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00:09Hello, Telesur English presents a new episode of Shine Now, a Wave Media's production that
00:14showcases the culture, technology and politics of the Asian giant. Today, Thinkers Forum welcomes
00:20Dr. Warwick Powell, a student professor in Queensland University of Technology in Australia
00:27and chairman at Smart Trade Network, to address on his latest book, Thermoeconomics in a Time
00:33of Monsters, and also the law of thermodynamics in the actual economic and global context.
00:39Let's have a look.
00:51...the point where it's elite, together with those other factors that I talked about, you
00:56bring all of that together under the pressures of declining energy return on energy investment,
01:01and you've got the preconditions for war.
01:08Hello, everyone. My name is Yun Peng. Welcome to Thinkers Forum. I am very, very excited to
01:13speak to today's guest. You know, every now and then you read a book, its theoretical framework
01:19is innovative, its fascinating, the arguments are rock solid, but the timing, the timing
01:25is unmatched. Today's guest, his new book, came out March the 15th, I think, two weeks
01:31after the Iran conflict started. And the book, titled Thermoeconomics in the Time of Monsters,
01:37is precisely about how energy is the ultimate constraint on national growth, on economic development.
01:43Dr. Warwick Powell, welcome to the show.
01:47Dr. Warwick Powell, Great to be with you.
01:48Dr. Warwick Powell, Let's jump straight in. So, if you're right, that means some of the
01:53most basic assumptions of classical economics are wrong, like energy being only an input of
02:01production of, say, growth is ultimately infinite. These are all wrong. So why should people believe you?
02:10Dr. Warwick Powell, Well, because I didn't make up the laws of thermodynamics.
02:13Dr. Warwick Powell, And the laws of thermodynamics tell us that basically, well, a couple of important
02:20things. One is that energy is not something that we can create or destroy. Energy simply changes form.
02:29And so what human societies constantly try to do is harness energy and transform it into things
02:36that are useful for humans and human societies. So that's the first thing.
02:42Dr. Warwick Powell, The second thing about the law of thermodynamics is that it really tells us that
02:49because it can't be created and it can't be destroyed, it nonetheless has its own inherent dynamics towards entropy.
03:00Dr. Warwick Powell, And in a very simple sense, that simply means that nature itself is constantly
03:07degrading, if you will, as well as renewing. So entropy, becoming more complex, fragmented, dissipative, chaotic,
03:19is part and parcel of how nature itself works. And so you bring these two things together and you realise
03:28that
03:28human societies are basically energetic transformation systems, then ultimately this fundamental foundation
03:36in physics must be the final constraint on the things that we as humans can try to do in our
03:44world.
03:44I often say that functional human societies basically need to be able to have food for people and fuel for
03:51machines.
03:52Dr. Warwick Powell, Both of these are fundamentally energetic questions and that energetic proposition can only
03:59come from one place and that is of course nature itself. And so the historical dynamic of human societies involves
04:07a combination of our ability to successfully intervene to manage entropy through negentropic interventions on the one hand.
04:17Dr. Warwick Powell, And secondly…
04:18Dr. Warwick Powell, What is negentropic?
04:20Dr. Warwick Powell, It's the reverse of it. It's the ability to bring order and to bring stability to a
04:28situation.
04:29So we want to be able to bring order and stability to enable reproduction, but the constant substrate is the
04:37system's dissipative,
04:39it's fragmenting all the time. And so it takes energy to keep order. And the more successful we are
04:46at harnessing nature's energies, the more energy surpluses we have available as societies to do all sorts of other things
04:54that we need.
04:55Dr. Warwick Powell, Just to clarify, when we're talking about surplus of energy here, we're not talking about a country's
05:00output of energy sources.
05:02We're talking about a society's general utilization of energy beyond the point of self-sustaining.
05:09Dr. Warwick Powell, Correct. So because reproduction is the fundamental purpose to be able to do things again the next
05:14day to survive and live,
05:16Dr. Warwick Powell, Complex societies are ones that have a high level of surplus energy available to it to do
05:23things more than just what basic reproduction requires.
05:27So if you think about this as a biological or a metabolism, a metabolism requires a certain amount of energy
05:37to be able to survive.
05:39Dr. Warwick Powell, To get that energy, it needs to expend energy to go and harvest that energy.
05:44Now, a simple reproduction system simply uses the energy that it needs to survive and it just becomes a self
05:54-fulfilling cycle.
05:55But because of entropy, of course, it'll slowly degrade and fall apart.
06:00So what societies are actually trying to do is harness a higher level of energy through the use of a
06:10certain amount of energy.
06:11So we call that energy return on energy investment.
06:14So if I expended one unit of energy to make available to me 20 or 30 units of energy and
06:24I only need one unit of energy to reproduce my own activity,
06:29it means that I have 29 units of energy available for other things.
06:34Now, that's important in complex, sophisticated social systems because what those other things are, of course, are dependents,
06:42who can't go and get the energy, children, odd people, etc.
06:47It is also how we create and sustain the sort of cultural and fixed infrastructure foundations of modern civilised societies
06:58because all of those things are actually just embedded energy as well.
07:02So if the only energy that we could get as human societies was only enough to feed ourselves,
07:07we don't actually have the means by which we can then create all of these other things that we today
07:15would call modernity.
