Raphael ThysAbout ten years ago I did a talk on economic collapses, in Ireland. It wasn’t that long after the 2008 financial collapse. Nobody was really sure what was going to happen next: was it going to be 1929 all over again? Boom, bust, protectionism, war, that old grinding cycle?
The puzzle of the day was “where’s the inflation?” Gigantic bailouts with endless money printing but no inflation. It was a puzzle. As far as I could get with it was “imaginary money is cancelling imaginary debts” and that was far from a satisfying explantion.
https://www.ft.com/content/088d3368-bb8b-4ff3-9df7-a7680d4d81b2
Here’s the inflation. It took a pandemic and a war to tip us over the edge, but here it is. If you use the “rule of 72” you can see that 12% inflation in the UK halves your savings in 6 years. A lifetime of labour wiped out in half a decade.
Here’s the S&P 500: an index of the biggest companies in the stock market. What is that? 30% down from peak? How far does that roll? Pushing 200,000 layoffs in tech — imagine the second order effects in the rest of the economy.
https://www.macrotrends.net/2324/sp-500-historical-chart-data
So let’s talk about economies of scale. Tonight there was a show about the housing crisis in the UK: people can’t afford to stay where they currently live because inflation is pricing them out: food or rent or heat.
It’s a nightmare.
This is happening because there’s no flexibility in the housing market other than price: homes don’t get smaller and larger quickly. Building codes and zoning impose multi-decade delays on changing new home construction patterns. The real flexibility on the market is the number of people who are homeless or living on their friend’s couches because they have nowhere else to go. If housing could scale up and scale down with the economic situation it would be different: bus services and train services can scale pretty dynamically. As the economy shifts you can reduce costs.
But housing doesn’t work that way. The bricks and mortar are like landscape features they last for centuries. A sudden economic crisis doesn’t change the housing stock. But what does happen is that people stop maintaining the housing. It rots. Damp, mould, all manner of trouble attach to the housing stock. The people get sick. Some die.
People tried to introduce flexibility into the housing stock with tiny homes. Much more of a trend in the US than in the UK, the Tiny House movement started trying to open up a mortgage free low cost option for young people who wanted to move out of their parent’s basements and live in a little place they made for themselves.
Even more efficient are tiny little apartments: tiny houses stacked up.
They don’t have to suck: high quality appliances, deep soundproofing, good HVAC, shiny internet and all of that can be done remarkably cheaply compared to just providing more raw square footage. Small apartments work perfectly well in places like Japan, but the Western markets don’t support them yet. Here cheap means nasty instead of small.
To get here — to reshape society into a form that young people can afford — requires a wholesale renegotiation of how we build housing. We could have a gigantic reset in the price of housing but the price of maintaining housing will not change much. The price of heating housing will not change much. Land prices can go up and down. Rents can go up and down. But the fixed costs of housing and the decay of housing stock are pretty substantial.
We do not build to last. That makes everything worse.
Now the bad news. The same things are true of our power grid. Building an oil refinery costs around $10,000,000,000 (ten billion) and paying back the costs takes roughly 10 years of the 30 years of the refinery lifespan, maybe more. You make a bet in the 1990s and it is still paying off now. You can’t really build refineries now (not if you’re sane) because the oil will be banned before the refinery is even half way through its life. 30 years is a long time.
Electricity infrastructure is pretty similar. Solar and wind not so much because the individual units are small. A factory churns them out and they can be fitted to the grid in small installations. But the nuclear power stations, the big coal plants, even natural gas powered fire stations are all huge megaprojects. You build them for the economy you plan to have in 10 years and expect them to last for 30 years or more. Like housing there is a multi-decade lag between deciding your power grid should change and having a different power grid.
Too much grid power and you have idle power stations which have fairly fixed maintenance costs. Too little grid power and you get blackouts.
https://en.wikipedia.org/wiki/Synchronous_grid_of_Continental_Europe
The European electrical grid is arguably the single largest machine on the surface of the planet. You just can’t turn a machine this large very quickly.
So the European grid assumed cheap (Russian) natural gas. When that assumption changed there’s no way to quickly adapt the grid.
There’s also no way to quickly adapt the housing.
So what happens, pure and simple, is that heating gets expensive, the grids may still overload, and the lights go out. In the middle of winter. In a supposedly civilized area.
The biggest machine in the world stops.
For a while. A few hours.
So what comes next?
Burning wood.
Now wood is no joke. Wood is renewable but renewable and nasty. It’s “renewable” right up until you try and run an entire country on it. It’s polluting as all hell. It’s primitive. Every family makes its own heat. Every family scrapes its own ash. Many of them chop their own wood. Every stove has to be maintained. They are not very efficient unless they are very expensive. You can do efficient wood systems but they are large: combined heat and power systems that run entire towns for example. But these things are not fast to deploy: they are grid infrastructure and have similar costs and construction timelines as other power systems. The same is true for suddenly insulating millions of houses.
When you go to wood you lose economies of scale.
