate that we evolve because we evolve (or we progress because we’re evolving / progressing through time). This is merely a lame restatement of the main axiom, and not therefore a testable theorem!

  28. July 22, 2011 at 9:45 pm | #28


    You say that you are not contradicting yourself, but I have counted at least 3 instances where you declare economics a science:

    David Lilley On June 8, 2011 at 10:10 pm:
    “Economic theories such as the law of supply and demand is testable and therefore science.“

    David Lilley On June 13, 2011 at 9:01 pm
    “I hope that I demonstrated that economics is a science.”

    David Lilley On June 30, 2011 at 9:59 pm:
    “I entered your site on the “is economics a science?” page to demonstrate that it was.”

    You can’t contradict yourself, and then declare that you’re not contradicting yourself!

    If you are adamant that no-one can have a growth model (which you do seem to hold somewhat fanatically from what I observe), then surely economics is not a science?

  29. July 22, 2011 at 9:53 pm | #29


    I do agree with you that “truth” is a correspondence with facts / evidence. But this is my very point. We can set up testable theorems (whether Neoclassical or Thermodynamic) and then see which stands up to falsification. Your assertion has no such property.

    Besides, if you are adamant that we can’t have a growth model, then how on earth do you explain why we are all in so much debt? Surely debt was justified by policy makers (and banking interests) on the assertion that the world has such good prospects for future growth. Why is debt being foisted on us when growth (i.e. the necessary means for repaying the debt) is not unlimited (or even possible / definable)?

  30. July 22, 2011 at 10:23 pm | #30


    Finally, you declare a rejection of the Thermo model because of the (assumed) existence of large oil reserves and unlimited nuclear power capability. I’d welcome some sources for these assertions as both may well be questionable. You might also want to study the concept of EROEI (try googling it).

    Anyhow, stating that we have plentiful energy reserves / resources is independent of whether energy & resources are a primary contributor to economic productivity (whether growing or receding!). Even if the supply of energy were abundant, it doesn’t automatically falsify the linkage! See my comment of July 7, 2011 at 9:42 am. Here I clearly made the distinction between the model structure (linkages) and the model parameters. Also re-read my statement above about “understanding of the relationships between a clear set of input metrics and output measures”. You are welcome to dispute the parameter values, but this is not a sufficient basis on which to critique the model structure (though I think you brave or foolish to dispute the laws of Thermodynamics as they are at least true laws of physics – as opposed to economic “laws” like supply & demand, which are in fact crude and non-generalisable heuristics).

    Growth (in the sense referred to in this thread) is merely a rate of increase in the ability of an economy to engage in productive capacity (as measured by inflation adjusted GDP). To deny growth then, is to deny the existence of, or the assessment of genuine productive capacity. If we can’t agree to discuss on the basis of these postulates then we have no hope of continuing a fair and fruitful debate.

  31. David Lillley
    July 23, 2011 at 11:03 pm | #31

    Thank you for your time.

    You are reading my references and I am reading yours. We enter debate to learn.

    I have not retracted from “economics is a science”. I have only stated that it is not me stating an opinion, “subjective knowledge”, but that it is “objective knowledge”. Knowledge that has earned its place on the “truth” shelf because is has met the “falsifiability criteria”.

  32. David Lillley
    July 23, 2011 at 11:16 pm | #32

    I have not entered an alternative growth model of “no growth”. I have dismissed the very concept of any growth model. Growth of anything is evolutionary and since there is no law of evolution there can be no growth model in economics or anything else.

    I do not have to weigh up your two growth models because there can never be a growth model.

  33. David Lillley
    July 23, 2011 at 11:28 pm | #33

    I am not disputing that there can be GDP growth only that there is no path, no model, no graph, no posibility of extrapolation.

  34. David Lillley
    July 23, 2011 at 11:43 pm | #34

    I am not disputing the 1st and 2nd laws of thermodynamics. I am a mechanical engineer and I actually know these laws.

    I have checked out EROEI and it is only what mechanical engieers have always referred to as efficiency. You turn one from of energy into another and you get waste in the form of heat, light, sound etc but you are only interested in the output you want and anything else reduces your efficiency.

    It has nothing to do with economic growth.

  35. David Lillley
    July 24, 2011 at 12:23 am | #35

    I am not trashing the peak oil theory to knock the thermo theory. The thermo theory is rubbish because there can be no growth theory.