07:17We've harvested all the oil at the surface or whatever it happens to be
07:22and we have to spend more and more energy getting the energy that's available in nature.
07:27And we don't notice straight away that our systemic energy efficiency is declining because we don't experience it immediately.
07:37You know, in our lives we still, you know, the legacy that was built on high energy surpluses is still
07:44there and we enjoy it.
07:45But over time we start to see how declining energy return on energy invested actually manifests.
07:53Roads that don't get fixed, bridges that begin to fall apart, buildings that begin to fall apart, deferred maintenance.
08:02All of these are symptoms of systemic energy inefficiency relative to the heyday when there was abundant surplus available.
08:12Is this what you call an entropic decay in your book?
08:15That's it. That's right.
08:16Okay. I want to talk about the other side of the entropic decay concept.
08:20You said the society's rise and fall ultimately depends on how well it fights this entropic decay.
08:27And you call that fighting process an entropic process.
08:32Give us some examples of how societies can fight this entropic process.
08:36Energetic renewal at a very foundational level, at a substrate level in a sense.
08:40So investing in research and development to find new ways of accessing nature's energy that can bring energetic renewal.
08:51So as energy return on energy invested declines, functional societies are able to replenish their energetic stock, if you will,
09:01and get that energetic return on energy invested, you know, back on a rising trajectory.
09:07Until, of course, those resources begin to diminish and we are constantly needing to find ways of doing that.
09:15And so energetic renewal is absolutely critical to how successful societies are to sustain themselves
09:23and to literally continue kicking the can of entropy down the road.
09:32Okay. So when we're talking about this process here, we're not just talking about, say, using solar or wind
09:39to replace traditional fossil fuel energies.
09:41We're also talking about how industrial processes can become more efficient
09:45and everything around industrial capacity serving the purpose of kicking the can down the road
09:51because resources are finite.
09:53So if we think of economies now as energetic transformation systems, what they, in effect, are doing is harnessing energy
10:03available by means of machines and humans to mobilise other resources, things, material stuff,
10:10going through processes of transformation to make things that are useful.
10:16Okay. Now, all of these processes, of course, are literally just transformations of energy from one form into another form.
10:24And as that happens, entropy, of course, implies that there is waste in these processes.
10:29We also need to have ways of streamlining the flow of these things because every time there is a blockage
10:38in the system,
10:39it incurs essentially some kind of entropic price because we are having to incur an energetic cost for something that
10:49is not actually in circulation.
10:51So reproduction implies circulation.
10:55A practical example would be goods having to be stored in warehouses for a long period of time
11:05or goods being stuck in transit because the road system is no good or the bridges haven't been built or
11:12what have you.
11:13Produced a product that the market doesn't want.
11:15That's right. And now we've wasted it. So that's, you know, that's a real sense of waste, right?
11:21And so what ties this system together is actually information.
11:25We can't have information systems without consuming energy,
11:30whether it was using energy to make paper or to grind the powder to make ink or to feed pigeons
11:37to fly things around.
11:39Or, of course, today, you know, to be able to have data collection systems.
11:43So currently we know, for example, with the war against Iran that there are active efforts pretty much every week
11:54to affect the fluctuations in the paper price of oil.
12:03Right.
12:04And information that is being produced has very definite financial implications in the short term,
12:13but which arguably are actually entropic in the long term.
12:17Because whilst you might keep prices from fluctuating too much in the short term,
12:22it masks the fact that the available stock is actually running out.
12:27Right. 20% is just taken off the market.
12:29And yet the price arguably doesn't reflect that.
12:32Right.
12:32So that's an example of, I guess, what you would call ultimately a kind of unviable.
12:39This is very interesting because as I was reading your book, and I have to be honest here, I only
12:44finished about two thirds in,
12:46and the first half was very theory-related.
12:49And part of the interview I want to do is to illustrate to the listeners how you can apply this
12:54way of understanding the world into real world events.
12:57And I think the conflict in Iran is a perfect example.
12:59And you mentioned how information works in price manipulation.
13:03But I want you to set up a contrast between your understanding of the conflict and how a more standard
13:11geopolitical analysis and say what they missed by not applying your method.
13:16Yeah, look, I'll finish the theoretical piece with one more thing to try to paint the picture.
13:21So we've talked about this sort of energetic transformation piece.
13:25We've talked about the information piece.
13:26And I've kind of hinted at the financial piece, right?
13:30So complex systems, economic systems, are basically three intertwined circuits that nonetheless have their own dynamic.
13:40And the circuits are the energetic reproduction circuit, the payment circuit.
13:45So as energy is transformed into useful things and it circulates, what's actually circulating in the other direction is money.
13:54We have financial circuits where money as a claim on the future is injected into the system as liquidity to
14:06mobilise resources.
14:07But it can have a life of its own because once it's mobilised a set of resources in the real
14:14economy and those resources have been transformed, the money still exists in exactly the same form.
14:21And if money is understood as a right to something, some value in the future, the challenge the system as
14:29a whole has is that if that available claim on the future is greater than the ability of the future
14:38to deliver on it.
14:40So there's an efficiency process, but there's a rhythm there or a cadence.