Each family buys its own stove. They buy their own wood. Rather than a single enormous efficient furnace it is a network of smaller and less efficient machines. The total cost of the system is vastly higher for a given amount of energy generated. Nuclear is maybe $5000 per kilowatt of capacity. A decent wood stove might be about that price for 4kw of heat. On paper much cheaper than nukes. But then the supply chain, the farms growing the trees, the chopping and moving, and everything else. The labour of running it. A civilisation that is generating gigawatts of power from millions of wood stoves is just less efficient than a real power grid.
Of course the real power grid isn’t just nukes: it’s nukes, gas, coal, hydro, wind, solar and whatever else they can lay their hands on. Tidal power. Cogeneration. District heating systems. The world’s biggest machine is incredibly diverse.
But if it stops you get a collapse in efficiency from the grid to roof top solar panels, batteries, wood stoves. It works well enough in ranch houses off the grid: it’s capital expensive and not terribly efficient but it does work.
And it keeps working when the machine stops. It’s particularly good if you throw in a diesel or petrol generator for the ten or twenty days a year when the sun is at its absolute minimum. You run the generator at close to peak efficiency to recharge the batteries on the solar system. You are never cold because wood heating works pretty well if your house is efficiently insulated. Modern wood stoves are pretty good.
But by the time you are done poor people live without electricity. They charge their phones in Starbucks. They call it “grid defection.” It is inevitable. Solar just gets cheaper. Batteries just get cheaper. The big old fossil fuel power stations on the grid age out and are too expensive to replace given that fossil fuels will be banned before their 30 year service life is up.
Grid defection came to Iraq the hard way: the war destroyed the power grid and it never fully recovered. The country was a haze of diesel generators for years, diesel generators running air conditioners, air conditioners for tents. And apartment buildings, hospitals, and everything else.
Price per kilowatt went through the roof, perhaps 10x the cost of grid power.
http://resiliencemaps.org/files/Dealing_in_Security.July2010.en.pdf
We live in a fragile world. Economies of scale are the fundamental backbone of our industrial society. They govern everything around us and are entirely responsible for our standard of living.
How much does it cost to make one iPhone 14? 50 billion dollars. The next one costs $300 as does every one after that. Economies of scale rule everything.
If the global economy stalls out and we lose economies of scale in critical areas we are going to feel it. It is going to kick our arses like nothing in human history. Too many people living on too little support infrastructure.
By the way if you really want to understand infrastructure — what it really is — read “Dealing in Security” which is my guide to critical infrastructure for emergency managers.
The classic on this entire territory — now 30 years old — is “”. There has been a lot of work since then including really sophisticated national security studies on the defense industrial base and so on. There’s just no way to simplify the complex analysis without losing the detail but the general principle is clear: when you lose the economies of scale not even the government can afford to build an iPhone.
I used to do this stuff for a living. Go back to that video at the top: that’s who I used to be.
I saw the storm coming and moved into industry in 2014 after a long time in defense academia and charities working on critical infrastructure. I ran the launch of Ethereum in 2015. Now I run a company (Mattereum) that specialises in legally binding physical objects to digital records, then binding those digital records to transferrable tokens (for now, NFTs).
That process gets you digitally transferrable ownership of physical things. There’s a bunch of really complicated stuff in there. The objective is the ability to do digital optimization of the disposition of physical objects: to put a thing in the hands of the person that needs it most.
In peace time this is an enjoyable optimization for wine collectors or art buyers. Under environmental duress this is a way of recirculating laptops and cars and furniture and so on as efficiently as possible so nothing is wasted. In a time of poverty it lets people sell their excess property as efficiently as possible, to get as much money as possible for the goods they are letting go of. Combined ecological efficiency and economic efficiency is typically seen in areas like insulating homes — the combined win-win is hard to find. Most environmental innovations make life less convenient and less fun. But insulation and efficient second hand markets are boons for both quality of life and reduction of footprint.
But in a time of crisis my technology really comes into its own: it prevents cascade failure in critical supply chains.
For want of a nail the shoe was lost,for want of a shoe the horse was lost;and for want of a horse the rider was lost;being overtaken and slain by the enemy,all for want of care about a horse-shoe nail.
The horseshoe in this case might be a set of capacitors for a solar inverter, or an engine gasket for a 2003 Ford Taraus, or a pair of spectacles that fit your prescription, or a set of fuses for an x-ray machine. It could be roller bearings for a production line or a spare circuit board for an industrial robot.
As the global economy comes under increasing stress one of our key sources of resilience are the massive reserves of technology, equipment, spare parts and raw materials packed into warehosues. One of the major stores of wealth is all the stuff packed into basements and closets — too expensive to throw away, but not worth selling yet because selling stuff is so inconvenient and value-destroying. Getting all that stuff tagged and bagged so it can be organised with computers and sold to whoever needs it most is a serious priority: economic common sense, ecological benefit from displaced production, and a huge boon to overall societal resilience in the face of a future which could take out mass production of a variety of things we have gotten very, very used to. Mattereum is a framework that can scale into doing this task.
If you would like to understand more about the consumer side of this philosophy, try this piece which covers how consumerism works and how to fix it to slash our environmental footprint. It does not make the resilience argument in much detail, but trust me: it has been there from the beginning.
Thanks for reading!
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