Tuesday, September 20, 2011

How Much of Our Economy Is Essentially Friction?

If all we've been doing for the past decade is borrowing money to support the friction in our economy, then any reduction in borrowing and/or energy will cause a sudden collapse/freeze-up as the forces of friction dominate.

A fascinating article on The Oil Drum website, The Seneca Effect, explains why systems can collapse rather than decline in symmetry with their gradual rise. This dynamic could be applied to a number of systems, including oil production and the entire oil-dependent global economy.

Correspondent David P. offered this insightful commentary on the explanatory power of friction. Friction is a concept we all understand: productive output/work is sapped by the friction of its moving parts. The greater the friction in the system, the less output. As friction rises, or the energy input declines, then at some point the system is unable to overcome the cumulative friction, and it freezes.

David's provocative idea is that much of our economy is in effect mere friction. If energy costs rise or supply (input) falls, then the system will freeze up/collapse.

RE: The Seneca Effect: There's something in there I can't quite frame. Let me try. Pollution isn't really pollution, its the slow build up of frictional force that siphons off energy. And the friction never goes away, its simply an ever-increasing tax that ends up dominating at the finale.

In the US, this takes the form of a massive bureaucracy, expensive regulation that favors big corporations, corruption, financial skimming, the military force of Empire, a nanny state -- all of the institutionalized waste that builds up slowly when times are good. Friction is easily overcome when energy is plentiful, times are good and so it is overlooked or tolerated. But when energy starts to deplete, that frictional force remains the same size, and so it has an oversized effect on the downside and hastens the collapse.

So where are we in the graph?

Borrowing and spending 10% of GDP resulting in being able to run at the same speed (flat GDP growth rate) would seem to indicate where we are. What comes next, I dare not imagine, but we all know that unsustainable things cannot continue forever. And I notice the vast majority of our national policy is spent keeping frictional forces securely in place.

The new bit of information for me is that the friction dominating the endgame results in a very steep descent.

Thank you, David, for presenting a profound concept/metaphor. If we ask what parts of the U.S. economy are essentially friction, we quickly come up with a substantial list:

1. Wall Street: a vast skimming operation on the productive elements of the economy

2. Interest: a hidden tax on productive work (as noted yesterday, on the Federal level, interest on the national debt can be seen as a criminal skimming enterprise)

3. The 40% of our healthcare/sickcare costs that are paper-shuffling, fraud, etc.

4. The vast profits, lawsuits, needless medications and procedures incentivized by our sickcare system

5. The National Security State/global Empire--huge buildings go up in D.C. by the dozens, all filled with unaccountable bureaucrats and contractors

6. Fiefdoms which have captured the machinery of governance: Junk fees and taxes skimmed to support unproductive layers of bureaucracy

7. Exurbia: the cost of driving out to the big box stores

You can add many more sources of friction to this list. The point made by David is sobering: in a system increasingly dominated by friction, the endgame descent can be much steeper than most participants believe possible.

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