14:45But the monetary circuits and the fictitious capital circuits actually can accelerate.
14:53New liquidity can be injected into the system quicker and easier and cheaper than energetic transformation.
15:02And we start to see a bifurcation in the economic system where the monetary and fictitious capital circuits in a
15:11sense outgrow the capacity of the real economy.
15:15So you've got these three circuits and you're trying to keep them reasonably aligned with each other.
15:21And if they're reasonably aligned with each other and you are continuing to make possible innovation at the real economy
15:30level, then the system has a high probability of being able to perpetuate for a reasonable amount of time and
15:37deliver the kinds of things that modern societies expect.
15:41But if they get out of sync with each other, then the likelihood of crises are much more.
15:50So we bring all of that back to what's happening in Iran.
15:54I think it's my one way of reading it, I guess, is that it's a US-Israel war for the
16:04Holy Land.
16:04So there's an argument around that.
16:06And it's not that elements of that aren't true, you know, that the passions that come from a certain kind
16:13of apocalyptic politics doesn't play a role in energising people to do things.
16:21And also gives people, particularly those in positions of decision making power, that sense of invincibility and purpose.
16:30It's not entirely untrue that it doesn't play a role.
16:34Other people talk about it as sort of security competition in a broad sense.
16:39So the China containment stuff, you know, it's about China, containing China, blocking off China's access to energy.
16:49You know, whether it was the Strait of Malacca or the Straits of Hormuz or what have you.
16:53And people like Albert Kirby.
16:53Yeah, there's a part of an argument of that.
16:56What I would say is that there's actually one other part, which actually goes very much to how this substrate
17:05of real energy transformations, dissipation and entropy play out almost as the backdrop, if you will.
17:14Do you think this is the backdrop parallel to the other geopolitical analysis or do you think this is a
17:19fundamentally determinative aspect of this conflict?
17:22It will determine the final parameters and it will do that because when national systems finally confront and realise that
17:36their systemic energy efficiency is actually declining, they have a few ways in which they can respond to it.
17:44A few negentropic responses.
17:48One is to do some of the things that we discussed earlier to improve efficiency in the systems and all
17:56of that.
17:57Another one would be to try to drive transformations to access new higher EROEI possibilities.
18:05It's energy return on it.
18:06Energy invested.
18:07Energy invested.
18:07Now, that isn't always about somehow changing a fuel type.
18:12So the argument that I run is not really fuel type prejudiced.
18:20It's quite agnostic.
18:21It's really about the energy return on energy invested, whether it's renewables or what have you.
18:27For me, that's not the metric.
18:30The metric that matters is that energy return ratio.
18:33Yeah.
18:34So a nation state could seek to extract more energy from available known sources because they've improved the technology of
18:45some sort.
18:45So we're able to get to the oil that we know is there, but which 20 years ago we couldn't
18:51get because it was...
18:52Like the shale revolution.
18:54Shale or what have you.
18:55So I can do that.
18:58Alternatively, you can go to the world and seek to enter into trade, to buy low entropy energy from other
19:08parts of the world.
19:09That's the commodity market.
19:10Commodity market.
19:11Enter into trade relationships with the global market for available energies.
19:16And last but not least, we get a kind of thermoeconomic imperialism, which is we don't want to buy it.
19:24We don't want anyone else to have it.
19:26So we're going to take it ourselves.
19:28And in a sense, I think what's happened in Venezuela and what's happening in Iran is a reflection of the
19:36fact that the US political economy has reached a point where it's elite, together with those other factors that I
19:43talked about.
19:44You bring all of that together under the pressures of declining energy return on energy invested.
19:51And you've got the preconditions for...
19:55So it doesn't have to be determinative, but it certainly creates the pressures that societies and their economic systems and
20:03institutions need to deal with.
20:06This particular presidency has a particular way of dealing with these issues, and they include going to war.
20:14How do you respond to people who say that this all makes sense, but it doesn't really add much new
20:20to the old imperialism analysis of just people going around and taking oil, which the Dutch, the English, the Americans
20:26have been doing for hundreds of years?
20:28Well, that's what we observe.
20:29What I try and do is actually explain the reasons why this ends up happening.
20:33It's not always that somehow countries or organisations just work on a whim and one day wake up and decide
20:43to go and start a war or to take something.
20:46It's actually fundamentally conditioned by these sorts of constraints, because once you reach a point where you are unable to
20:54reproduce what you had before,
20:57you, in a sense, have no choice but to seek to supplement and replenish your energetic reservoir.
21:05There's a few ways you can go about doing that, as I said.
21:11So what I'm trying to do here is to say, look, we can observe all of these things, the war,
21:18the imperialism and things.
21:19What ultimately in our material world creates the conditions that make these kinds of actions more likely than not?
21:28And so if we're interested in reducing the probability of warfare, then one of our key challenges is actually to
21:39find ways of enhancing energy efficiency systemically,
21:44not only as single nation states, but also at a global level.
21:47Right. One thing I found really disturbing was that the United States launched this war, arguably because of the energy
21:54crisis,
21:55precisely at a decade where it's coming off the high of the shale revolution when this domestic reservoir,
22:02at least the ones that they can successfully exploit, has been going up.