    The peak oil theory is rubbish because we measure our oil and gas reserves in terms of “how long can our known reserves last at the current rate of consumption?”. And the answer has been 40 years for decades despite increasing consumption by 17 fold in 20 years from the 60′ to the 80′.

    The last time I looked it was 50 years thanks to finding new reserves here there and everywhere. The cartel, OPEC, is looking for compensation if we reduce our demand for their product in the face of our green inititive and global warming.

  36. David Lillley
    July 24, 2011 at 12:55 am | #36

    You wouldn’t like me to explain where sovereing debt came from.

    Debt comes from one place only. Failure to make ends meet. Spending beyond your means.

    We had bad management thanks to a massive Labour majority. None of the labour MPs attended finance debates. There was no debate and scrutany. They only attended to vote according to the whip. They were also thick. “I have no qualifications but I am working class and speak for you”.

    They thought GB

  37. David Lillley
    July 24, 2011 at 1:23 am | #37

    They thought GB was a wissard economist when he had no economics qulifications and they had no qualifications other than a working class accent.

    He threw money at the poor and multiplied the poor as if being poor was desirable. It was desirable and better than working. GB increased National Debt by £30 to £40b every year since 2003 and fostered PPI growth by £300b as it was off balance sheet.

    One in four households of working age has no worker and 1.35m quest workers do their jobs far better than they.

  38. July 26, 2011 at 10:09 am | #38


    There are three fundamental points that I am trying to convey:

    1) Energy is a determiner of high living standards (therefore a driver of economic growth)
    2) Efficient energy sources are peaking (i.e. maximum productive capacity is upon us)
    3) Sovereign budgetting is not the same as household budgetting

    If you asked me about these points three years ago, I either would have found them irrelevant or implausible. But in trying to understand what is happening in the world economy, I have kept an open mind and spent much time reading various books and articles on these subjects.

    For point 1 I have offered a framework to test this (which you reject) and academic references (e.g. Ayres & Garrett) to support the thesis. If energy were a substantial contributor to living standards then what would the world have looked like over the last few thousand years? With every new energy source discovery, we would have witnessed enormous transformations in economic productivity and capability. Indeed this is what we have witnessed (from animal power, to wind and water power, to coal, oil, gas etc.). So on this basis, the theory is not impossible, and certainly plausible. Carlota Perez’s “Technological Revolutions and financial capital” is an extremely good resource on these paradigm shifts. This approach has fundamental policy implications, as the next two points will attest to. In contrast your view of evolutionary change has nothing to assist in policy formulation (it just seems to suggest that “what will be, will be”).

    For point 2, I would refer you to the Oil Drum website (www.theoildrum.com) and Gregor MacDonald (see http://gregor.us/economics/paper-vs-real-exit-from-normal-ecological-economics-and-probabilistic-regimes-in-one-chart/). Also worth mentioning is David Strahan’s “The last oil shock” (which comprehensively shows the extent of manipulation of oil reserve figures) and Richard Heinberg’s “The party’s over” (which shows how ingrained oil is to our economy and that there not many comparatively efficient alternatives – EROEI).

    I don’t have time to fully tackle Point 3 at the moment, however I do plan to produce a detailed posting on this at some point. In the meantime I offer some useful comments. Firstly, if Gvt spending were so prolifigate in recent years then so was an ideologically lax approach to tax (the income part of the balance sheet). Take a look at Nicholas Shaxons “Treasure Islands” for a glimpse into the murky world of tax avoidance and evasion by multinational corporations and wealthy individuals. Then there is the complicity of those who lent money to the UK Gvt. Surely this reeks of incompetent and irresponsible LENDING?


    Finally, you musn’t fall into the trap of comparing a Gvt budget with a household budget. This is mistaken. A Gvt shouldn’t need to borrow money from private individuals at interest! (See this primer on MMT http://neweconomicperspectives.blogspot.com/p/modern-money-primer-under-construction.html ). In recent years, Gvt borrowing has taken up the slack left by Private level debt de-leveraging. The two sources of borrowing are used to prop up our excessive balance of trade deficit (see John Mauldin’s Endgame for more details). This is the crux of the problem, not the excessive Gvt spending per se.

