The Body Clock and Economic Biorhythms

by Nick van der Leek

Thomas Hardy wrote that the path to a better place begins with a ‘full look’ at the worst. In 2009 that ‘better place’ is a mythical economic landscape called ‘Recovery’. To have a real chance of travelling on the road to ‘Recovery’ one needs to see real signposts along the way, showing that we are getting closer, but the reality is, we’re far from it, and it doesn’t take rocket science to understand why.

The human body provides an easy analogy for an initial foray into the problem of making long range economic forecasts with massive amounts of data, and an abyss filled with unknowns. One of those unknowns is the amount of ultimate recoverable reserves. Some, like Matthew Simmons, say that Saudi Arabia, which has the world’s biggest resources, are inflating their figures. In February this year, a research report released by Merrill Lynch indicated that sharp declines in oil production meant levels equivalent to Saudi Arabia’s oil production had to be replaced [that is, discovered or substituted] every two years.

The same report indicated that non-Opec oil production had peaked, and that the cumulative decline in output could reach 30 million bpd by 2015, and 47 mbpd if decline rates were pushed to 6% [by the credit crunch]. Meanwhile, Saudi Arabia remains the single largest resource for world exports, with only Russia’s fields producing more, but at higher domestic rates of consumption. When Saudi Arabia’s energy output peaks, the world peaks.

To determine the balance [or imbalance] of the economic system, one really has to look at the fuel that remains for the economy to burn through. In terms of simple economic equations can supplies meet demand? In living organisms, we measure the balance of energy with an equation that looks like this:

Energy intake = internal heat produced + external work + storage.

In economic terms questions remain over storage, and increasingly, over the consequences of our consumption of energy – which range from pollution to cancers to fictional finance.

Our bodies are complex systems, with organs geared to specialize in certain areas. We know that for any and all those systems to work, we need to eat. Without breakfast in the morning, and skipping meals, the body is inclined to crash. So we need fuel to perform ordinary homeostasis. You might take this for granted, but allow me a moment to press the point home. Human beings are warm blooded, our engines needs to operate at a fairly constant level at around 37 degrees Celcius. It requires a certain amount of fuel converted into energy simply to keep us burning at ordinary, optimum levels. Homeostatic imbalance can lead to death. These imbalances can range from dehydration, to diabetes; they may also be due to the increase of certain toxins. Now substitute derivatives for toxins, subprime mortgages for diabetes and premium energy prices for dehydration.

At the heart of it, homeostasis depends on the adequacy of energy. Adequacy is the appropriate word here, because it means sufficiency, satisfactoriness and capability of energy. Our liver’s metabolize energy, and play a role in detoxification and synthesis. And what is energy for human beings? It’s food. We need energy to grow, specific kinds of energy for high performance, and then there are stimulants for optimally elite levels of performance. But without that energy, without the food, all bets are off. How sufficient, how adequate is our energy? Is the quality satisfactory or is the proportion increasingly of a lower grade, a more sulfurous [harder to refine crude]? And what is the potential of that energy to provide according to our needs? Well we know that our numbers grow each day and discoveries are doing the opposite. We also know that ultimately, fossil fuel is limited.

When we find ourselves talking about a road to ‘Recovery’ we have to ascertain how far away it is, and how much fuel we have in the tank to get there. Homeostasis is interchangeable for economics.
If you agree with that, then you’ll see the point immediately. Energy is vital for economics, and energy growth is a prerequisite for economic growth. Energy growth underlies the growth, or, at a minimum, even the presence of finance [the lifeblood of economic activity], the possibility of wealth, the extent of financial performance.

The sticky point comes in right here, where there is uncertainty as to how much of the energy endowments are left, because no one can say for sure. But in the same way that we can’t always say exactly and immediately what is wrong with a person who is sick, and although we still don’t have a cure for the common cold or for cancer, we can look at our homeostasis for clues. These clues assist us in knowing how to manage the overall condition. Often the prescription is rest, along with specific nutrient intakes to restore the body to balance. In economics, rest and medicines are analogous for the use of interest rates [controlling the cost of borrowing] and inflation control [via the money supply].

Once again, all of this is moot when energy endowments begin to deplete. And this is happening. We know for example that the last supergiant discoveries were made in the 1980’s. The Denialists will point to contemporary discoveries, such as the major deep sea yield announced Wednesday [2 September 2009] by BP. The world is burning around 83.76 million barrels of oil per day [IEA August 2009 estimate], which is 1.71 million barrels down from last year, 790 000 barrels, almost half of that number is from lower US consumption . We know that as economic output has collapsed, demand for energy – oil – has fallen precipitously. Demand for coal in the USA is at 975 million tons, which translates to a 6.4% year on year drop. But coal consumption is expected to rise 1.3 percent in 2010. A predicted rise in energy = a recovery. But the opposite is also true.