22:06And under your analysis, I would assume you would argue that the energy return on energy investment of those shale
22:12is going down.
22:13Correct. And we know this because we know that the useful life of many of the wells,
22:18their useful life in terms of time is diminishing.
22:21So two or three years and they're having to move on.
22:26The effort that's required, the energy that's required to be consumed to tap the next unit of energy continues to
22:33rise.
22:34Again, it's not to say that the stock isn't there.
22:38The issue is that the energy required to convert that dormant stock in nature into usable flow is no longer
22:49as efficient as it once was.
22:51That manifests itself in very interesting ways because it also shows how the gap between the world of fictitious capital,
23:03how things get priced, exchange value, if you will, and the world of use values, the sort of real constraints
23:09in the end.
23:10And use value is?
23:12Is the material, energetic foundations of our world.
23:16And if those two things sort of separate too far, they ultimately will get brought back down to earth,
23:23because basically thermodynamic reality has the last say.
23:28But what happens in the meantime is quite paradoxical because if the exchange value of shale, for instance, goes up,
23:38which it will,
23:38and LNG goes up, it will actually attract more resources to be deployed into it that will accelerate the depletion
23:46of whatever EROEI level stocks available,
23:50and actually accelerate the depletion of that resource.
23:53I've actually heard energy analysts arguing that this process, instead of depleting it faster,
24:00would actually make the exploration process cheaper.
24:04So the EROEI would go up in this process.
24:09Unlikely.
24:12It's not like we need to do much more exploration per se.
24:15A lot of the reserves are known.
24:17The work's been done.
24:18The stocks are available.
24:19It's just a question of what cost there is to access them and how long they will last.
24:25And so it would lead to essentially the accelerated exploitation of a stock that is actually at a diminishing level
24:33of EROEI.
24:34And again, it's important to make the distinction between this as somehow running out of oil
24:41versus just having to be less efficient at getting the oil that is there.
24:47And it's a very important distinction.
24:49Maybe it will run out, maybe not.
24:51You don't know that it's run out until you take that last slurp.
24:55When you take that last slurp and realise that there's nothing left.
24:58It's like my bank account.
24:58Then you have to...
24:59Because it looks okay, right, as you keep going, until the last minute.
25:03So my own sense is that the United States has confronted this reality
25:08that despite the fact that it has abundant raw available resource,
25:12that its EROEI is actually diminishing, that's a systemic problem, right?
25:16But when financial signals actually encourage more exploitation of this resource in the short term,
25:24it actually perversely leads to financial enrichment on the one hand.
25:28So the shale oil guys are laughing all the way to the bank,
25:31whilst at the same time accelerating the depletion of available energetic surpluses to the United States as a whole.
25:38Financial benefits, system energetic depletion.
25:43It's like an addiction that keeps the patient going without the patient knowing that addiction is killing it.
25:47That's right.
25:48It's hollowing them out from the inside.
25:52And so it's not a determinative thing.
25:56So what I try and avoid in the structure of the argument in the book and thinking about the dynamics
26:01is that in the end, whether human societies succeed or fail in these processes of energetic renewals
26:08is not a function of the fact that it somehow automatically successfully finds a new way.
26:15It may or it may not.
26:17It may stumble on new things by chance.
26:20More often than not, it won't stumble on them by chance.
26:24It will be based on discoveries.
26:27It's also about the systemic efficiencies of energy to circulate things.
26:31And so you've really got to take that holistic view about this.
26:36So, yeah, Iran, I think we can better understand Iran by understanding that substrate.
26:42Iranian oil is still relatively high EROEI globally speaking.
26:46Same with Russian oil, by the way.
26:48And partly I think the U.S. wrapped up with this sense of rivalry, this sense of containment,
26:56together with some of this millenarian zealotry that you get.
27:00You put all of these things together and that created the cauldron.
27:03The real pressure point ultimately comes from the energy efficiency depletion.
27:09Yeah.
27:10I want to talk about countries and places that are obviously unable to deal with the energy shock
27:15caused by the Iran conflict by themselves.
27:17Places like Vietnam, Cambodia, Laos, Taiwan, of course.
27:21And just to use Taiwan as an example, there's widespread report that Taiwan doesn't have
27:25much reserve in terms of oil and gas.
27:27It has a limited ability to buy it from the commodity market because it's not a large buyer.
27:31It has a very limited capacity to scale up its renewable energy production capacity.
27:36So if you were advising the Taiwanese leaders, tough job, and especially given its industrial profile,
27:43places like TSMC uses up to, I heard, 10% of all electricity generated in Taiwan.
27:49What kind of advice would you give them in this time junction?
27:53Look, it is a difficult thing because moments of crisis often force you to do things that you would otherwise
28:00not do.
28:01And the mainland has made overtures or at least indicated to the folk in Taipei that the mainland would be
28:11willing to provide energy assistance to the island.
28:16Obviously, at the moment, the island has rejected those overtures.
28:20But time will tell, right, because, as I said, when the pressure finally comes and you're on the brink of
28:30having to shut down your most lucrative export enterprise because of a shortage of energy,
28:37and that those processes are not ones that you can really afford to interrupt anyway, then there will be a
28:44different set of considerations, I think.