  39. David Lilley
    July 27, 2011 at 7:18 pm | #39

    Thanks for always coming back to me. I always read your responses and note that you do take time and effort to do this.

    It is good to see a new commenter on the Wall of Illusion page.

  40. September 5, 2011 at 9:06 am | #40

    Hi David

    Thanks for the article. I can read through and sense check for you before publishing. There are a few acronyms which many readers may not be familiar with (e.g. CGL, NMW etc.) so I will probably just spell these out when they first occur.

    The title is likely to appear as:

    “Guest Post by David Lilley”

    Let me know if this is OK, or if you want a subject title to the piece, such as “The impending great depression”.

    All the best

  41. David Lilley
    September 5, 2011 at 7:53 pm | #41

    Thank you.

    Please allow me to polish it a bit, delete the bit about history graduates, modify the bit about parents on benefits as this only applies to third generation claimants and not the vast majority and introduce the solution that I first put on many sites 2-1/2 years ago.

    The Great Depression lasted till WW2, led to massive political instability and stoked WW2 which cost 55m lives. I do not what to be perceived as a doomsayer. I am trying to do my bit to prevent a GD2.

    David Lilley

  42. September 8, 2011 at 8:18 am | #42

    Hi David,

    Thanks for your submission. I’ve just made a few minor tweaks where I think there were mistakes or amiguities, and uploaded the post.

    I’ll do what I can to help promote awareness of the post, and let’s hope it stimulates a lot of thoughtful debate!

    All the best,


    P.S. I might just tidy up the coments on this thread as they have been superceed by the posting now.

  43. September 21, 2011 at 3:31 pm | #43

    There’s a new book out called “Economics Unmasked”.

    Here is a review by Herman Daly:

    “the book argues that modern neoclassical economics is a mask for power and greed, a construct designed to justify the status quo. Its claim to serve the common good is specious, and its claim to scientific status is fraudulent.”


  44. October 19, 2011 at 7:48 pm | #44

    Not read through all the comments yet which seem to have sparked an interesting debate. It was seemingly obvious but the theory of evolution makes 0 predictions yet is still a wonderful explanatory model of why there is seemingly ‘design’ in nature.

    I wasn’t aware of the Rome model at all. I took environmental Law as a module for my degree and was fully aware of ‘steady state’ economics and how any notion of the market pricing anything correctly is impossible due to externalities was was always suspicious of assumptions used in traditional economic models. That model seems to strike me as very plasuable.

    However coming back to the theory side of things: a theory in economics isn’t necessarily as iron clad as a theory in the hard sciences. One simple innovation could completely shift the starting assumptions. Lets say Cold Fusion was invented, that would essentially falsify the starting assumptions of resource depletion. Would that mean the model failed the test and was worthless? I don’t think so, it’ll just need recalibrating due to future discoveries.

    An economic model is never going to be able to predict all future advances in basic science. Even the basic assumptions of science are sometimes completely overturned at larger or smaller energy scales (e.g. conservation of energy being broken by cosmological constant, only applies to cosmic scales).

    But you can make short term predictions for sure. Like your prediction that Britain will be in for Hyperstagbiflation.


  45. October 19, 2011 at 9:31 pm | #45

    Russel, David, and Dushyant this is rather an epic discussion and still the links to read.
    David I wish I could share your rosy view o the contribution of corporations to the good of society and the world unfortunately as Ruskin tells us in Unto this Last the externalities , alas the Externalities!

  46. October 20, 2011 at 8:07 am | #46


    Thanks for taking the time to start reading my post, and some of the links. Apologies if I have bombarded you somewhat. I’ve been picking up bits and pieces for the last 3 years or so, and everyone’s journey of understanding is their own.

    You are spot on about new energy resources and the Rome model. It would not invalidate the structure of the model, just the resource “input” parameters. The first hurdle to accept is that energy plays a vital role in economic growth, and then to appreciate the importance of the current dowry of (low cost and high return) resources we currently have at our disposal. Traditional economics treats this as regular income, when actually it is draw down of a Capital / Resource stock.

    I have done a bit of research on Fusion, as the Culham Centre for Fusion Energy near Oxford holds regular open evenings. I went on a fascinating tour a few weeks back, but I remain slightly skeptical.

