Off Grid

I am building my home “Off the Grid”. I’m doing this for both practical reasons and philosophical reasons. Practically, I want to increase my resilience in the face of possible dislocations. Philosophically, I want to reduce my ecological “footprint” on the Earth. But this is where I’ve run into a philosophical dilemma: What is “Off the Grid”? Even a caveman depended on other cavemen.

The notion of the lone, off-grid homestead simply doesn’t work in practice.

Your homestead is only truly "Off the Grid" if you are willing to mine your own iron ore, smelt it, forge it into a saws and axes, cut down your trees and then work the timber to make your own furniture. Along the way you also need to build your cabin, grow your own vegetables, hunt your own meat, spin your own fibers, make your own clothes, carry your own water, grow your own medicines, make your own preserves for winter, mold your own candles, and cast your own pot-bellied stove from more of that iron that you smelted. Oh – and don’t forget to make your own gunpowder, temper your own springs, find your own flint, pour your own bullets and cast your own gun barrels, so that you can deal with the ferals that try to eat your chickens each night.

There aren’t enough hours in a day.

Mankind specialized for a reason. You need friends - particularly if security is an issue. If you look at places where self-sufficiency needed to be combined with some level of security (villages in South America, Afghanistan, Africa, etc), the pattern is always the same – small farms radiating out from a small central town or village. The village both allows people to specialize, and provides the security associated with nearby neighbors. Villages are connected by a network of roads to allow further specialization and associated commerce.

This is why I didn’t go down the “isolated farmstead” path. My homestead is being built on an acreage that is less than ten minutes’ walk from the center of a small town. There are three neighboring farmsteads within a kilometer on one side of my property and within half a kilometer on the other side we have a small school, a petrol station/shop, a country pub and a half dozen of the town’s residences.

Our water, electricity and heating, are not dependent on the grid so we have some built-in resilience, but we do have easy access to the advantages of a community within walking distance. Access to community doesn’t reduce resilience – it enhances it.

Off-grid doesn’t mean “hermit”. We all need community. You need to either find one, or build one.

Squeezing the Margins and the Emerging Growth-Crunch

So London is burning, Arctic ice set a new low for July, Italy looks like defaulting, Stock markets are crashing, mints can’t keep up with the demand for gold and silver, our Super funds are toast, sales of guns and survival food are setting records in the US, world food production is down, Syrian troops are killing their citizens so fast that they needed to order more ammo, and the news agencies are way too busy to even mention the growing casualties from starvation in Africa, oh…. And the wrong person got eliminated in Master Chef.

How are we enjoying the world resource shortage growth-crunch so far?

I have written previously about the problem of declining resource quality - it leads to squeezed margins, and our lifestyle is fed from those margins. As we bump up against the squeezed margins it stunts economic growth, because real growth needs real resources. If resources are limited real growth stops. The limit is, of course signalled by price. As the price of oil (and just about every other commodity) rises we feel it as a squeeze on discretionary spending.... and then we feel it as an economic downturn.

The part of my brain labeled "Physics" has no problem thinking about limits to growth and diminishing returns. However the "Economics" section of my brain struggles with these thoughts. An economy that stops growing enters into recession or depression - it must be stimulated to re-start growth. The "Economics" section of my brain has no tools to describe non-growth. Our economic paradigm does not allow a long-term hiatus from growth. A non-growing economy collapses. I suspect I am not alone in not dealing well with this topic.

The reason that the markets have crashed is said to be because of the downgrade in US debt. So investors responded to the US debt downgrade by dumping shares and buying US debt.

WHAT!!??!! That doesn’t make sense. I submit that the US debt downgrade was not a cause, it was a trigger. The CAUSE is that people sense that something is wrong and that the “something” is not confined to the US, it is systemic. The US debt downgrade was a symptom, as are the problems in Europe, the Middle East and Africa. Investors see symptoms all around them and they don’t feel in control. They are seeking relative safety – even the relative safety of downgraded US debt.

Although people sense that there is something really wrong, they don’t know exactly what it is – so they lose confidence. Since financial markets are based on confidence, the first casualty is the financial markets.

A US downgrade will not be the root cause of GFC II – the US downgrade is a symptom of a deeper issue. GFC II will be a consequence of the sense of uncertainty triggered by an emerging awareness that there is a systemic problem that is not confined to the US.

Population and the associated resource shortage is the elephant in the room. Nobody dares say it, so the cause of all of these growth-related problems stays a mystery.

When growth stops.... Why the CDS trade is a symptom of catabolism

An interesting point about the CDS trade occurs to me.

As you know, you don’t have to actually have exposure to Greek debt to buy a CDS to protect against a Greek “credit event”. The trade in derivatives of this kind leads to correlated systemic risk (a well-known issue). However there is another, less obvious and more philosophical problem:

It favours destruction over creation.

Once you buy a CDS on Greek failure it is in your interest to trigger the failure, so you short the currency, spread rumours of defaults, etc.

Philosophically it is probably true to say that over the last 3 decades the focus of the financial sector has moved increasingly away from its roots – moving from fostering productivity to embracing and creating destruction. I haven’t seen this stated elsewhere, so here is my suggested progression and timeline:

1. Early 1700s to early 1980s. Emphasis on using capital to foster growth (lending money to build businesses, commerce, transport, etc.).

2. Late 1980s, 1990s, early 2000s. A move by financial institutes away from using capital to support the creation of physical product to investing capital in markets that are increasingly detached from real, tangible products. Emphasis on “synthetic products” such as CDOs SIVs etc, where the emphasis was on “using money to make money” with little actual connection between these “sliced and diced” products and any real creation of physical products. The underlying physical objects that “collateralised” these synthetic products weren’t in any way changed in value by the slicing and dicing, yet the resulting products were inexplicably increased in value by the slicing and dicing process.

3. Early 2000s to now. Increased use of “Derivatives”. Essentially placing bets. No physical production or real creation here – it is worse than a zero-sum game because the house takes a percentage. Succeeding in a derivative bet usually requires something to go wrong or fail – and increasingly it turns out that the entity placing the bet had a hand in the failure. The size of the derivative market is many times the size of the real economy, so it is now quite obvious that derivatives market is completely unrelated to real productivity – the focus is instead on negative events and ways to identify, predict or create them.

If our financial institutions are a reflection of the allocation of our efforts, then we have progressed from a long period (centuries) of physical production, through a period of unproductive resource allocation (which mainly served to enrich the financial markets at the expense of the “margins” in productive growth), to a period with a destructive focus that is several sizes larger than the regular, productive portion of the economy. This destructive focus tends to destroy production-oriented entities in order to enrich financial entities.

So the CDS derivative is more than just a new financial product, it is a symptom of something. There is an underlying problem. If the markets could be productive I believe they would be. Catabolism is an ongoing process, even in healthy organisms. But when catabolism exceeds anabolism it is a sign of either starvation (no inputs) or sickness (no ability to process the inputs). I believe that our society can still process inputs, so we are left with the alternative… there aren't enough inputs.

...And we are back to my point about diminishing returns from declining resource quality.