28:46But, doubtless, Taipei will seek to defer as much as they can through, and almost at any price at the
28:57moment.
28:57And in large part, that's for domestic island political considerations.
29:02You know, we are now one week or so on from when KMT Chairwoman Zhengli Wen visited Beijing.
29:09And I think that in and of itself has placed some pressure on the DPP
29:17to address this issue of peace across the straits in a way that I don't think they've had to face
29:24for quite some time.
29:25And we've already seen the DPP try to criticise Zheng's visit and, in a sense, rejected the 10-point proposal
29:38from the mainland, which will be there anyway.
29:40You know, more flights, youth groups and all of that.
29:44Right.
29:45But it's certainly, I think, creating an environment where there are many people on the island that are increasingly wondering
29:53whether they would have once thought of as a stable status quo.
29:58Yeah.
29:58But it's never stable, right?
30:00The status quo is always changing.
30:01Right.
30:01It's always dependent on the U.S. remaining in East Asia and continuing its military or ambiguity of committing to
30:07the threat.
30:08And it's relative strength too, right?
30:10So, you know, the status quo in 1996 is certainly not the status quo in 2026, even though, on paper,
30:19everyone says, well, you know, it's the same status quo.
30:21But, of course, it's not.
30:23And we know that with all the opinion surveys that are done around this question, the issue of what constitutes
30:29people's understanding of the status quo today is very different, I think, to how people thought of the status quo
30:3420 or 30 years ago.
30:36The challenge for the island, I think, is that the status quo has radically changed.
30:41The military balance, of course, is very different today.
30:47But I think this issue of energy, again, is the final arbiter.
30:53And if it cannot find a non-mainland-related pathway to sustaining the energetic systems that they have, then, well,
31:09I think, one, it'll become a political issue on the island.
31:12They've got some elections at the end of this year and then in, what, 2028.
31:17And these things won't go away.
31:19I mean, for those who follow energy politics on the island, they'll know that there has been a longstanding debate
31:25about the nuclear power plants.
31:27They just shot off it last year.
31:29Yeah.
31:29And, of course, they're now talking about possibly having to turn them back on.
31:34There was a referendum run not so long ago.
31:38It didn't get the requisite number of votes to even be valid.
31:43But nonetheless, the numbers that did vote in favor of turning those nuclear power plants back on showed that people
31:51did want something to be done.
31:54Right.
31:54And that's the point that really, really bothered me.
31:57Because, as you mentioned, public opinions is a big thing on the island.
32:01Despite I'm being completely aligned with your view on how this issue theoretically should be resolved in the best interest
32:09of the Taiwanese people, peaceful reunification given Taiwanese energy and industrial profile should be the way to go.
32:17But polls after polls, we see that there's a big chunk of the Taiwanese population saying that they do not
32:24want reunification, at least in the immediate term, with the mainland government.
32:29How does your framework take into consideration a localized particular political will against perhaps an optimal energetic path?
32:39Well, as I say, the energetic path will, in a sense, be the ultimate arbiter of success or failure.
32:49Social institutions can try lots of different things.
32:53And whilst there is no single success pathway, meaning that there are many ways of being close enough to being
33:04optimal, to be, you know, viable and continually refined and improved, the aim of politics perhaps on the island will
33:11be to defer for as long as they possibly can the confrontation with energetic reality.
33:18And they may seek to reactivate the nuclear power plants, for example.
33:24There may be attempts to secure, you know, alternative gas supplies.
33:32Because, you know, public institutions will be seeking pathways to achieve a negentropic outcome that they believe is tolerable.
33:47So that means economic hardship and maybe even rationing if they can't secure independent energy resources.
33:53That's right.
33:54You know, Australia is going to go through this as well, right?
33:56And to me, like the case, the cases between Australia and Taiwan, the obvious difference is that there is a
34:03solution for the Taiwanese people.
34:04And the solutions on the table offered repeatedly by the government in Beijing.
34:09So what is the policy implication following your framework for Beijing's Taiwan policy?
34:15The political layer, if you will, isn't reducible to the energy layer.
34:19The energy layer will determine in the end whether the political choices are correct.
34:24And if the political choices can defer confrontation with energetic reality for as long as possible, then they will get
34:34away with things for as long as possible.
34:36If the political choices ultimately lead to a situation where that energetic substrate essentially just says, this isn't going to
34:48keep going.
34:49There simply isn't enough energetic surplus within this system, this particular structure to meet the aspirations of the society and
35:01to pay for schools and hospitals and whatever else it is that it's trying to deliver.
35:06If it comes down to it and the Taiwanese government has to shut off part of TSMC's production capacity, what
35:15do you think the global AI and chip supply chain, what kind of shock will it be to the supply
35:21chain as a whole?
35:22Well, it'll just be another shock to the AI supply chain, because I think the AI supply chain, particularly in
35:30the US, is confronting electricity supply issues.
35:34And in fact, the third part of my book actually goes into this issue of electricity and AI in quite
35:43a bit of detail as a way of explaining how two very different systems are approaching this question of AI
35:50from a thermoeconomics point of view.
35:54The US AI system is, well, all AI is ultimately a question of electricity.
36:01And what we do know is that AI in China benefits from a relatively lower cost of electricity and an
36:10abundance of electricity.