    The main problem seems to one of trying to control the plasma, as it tends to collapse within a few minutes. Even optimistic assumptions of commercial viability put it about 20-30 years away. The operational complexity of such a power station could be its achilles heel.

    Cold Fusion is even more dubious from what I understand.

    Keep your eye out on this site though, as I aim to write up my notes and post a blog (including photos!) very soon.

    All the best,


  47. October 20, 2011 at 8:40 am | #47

    This is quite a good site across the New Energy renewable energy field.


  48. October 20, 2011 at 12:15 pm | #48

    Hi Roger

    Great point about “externalities” by the way. Thanks also for the new energy link. Not seen that before, so will try and spend some time looking through it.

    I tend to visit theoildrum.com from time to time. Richard Heinberg is pretty good, and his article “Searching for a miracle” provides an excellent framework for evaluating energy sources:


  49. October 20, 2011 at 12:20 pm | #49

    Hi Russel
    Alternative energy is one of my passions a lot of sites are very out there and one has to kiss a lot of frogs I have found.
    People often look at me like I am half mad when I say I believe in zero point energy and think the Oil Lobby got Hemp outlawed but as one of the Hoax videos on that site says one step ahead your a genius two steps ahead and your insane.
    I am a big fan of your blog by the way.

    All the best


  50. October 21, 2011 at 9:30 am | #50

    Hi Roger

    Thanks for the nice comments about the blog. I owe your site a visit soon, too!

    Looks like I have to do a lot of homework on these alternative energy sources. A quick point on ZPE from Wikipedia:

    “Even though the zero-point energy is theoretically infinite, there is as yet no practical evidence to suggest that infinite amounts of zero-point energy are available for use, that zero-point energy can be withdrawn for free, or that zero-point energy can be used in violation of conservation of energy.”

    One of the reasons for my current skepticism is that fossil fuels are in effect super abundant and simple to process / exploit high density energy sources. They are the product of the earth as a giant chemical factory sucking Quadrillions of BTUs of solar energy and packaging into a highly portable fuel source.

    I can’t see any super high tech solutions ever coming close to competing with such a simple yet effective energy source.

    But that’s not to say that I have given up any hope!

  51. October 21, 2011 at 10:36 am | #51

    Russel The thing about Zero Point energy is that we really do not know about Gravity and we are pretty clueless about Magnetism ( They are I think related ) String Theory etc a Lot of Particle Physics and CERn are really wedded to chasing some older theories keeping academic theories and reputations alive similar to Economics. Being a Guitarist and interested also in Digital Signal Processing as well as Analogue Valve, Solid State and Peizo signal processing it is a bot easier to get my head around some of the stuff that some of the guys labelled as crazy are actually saying.

    Here is a link to a long interview with Maurice Cotterell with some very helpful slides The guy whos channel it is hosted on is a UFO watcher, personally I am a skeptic on all of that stuff but not on the Physics that these chaps are really rather up on. Their eccentricity allows them to think out of the Box. I think Maurice Cotteral is a bone Fide Genius, far to modest himself to even entertain the thought. But watch this film see what you think. Not the Mayan Stuff the Gravity and Magnetism stuff.

    The other interesting scientist who needs re visiting is this chap.

    heres another video I saved because I thought it interesting.

    I think the oil lobby has supressed a lot of this knowledge JP Morgan was not eactly grateful to Tesla how come Ford didn’t get to go with Bio Diesel Fords Fleet all ran of Bio Diesel in the 20′s and 30′s Forn H. farmed Hemp 40,000 acres of it.

    This is all little known marginalised stuff. Have you come across the Sonic Refridgerator?
    Not many have although they have featured on the History channel.

  52. October 21, 2011 at 10:39 am | #52

    Sorry this link.

    not the last one but i have watched most of this stuff and done a fair bit of reading too.

  53. October 21, 2011 at 10:42 am | #53

    P.S on Velikovsky about 4 months ago when Voyager left our solar system they found turbulence and yes Magnetism search the BBC the link will be there I think I may have left a link to Velikovsky there I cetainly intended to but might have forgot.. A lot of this stuff also goes to Global warming issues again orthodoxies and institutional biases have let people bark up wrong trees in fact encouraged it.

  54. October 21, 2011 at 12:00 pm | #54

    re watching this at the moment its very interesting stuff, Thise wedded to oil really are out of the stone age the basic trouble is that if its free it can’t be easily monopolised think primitive accumulation the enclosures the Game acts etc, this stuff threatens the basis of Capitalism which is coercive.