36:11AI in the United States is now confronting electricity constraints.
36:15We know that a number of planned AI data centres have been deferred.
36:21And why is China's AI capacity benefiting from a…
36:26An abundance of electricity.
36:27Right.
36:28And in large part because China has been on these processes of energetic renewal.
36:35Is it because of their investment in energy efficiency, in alternative sources, building infrastructure, everything?
36:42The entire system has been transformed from…
36:44If you think of China in 1990, say, it was a country with unstable electricity supply.
36:53I remember it.
36:54Yeah, me too.
36:54I remember visiting family in villages in Guangdong province in 88 and 89, for example, where the villages still had
37:04no electricity.
37:04They had yet to be connected to the grid.
37:07That Guangzhou itself used to have scheduled brownouts each week.
37:15Different districts, you know, would have to take their turn because there actually wasn't enough electricity production available.
37:22And I think also the transition mission network had limits, so it couldn't carry enough electricity anyway.
37:29So this was only 35, 36 years ago.
37:32Even in Guangzhou?
37:33Guangzhou.
37:33Wow.
37:34And that system was mainly reliant on coal.
37:41Today's electricity system in China is multidimensional.
37:45It has, of course, coal, nuclear, some gas, hydro, and increasingly wind and solar as part of its mix.
37:56And this transformation process has delivered an abundance of electricity in China.
38:03Many mainstream Western economists would, of course, say that that represents wasteful investment.
38:09But I think history will show that this commitment to building out this capability will hold China in good stead,
38:20particularly as it goes through this phase of energetic renewal in its industrial systems with AI, robotics, etc.
38:29Right.
38:30And when you were saying renewal, it's not just growing capacity, right?
38:33It's also about rebuilding the infrastructure and making it more efficient.
38:35And transforming some of the qualitative dimensions.
38:38So if you think about renewable energy, particularly wind and solar, they're often seen as intermittent sources.
38:48The wind doesn't always blow.
38:50And, of course, the sun's not always shining.
38:53And an important part of the solution to that is storage technologies 15 years ago were really very inefficient, not
39:03really up to handle that kind of role systemically.
39:07And so at that point in time, things like solar panels were actually pretty inefficient, even, you know, even with
39:15those innovations from the Chinese Australian researcher.
39:19But nonetheless, you know, got to a point where you could use solar panels on a house and people would
39:25be able to run electric lights and things.
39:28But my parents' apartment got the first solar panel about 15 years ago and was very limited, even for a
39:35three person household.
39:37Yeah. And it was just a supplement.
39:41Today, combined with the batteries that are available and the efficiency of the harvesting of the sun's energy, a house
39:50can actually be more or less self-sufficient in energy.
39:54So that's an important transformation.
39:55It's taken solar from something that was actually relatively low EROEI to something that can operate at a much higher
40:04EROEI level.
40:05It also enables renewable energy now to become an industrial proposition and a commercial proposition.
40:12And we see that with things like micro grids.
40:16So there's a lot more distributed solutions now where batteries enable the provisioning of electricity into places where rolling out
40:25the grid might have been, you know, too costly, too difficult.
40:31And but now micro grids, batteries make all of that viable.
40:36And of course, the best battery of them all is the battery on wheels, otherwise known as the EV.
40:41And so you add in the electrification of transport, which 15 years ago, again, very few people believe that transportation
40:52could be electrified.
40:53You know, maybe the odd scooter, but they certainly didn't think things like trucks could be electrified.
41:01And of course, they are increasingly now.
41:03People didn't believe and couldn't conceive of electrification enabling maritime traffic.
41:11Now, we've now seen some electrified container boats.
41:17Now, they're not competing with the supersized 24,000 container types.
41:21But nonetheless, they're using containerized batteries to power maritime shipping, which will be very useful for coastal shipping, just hopping
41:35from one.
41:36And so they will be great for sort of coastal shipping.
41:40They will, of course, work very well in places where there's a significant river or canal or estuaries network.
41:49Obviously, China has some significant canals and river systems, but also through Southeast Asia, you know, Cambodia, for example, and
41:59the Mekong Delta.
42:00And I think also some of those ships will be able to support intra-island trade in, for example, the
42:08Pacific Islands, which have historically been dependent upon fossil fuel based transportation to get things from A to B.
42:16So these are developments that are happening as a result of this renewal in China.
42:23But on the AI question, the United States is confronting a situation where it's constrained in terms of its ability
42:32to meet the growing demands that AI is placing on the electricity network.
42:37That constraint in and of itself in parts of the United States has caused the deferral or the cancellation of
42:44some data centers.
42:46And in other parts of the United States, it's caused a significant increase in electricity prices.
42:50Yeah, sometimes both happen at the same time.
42:53At the same time, right.
42:54And it creates what I think we could call an intensified situation of the electricity haves and the electricity have
43:03nots.
43:04And it's not just, well, householders, of course, feel, you know, voters feel the pain of rising electricity prices, but
43:13so do other industries.
43:15Right.
43:15And so as AI makes greater claims on the available energetic system, it actually adversely affects the performance of other
43:26parts of the system.
43:27Right.
43:27And we often call that a Dutch disease problem, right, where resources sort of rush to, you know, the boom
43:35sector, but often means that other sectors are undermined.
43:39Yeah.
43:40And I think one of the risks that the United States faces now, and my book goes into it a
43:46bit, is precisely this dynamic.
43:49And this is an energetic surplus problem.
43:53Right.
43:53I remember there was an article that you wrote just a couple of weeks ago arguing that the reshoring of
43:59manufacturing in the United States is a fantasy, largely because of the lack of energy reserve.
44:05And at the time, I didn't feel quite, I didn't quite get it because I was thinking about the sheer
44:09amount of energy United States has in store, but I wasn't thinking about it in terms of the energy return
44:15on energy investment and how unlikely it is that TSMC can just plug up and re-plug in in America
44:21and replace the 15% of production.
44:23Well, and that's, again, that's the one that ultimately is the final arbiter.
44:28Right.
44:29You can get away with not being 100% optimal.
44:32Right.
44:34But if you are way too far off that optimal path, then your EROEI levels really are going to, well,
44:45they're going to shut you down because you're never going to be able to achieve your both economic competitiveness.
44:53But it also works its way through systemically.
44:57So Hegel, the German philosopher, he had a theory, of course, or a metaphysics of history where reason unfolded.
45:09And he often called it or he called it the cunning of reason, where individual human beings would go about
45:18their daily existence, making the decisions that they make and doing the different things that they do.
45:24Never once been conscious that in many ways they were the bearers of this broader historical force, the spirit of
45:34reason.
45:35In a sense, my own systemic approach to these questions is that we have in operations the cunning of thermoeconomics
45:46or the cunning of entropy.
45:48These aren't things that we have to be conscious of, but they are things that ultimately create things that we
45:55respond to.
45:56So we don't run around measuring EROEI at a system level, but we do in the end notice that the
46:03infrastructure is crumbling.
46:05I will ask you eventually about how we can begin to measure EROEI at a system level, but first I
46:11want to talk about the part of the book that I felt most torn about.
46:14So the part when you talk about how China is becoming a negantropic economy, whereas the U.S. is becoming
46:23one that's representing entropic decay.
46:26On one hand, I felt your argument very persuasive.
46:29The parts about the infrastructure renewal, about how the continued investment in the past three decades in China has transformed
46:35the economy.
46:36That all made sense to me. But I was also thinking at the back of my head, like the local
46:42government debt issues, the ghost houses, the real estate bubble, like all of those real problems that the Chinese government,
46:50the Chinese economists are facing right now.
46:52How do they function into your framework of analysis? And I'm also thinking about the U.S.
46:58The U.S. still has the deepest capital market and so far still the most powerful military on earth.
47:06So how do those things feature in your analysis?
47:09My take on it is that, of course, the building of physical stock is the manifestation of energy.
47:19That it is not being used today means that it is an energetic waste.
47:24No doubt about it. That's an entropic possibility.
47:28The question is whether or not that infrastructure can, in the next, you know, two or three years or whatever,
47:37ultimately become part of the useful fabric of energetic transformations within society.
47:43You know, people move into them and start using the living in them and all of that.
47:48Of course, in a worst case scenario, you'll end up with incomplete things that will ultimately, well, in parts of
47:56the world, nature reclaims them, as we've seen, right?
47:59The post-apocalyptic movies.
48:01Yeah. Well, they're just left in neglect.
48:03You know, companies and people just walk away from these things and people sort of forget about them.
48:10You know, that can always happen in any society, by the way.
48:13When Xi Jinping made that famous observation that housing is for living in, not for speculating.
48:21I agree with you, with your analysis on the housing bubble.
48:24But I think this is a pretty classic economic analysis of the Chinese political economy.
48:31Where do you think your framework of thermoeconomics add to this analysis?
48:36Well, it's just an example of how the system is constantly struggling.
48:44It's the dialectic between entropy and neg-entropy.
48:48And this is actually a pretty important distinction or a way of understanding this because the hollowing out of American
48:57industry over the course of the last 40 to 50 years is the direct corollary of the expansion of finance.
49:04And we hear often in China the political leadership talking about this idea of finance being there to serve the
49:16real economy.
49:17So these are higher EROEI investments?
49:20At system level.
49:21Much higher EROEI investments.
49:23And that's how we need to understand them.
49:26And that's why this system works.
49:28The fact that you have to manage the deleveraging at a money capital level is purely to contain the balance
49:39sheet fallout would otherwise happen.
49:42So that's one way of understanding the housing stuff.
49:46The local government debt stuff.
49:49And I think that that just sort of continues to reflect the fact that Chinese governance at a public level
49:58through national governments, provincial governments, city governments or municipal governments is a very large and complex beast.
50:10And the central government isn't really a government that goes and runs hospitals and builds hospitals and schools.
50:21Those things are done actually at the edges.
50:23So this issue of debt is really one that is being managed not really as a balance sheet problem because
50:30they're not going to become insolvent.
50:31So the general theme of the analysis is that we should look at what kind of investments they're making.
50:37Yeah.
50:37And in the past, there are some entropic investments in terms of housing, especially the ones that are in surplus.
50:44Well, they can become entropics, but I guess what I try to inject into that is a tighter frame around
50:52when that liquidity injection is more useful than when it's not.