  55. October 21, 2011 at 1:53 pm | #55

    Hi Roger

    Thanks for the many links and videos. I will get around to viewing them and taking on board the ideas.

    I am skeptical about the notion that “free energy” is / has been feasible but that it has been supressed by certain power brokers (e.g. the Tesla / JP Morgan saga).

    It just doesn’t seem plausible these people would & could supress the ideas in order to have better control over fossil fuel supplies. It isn’t easy to have a monopoly over oil, and quite often it sits under the ground of other (enemy?) countries. The sheer amount of effort and geo-political wrangling that has taken place in the last 100 years to secure easy access to oil suggests that this would be the harder path than to support the technological monopoly one could get from patenting “free energy” systems. If this form of energy were so easy and abundant then it would still be immensely profitable, even if one charged a very low cost for it. Also, a company could still make enormous profit in finding ways to house / store the energy, or improve transportation vehicles (cars, planes, trains etc.) using the new source.

    Even if these sinister powers tried to “silence” the ideas, what is to stop someone else discovering them at some point? You can’t hold back innovation by ignoring it. Surely the best strategy would be to develop the technology early and dominate the market (e.g. Standard Oil).

    Much as big business is corrupt, self-ish and profit seeking, it wouldn’t be in their interest to stifle such an innovation – their first reaction would be to monopolise it.

    I will give it serious thought, as any open-minded person would be, but I will await the scientific demonstration / proof first.

    All the best,

    Russell (Hawkeye)

  56. October 21, 2011 at 2:08 pm | #56

    Hi Russel,

    The hemp thing and prohibition is I think effected by the and correlates with the rise of petro Chemicals back in those days the Robber Barons were mor omnipotent than they are presently. Why are there so few heat pumps in the UK and so many in Sweden? Sweden is a colder country a lot of renewables need investment to develop them the investment has not been there instead investment has funded the Industrial Military Complex witness its excesses in Iraq now Libya, Iran? next perhaps.

    Just as MMT is asking people to turn ideas on their Head lets remember Galileo and many others to numerous to mention. Billions on Cern imagine what telsa would have done with that sort of investment. JP morgan didn’t fund it as he wanted to exploit his copper interests not just the Oil. WIreless transmission of electricity has radiation issues I am told bt then so does Nuclear.

    I think we have to be ecological form the perspective of food production and not polluting I wouldn’t be so sure suppression isn’t easier than monopolising Air has remained free this long? imagine if electricity was like breathing , well the big news is it should be and will be.
    Unit cost reduction is reduced by scaled up production. The cost of renting politicians doesn’t run that expensive either?

    I’m no tin foil hatter or David Ike , I did actually used to Work for Shell Transport and Trading as a much younger man, the corporate bosom does strange things to our perceptions double standards and blurd vision are manufactured at that particular teet. ( I’m having an off day for Metaphors ) sorry about that.

  57. October 24, 2011 at 8:46 am | #57

    Hi Roger

    I watched the Maurice Cotterell interview and most of the Electric Universe. It was quite thought provoking and I will look into this further. It is certainly valid to say that our understanding of the four fundamental forces of nature (electromagnetism, gravity, strong & weak nuclear) is still “provisional”.

    It reminds me of a phrase “tiny islands of knowledge in a sea of ignorance”, used in this excellent book by Ian Stewart & Jack Cohen:

    (The authors also worked with Terry Pratchett on the Science Of Discworld which covers similar themes but in a much lighter context.)

    I will probably read the book again soon, as it is an excellent primer on chemistry, physics and biology. The book does somewhat caution against the relentless “reductionist” dogma currently employed by science (e.g. CERN). I’ve not read it fully yet, but this article from 1972 probably takes a similar stance:


    Almost all large scale and concentrated energy sources with high net energy (Energy Return on Energy Investment) have been primarily organic in source. Oil is merely compact chemical formation of millions of years of solar energy. So the role of biology is not to be underestimated, as “life “ is the ultimate entropy fighting machine.

    I’ve recently been discussing this with David Lilley over on this thread:


    Therefore life is the chemical exploitation of dispersed and naturally occuring solar energy. Man may be able to bootleg energy for our indistrial needs through some form of alternative “Electric Universe” source, but I do seriously wonder what impact this could have on the abundant sources of natural life on this planet.