50:56Because if you just spray liquidity into the system, either by dropping checks or what have you, then you may
51:07not necessarily improve your system-wide EROEI.
51:13You may actually be undermining it.
51:15So you need to be framing those system liquidity injections with a mind to how do they ultimately contribute to
51:23your negentropic efforts.
51:25And I imagine you would agree that part of the way we can read Xi Jinping's statement that we should
51:31direct money into the real economy as opposed to fictitious capital is a way to direct liquidity into areas of
51:37high EROEI into entropic renewal.
51:40That's right.
51:41And this issue of the real economy, I think, is also one that can be understood better through the frameworks
51:50that I've been articulating.
51:52Because often when people throw the idea of real economy around, they have a narrow view that it relates solely
52:00to the production of things.
52:02The real economy is manufacturing.
52:04Whereas my argument is that the real economy are activities that involve the mobilisation of energy and the transformation of
52:12material things and energy.
52:14Which means that the services economy is also a really important part of the real economy.
52:18Because the services economy, first and foremost, involves people.
52:22And people are embodied energy.
52:25We are energetic ourselves.
52:27So it doesn't make the distinction between whether or not you leave a legacy of a tangible item or not
52:35as the way that you distinguish the real economy from something else.
52:39The real economy is simply one where energetic transformations are taking place.
52:44The purpose, therefore, is to look at how those energetic transformations are being achieved in a way that contributes to
52:53social neg-entropy.
52:54And, you know, warding off the entropic, the inherent entropic trajectory of nature.
53:03And if we could think about it in that kind of way, then I think we will actually end up
53:11directing the liquidity into things that actually are energetically useful.
53:19Right.
53:20But they're not always going to be.
53:22It could be things like, you know, the extent to which we provide infrastructure that supports gaming.
53:28Yeah.
53:29And at one level, intuitively, you might say, too much gaming may be really more entropic than neg-entropic.
53:40Right.
53:40But that infrastructure also facilitates people running, like, open cloud, those AI systems that are productive.
53:47In other ways, right.
53:48So you do, again, always need to take this sort of system-wide approach.
53:53Right.
53:53It's easy to pick on single things, but sometimes they're offset by other things or they enable other things to
53:58happen.
53:59Or, of course, and we must never forget this, that human societies are fundamentally about humans, right?
54:07Yeah.
54:07And, you know, human beings are not simple, optimised energetic machines.
54:16Yeah.
54:16You know, we're complex, sentient beings who, you know, who thrive in cultures that enable us to have pastimes and
54:27all of that.
54:28Yeah.
54:29So, and by having pastimes and having leisure…
54:34Makes us who we are.
54:35Makes us who we are.
54:36And it also makes societies actually, you know, more stable, more enjoyable and all of that as well, which in
54:43and of itself has some neg-entropic properties.
54:47Hmm.
54:48When Professor Powell is talking about consciousness beings, my former colleagues in finance law, he's not really talking about you.
54:56Okay.
54:57So, one last question.
54:58Professor.
54:59So, if I'm totally sold on your theory, and I'm talking to a friend, say, doing policy advice to Chinese
55:07Central Bank, and he's saying, I need something measurable to see if the economy is moving towards the right direction.
55:13What kind of metrics indexes should they be looking at?
55:17Well, I think we need to actually, in a sense, fine-tune and make more scientific the Li Keqiang Index,
55:31if I was to describe it in very Chinese terms, which is that…
55:37Okay.
55:37Explain to our colleagues.
55:38So, for a long time, many particularly Western critics of China would criticise official statistics.
55:46And, in fact, Chinese political leadership is often just as sceptical.
55:55They're actually very grounded people, and they have their eyes and ears wide open.
56:00And so Li Keqiang said, look, whatever the GDP numbers are, the numbers that are much harder to fudge is
56:07how much energy is being created, how much energy is being used, how many tonnes of this is being transformed
56:14into how many kilograms of that, how many litres of such and such are being used.
56:18And I think we actually need to be more focused on those very fundamental material metrics, things like kilowatts, joules,
56:33tonnes, kilograms, litres.
56:36And if we did that, I think we would actually end up with a much more sensible approach to how
56:43nature's resources are actually being managed, certainly in a way that gives us a clearer picture of the energetic return
56:51on energy invested.
56:53Increasingly, with digitalisation, I think we are finally at a position where we can begin to grasp these elements of
57:01nature in ways that we struggled to before.
57:04There you have it, guys. Thank you, Professor Powell. Just when I saw this theory is getting refreshingly simple, you're
57:09making it more complicated.
57:10So that was our conversation with Professor Powell.
57:13He offered a dense theory, and he'll be the first to acknowledge that his words are not the final one
57:20on either energy or economic development or national growth.
57:24But he is asking a question that most mainstream economists are not.
57:29And that is, how do we reconcile the conflict between imperial ambitions, military adventurism, and the ultimately finite resources on
57:38our planet?
57:39That question isn't going away.
57:42And neither are the conflicts in Middle East, the energy shocks that are the results of those conflicts.
57:49My name is Winpeng, and thank you for watching Thinker's Fall Room.
57:52Thank you very much very much for watching.
57:56Thank you very much.
57:59Transcription by CastingWords
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