    It might be best that I set up a post on energy and consolidate all the useful discussions and references onto this new thread.

  58. October 24, 2011 at 9:12 am | #58

    More for my reading List Russel. Just starting the links now. Maurice and Wallace should I think be brought into the main stream and Their ideas backed properly if the State was serious about improving the lot of all humanity it would have happened already.
    Unfortunately critical thought is very much discouraged in virtually all levels of commerce and government these days.
    I agree with you that we need a much more ecological biological even organic approach to most things one of my favorite Guitar Teachers advocate the Big growing from the Small it seems to be how the universe organises itself why do we humans think we should be any different?
    Good to be in touch Have a great week,


  59. October 26, 2011 at 1:13 pm | #59

    I’m reading this paper: http://www.esf.edu/efb/hall/2009-05Hall0327.pdf and I quote:

    “A number of people blamed at least a substantial part of the current economic chaos on oilprice increases earlier in 2008″

    I also read how Richard Heinberg’s article in your blog where he stated:

    “As it happens, I’ve just published a book, The End of Growth: Adapting to Our New Economic Reality, that reaches the same conclusion, and that foresaw the economic relapse that’s playing out in headlines”

    These statements are flat out wrong. Oil prices had nothing to do with the collapse, that was the housing bubble compounded by deregulation and a political/intellectual class who were obsessed with austerity.

    I’ve read Heinberg’s book, The Party’s Over, and thought it was brilliant. But anyone can continually say that economic growth is going to end. That paper that cited the twelve economists who predicted the bubble said it well when they cited the dictum “every bear has its day”. Heinberg has not made any quantitative predictions as far as I know. Are there any links to him doing so?

    I’m not denying that we’re running out of resources but these guys are really confused about why we are where we are. I guess you see the world through your own theories.

  60. October 26, 2011 at 1:16 pm | #60

    The book was also published in 2011. Not much foreseeing there!

  61. October 26, 2011 at 2:27 pm | #61

    Hi Dush

    An excellent point.

    I think it’s fair to challenge Hall / Heinberg etc. in terms of whether they did indeed predict the market crash of 2008. But I don’t see their explanation as contradictory to that of the heterodox economists (i.e. the Bezemer 12, such as Steve Keen) who saw the problems manifesting in unsustainable debt bubbles. These people (quite rightly) saw the world through the paper profits pyramid scheme (i.e. debt overhang).

    However, I don’t think that the debt overhang explanation negates the “peak oil” contribution, or vice versa. The two aspects are intertwined. They could both be correct explanations. Enormous debts have been undertaken on the assumption that they can repaid through future growth / expansion. A ponzi scheme is hard to sustain in the best of times. It will be almost impossible to sustain though if the “peak oil” theory is right.

    In Heinberg’s defence, he did write “The Party’s over” in 2003 ! It’s been a while since I read that so I can’t recall if he made any specific claims on what exactly would happen and how, but this comment about his book (also written in 2003) sums up his loose “prediction”:

    “His analysis of the likely knock-on effects of oil depletion on general economic activity and agriculture is chilling.”

    Perhaps some of the OilDrum crowd (e.g. Heinberg / Tverberg etc.) have blown their own trumpet a bit on this, but this shouldn’t detract from their main premise which is this:

    - Economic productivity requires input resources (primarily energy to perform useful work – see the Ayres 2005 paper referenced above)
    - If efficient energy (i.e. Net Energy / EROEI) sources have peaked, then consequently economic productivity will peak

    The Club of Rome LTG model embraces these premises. Looking purely at abstracted / overall measures, it shows that at peak extraction of resources (the steepest decline in the blue line) we achieve peak economic activity (services per capita – the orange line). The LTG model shows that REAL economic activity has no choice but to flatten and decline in the face of resource constraints – no matter what our finance sector situation / debt burden looks like!

    One shouldn’t therefore reject the notion that the financial crisis is in anyway un-connected to the energy /resource problems. Debt assumes future growth. Accelerating debt assumes accelerating growth. Neither condition is currently feasible / sustainable. Therefore a crisis in the world of paper profits may well be symptomatic of real economy problems – i.e. lack of growth (or at least a slow-down in the rate of growth- which is what happens when we near the summit of a peak!). And this is precisely what has afflicted most advanced economies.

    Eric Zencey explained the connection very neatly back in March 2008 (before the Lehmans collapse):

    “When debt–a claim on the future productivity of an economy–grows faster than that productivity grows, then somebody who holds a claim is going to have to have that claim go unfulfilled. There are some basic ways this happens in an economy: inflation and bankruptcy.”


    We have a paper ponzi financial bubble, sitting a-top an industrial productivity bubble!!

  62. October 26, 2011 at 2:45 pm | #62

    Hi Dush

    “Oil prices had nothing to do with the collapse, that was the housing bubble compounded by deregulation and a political/intellectual class who were obsessed with austerity.”

    Just to point out that I do fully agree with your point that we had a housing bubble caused by de-regulation and that we are at the mercy of a political/intellectual class obsessed with austerity!!

    The cause of the financial bubble does lie squarely within the finance sector and its unhealthy connection / lobbying influence over politicians (Simon Johnson’s “13 Bankers” shows the extent of co-mingling / collaboration between these two classes).

    I wrote a blog called “Crime and Collective Punishment” to emphasise the injustice of Austerity to socialise the losses of bad investment decisions by the lenders. Also relevant is the post “Irresponsible Borrowing and Irresponsible Lending”.

    But this is not to reject the idea that a sizeable increase in oil price from about 2005-2006 would put stresses on both household disposable incomes and business profitability. I’m trying to make the case for energy (in particular oil) as the “ultimate resource” for REAL economic productivity. This needn’t be seen as an alternative / contradictory explanation to the debt overhang (credit based) predictions of our economic mess.

    In comment #5 above I put forward some falsifiability conditions to test the mainstream economic growth theory pitted against the Ecological Economics model:


  63. October 26, 2011 at 4:24 pm | #63

    ” Enormous debts have been undertaken on the assumption that they can repaid through future growth / expansion”

    I don’t know how true that is. Enormous debts were taken because debtors thought their houses were worth a lot more than they were. In fact 8 trillion dollars more. The creditors were lending on the assumption that homes would continue to grow in value. Peak Oil had nothing to do with that Ponzi scheme collapsing. It collapsed because creditors realised that there was an asset bubble and their mortgaged backed securities were not worth as much as they thought.

    I think the only way to make an intelligible argument from the peak oil crowd is to try and make it consistent with the data and so reformulate it. What seems to be left is that the entire economic growth model is a Ponzi scheme that will collapse once economic agents realise that economic growth was fuelled by cheap energy. Just like creditors realised homes were over-valued, the entire liquidity-debt based monetary system we have will collapse once we realise that future growth cannot increase forever. That’s basically what you’re saying and the fall out from that will make this look like a minor blip.

    However that simply is not what they’re saying. The peak oil crowd should just be quiet about the current crisis because they’re making themselves look flat out wrong and opportunistic.

    Lets say the Euro collapses because of political stupidity, that has absolutely zero to do with peak oil. The causation is pretty simple there – it’s a crisis that can be stemmed but we need the ECB to go against it’s mandate and target a nominal GDP and be lender of last resort. Those are the proximate causes. And it’s very easy to imagine a world of peak oil and further medium term economic stability if they get their act together. However if the Euro does collapse the peak oil crowd will be all over it “I told you so”.

    Otherwise every crisis can be ascribed to peak oil because the predictions they make are so vague. They basically say ‘the economy will go into a recession because oil is running out’. It doesn’t give any specific predictions as far as I can see, nor times lines. But these are hard things to measure obviously.

  64. October 26, 2011 at 10:27 pm | #64

    Hi Dush

    Debt has been taken on because of growth assumptions. If people presume their house will increase in price, then they are de facto assuming the economy will grow. Government debt growth is predicated on growth. Credit card debt is predicated on having more income in the near term than on hand now to fund the debt. But I agree that we didn’t NEED peak oil to burst that bubble. It would have burst regardless. But this is not to say that rising oil prices couldn’t have acted as a catalyst to personal and business solvency problems.

    I repeat the point I made above. The energy / peak oil argument does not preclude / exclude the debt bubble explanation. The two explanations can co-exist – they don’t contradict each other.

    You do raise some important points in how to conclusively demonstrate the relevance of peak oil, and to make some valuable, rather than vague predictions. I hope to write a longer piece on this in the next day or so, maybe even a full post entry. Suffice to say that I will tackle in two parts:

    1) Is Peak Oil real? Evidence for this should be based on real production data, demand elasticity and oil reserve discovery data. It shouldn’t need to rely on potentially tenuous connections to financial crises (whether US sub prime or Euro area fiascos) to prove this. The evidence should be able to stand on its own.

    2) Relationship between energy inputs and economic growth. This is related, but again needs evidence in its own right. I’d say that the Ayres paper in this comment is an excellent source:


    As I state in comment #2, the weaslely opportunism may well be exhibited by the mainstream economists, as every time their models fail to predict problems (such as Euro crisis, inflation rising, unemployment not falling back etc.) they will continue to invent excuses for why these happened – but only AFTER THE FACT.

    I agree that the Peak Oil community should not jump on any crisis and cite this evidence for their theory. As I hope to demonstrate in more detail, they have a robust case to offer, if the argument and evidence is laid out correctly.

    “All Mervyn King’s horses, and all the banks’ men, can’t put economic growth back together again.”

  65. October 27, 2011 at 8:40 am | #65

    I’ll reply properly later but realised I wrote an essay at uni about environmental law that you’d probably be interested in: http://www.scribd.com/doc/7823605/Effective-International-Environmental-Law

    Particularly the bit on “The weakness of Economic Methods”

  66. October 27, 2011 at 9:30 am | #66

    Hi Dush

    Cheers for the essay. Any tips on how to print this from Scribd so I can read it? I’m a complete laggard with Scribd !!

  67. October 27, 2011 at 10:14 am | #67

    Just press download/print on the toolbar on the right hand side. It’s right under the title of the essay.

  68. November 1, 2011 at 9:21 am | #68

    Hi Roger

    I came across this paper on Cosmology and The Electric Universe the other day:


    It gets a bit technical in parts, so I haven’t fully digested it yet!

  69. DS
    January 10, 2014 at 3:56 am | #69

    Has anybody mentioned the political aspect of modern economics, something that compromises it and turns it into something other than a true science (though I believe that economics in its pure sense is a valid science)? What is practiced today certainly is not a science. It is more akin to a dogma or a religion that exists to support an existing political consensus. It is used to justify unethical business practices that are having a detrimental effect on the natural environment and society.

    I do not believe that economics as it is studied and practiced today even has the same goal as legitimate sciences – which is to discover how things work. Economics seeks instead to promote a specific agenda and to promote an existing social setup that benefits a few people at the expense of the rest of society and the environment at large.

    How is this obvious elephant in the room overlooked?

  70. DS
    January 10, 2014 at 4:18 am | #70

    If economics were practiced as a true science it would probably uncover the underlying mechanism of capitalism that produce inequality, how wealth is concentrated away from those who produce it (workers), how environmental degradation occurs, how resources are depleted, etc. In short, the nature of capitalism would he laid bare for everyone to see in all its glory.

    The resulting social backlash from this is the greatest fear of those who currently hold economic and political power in the world today.

    Therefore, economics will never be practiced as a true science because it is in direct opposition to the interests of those who control the fundamental mechanisms of human civilization.

    Science is about uncovering the truth. Those who have based their lives and the security of their bloodline, their class, etc. upon deception and exploitation will do everything in their power to obfuscate and hide the truth.

    Religious and dogmatic belief systems are the most effective shield against the truth and the best means of social control. And that is what mainstream economics really is.

  71. DS
    January 10, 2014 at 4:37 am | #71


    Bloody typos! ;)

  72. January 13, 2014 at 9:34 am | #72


    I fully agree with your comments. The more I look into Economics, the more it is clearly a corrupted profession. The Oscar winning documentary “Inside Job” makes that very clear!

    My most recent article on how flawed and dangerous the current Economic dogma is here:


    “Economics purports to be an objective and purely neutral science. Yet it clearly fails on both counts. It certainly is not an inclusive subject (outsiders are regularly shunned), nor is it a true science in that it rarely provides testable hypotheses. Even more disconcertingly it actually operates as a Trojan Horse for justifying morally reprehensible decisions and outcomes.”

    The more people find out about this, more chance we can free ourselves from their social engineering of our lives and livelihoods.

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