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00:06Hello, Telesur English presents a new episode of Shine Now, a Wave Media's production that
00:11showcases the culture, technology and politics of the Asian giant. Today, Thinkers Forum welcomes
00:17Dr. Warwick Powell, a joint professor in Queensland University of Technology in Australia and
00:24chairman at Smart Trade Network to address on his latest book, Thermoeconomics in a Time
00:30of Monsters, and also the law of thermodynamics in the actual economic and global context.
00:36Let's have a look.
01:04Hello, everyone. My name is Yun Peng. Welcome to Thinkers Forum. I am very, very excited
01:09to speak to today's guest. You know, every now and then you read a book, its theoretical
01:15framework is innovative. It's fascinating. The arguments are rock solid. But the timing,
01:21the timing is unmatched. Today's guest, his new book came out March the 15th, I think,
01:28two weeks after the Iran conflict started. And the book titled Thermoeconomics in the Time
01:33of Monsters is precisely about how energy is the ultimate constraint on national growth,
01:39on economic development. Dr. Warwick Powell, welcome to the show.
01:44Great to be with you.
01:45Let's jump straight in. So if you're right, that means some of the most
01:51basic assumptions of classical economics are wrong, like energy being only an input of production
01:58of, say, growth is ultimately infinite. These are all wrong. So why should people believe
02:05you?
02:06Well, because I didn't make up the laws of thermodynamics. And the laws of thermodynamics
02:13tell us that basically, well, a couple of important things. One is that energy is not something that we
02:21can create or destroy. Energy simply changes form. And so what human societies constantly try to do is
02:29harness energy and transform it into things that are useful for humans and human societies.
02:36So that's the first thing. The second thing about the law of thermodynamics is that it really tells
02:45us that because it can't be created and it can't be destroyed, it nonetheless has its own inherent
02:55dynamics towards entropy. And in a very simple sense, that simply means that nature itself is
03:03constantly degrading, if you will, as well as renewing. So entropy, becoming more complex,
03:13fragmented, dissipative, chaotic, is part and parcel of how nature itself works. And so you bring these
03:23two things together, and you realise that human societies are basically energetic transformation
03:29systems, then ultimately this fundamental foundation in physics must be the final constraint on the
03:37things that we as humans can try to do in our world. I often say that functional human societies
03:44basically need to be able to have food for people and fuel for machines. Both of these are fundamentally
03:51energetic questions. And that energetic proposition can only come from one place, and that is, of course,
03:58nature itself. And so the historical dynamic of human societies involves a combination of our ability to
04:07successfully intervene, to manage entropy through negentropic interventions on the one hand,
04:14and secondly... What is negentropic? It's the reverse of it. It's the ability to bring order and to bring stability
04:24to a situation. And so we want to be able to bring order and stability to enable reproduction, but the
04:31constant substrate is the system's dissipative, it's fragmenting all the time. And so it takes energy to keep
04:39order, and the more successful we are at harnessing nature's energies, the more energy surpluses we have
04:48available as societies to do all sorts of other things that we need. Just to clarify, when we're
04:54talking about surplus of energy here, we're not talking about a country's output of energy sources,
04:59we're talking about a society's general utilisation of energy beyond the point of self-sustaining.
05:05Correct. So because reproduction is the fundamental purpose to be able to do things again the next
05:11day to survive and live, complex societies are ones that have a high level of surplus energy available
05:19to it to do things more than just what basic reproduction requires. So if you think about this as
05:26a biological or a metabolism, a metabolism requires a certain amount of energy to be able to survive.
05:36To get that energy, it needs to expend energy to go and harvest that energy. Now, a simple reproduction
05:44system simply uses the energy that it needs to survive, and it just becomes a self-fulfilling cycle. But
05:53because of entropy, of course, it'll slowly degrade and fall apart. So what societies are actually
05:59trying to do is harness a higher level of energy through the use of a certain amount of energy. So
06:09we call that energy return on energy invested. So if I expended one unit of energy to make available to
06:17me
06:1820 or 30 units of energy, and I only need one unit of energy to reproduce
06:25my own activity, it means that I have 29 units of energy available for other things. Now, that's important
06:33in complex, sophisticated social systems, because what those other things are, of course, are dependents,
06:40people who can't go and get the energy, children, old people, etc. It is also how we create and sustain
06:49the sort of cultural and fixed infrastructure foundations of modern civilised societies, because
06:56all of those things are actually just embedded energy as well. So if the only energy that we could
07:02get as human societies was only enough to feed ourselves, we don't actually have the means by
07:08which we can then create all of these other things that we today would call modernity. We've harvested all
07:15the oil at the surface or whatever it happens to be, and we have to spend more and more energy
07:22getting the energy that's available in nature. And we don't notice straight away that our systemic
07:30energy efficiency is declining, because we don't experience it immediately. You know, in our lives,
07:36we still, you know, the legacy that was built on high energy surpluses is still there and we enjoy it.
07:42But over time, we start to see how declining energy return on energy invested actually manifests.
07:50It's roads that don't get fixed, bridges that begin to fall apart, buildings that begin to fall apart,
07:58deferred maintenance. All of these are symptoms of systemic energy inefficiency relative to the
08:06heyday when there was abundant surplus available. Is this what you call an entropic decay? That's it,
08:13that's right. Okay. I want to talk about the other side of the entropic decay concept. You said the
08:19society's rise and fall ultimately depends on how well it fights this entropic decay, and you call
08:25that fighting process and nec-entropic process. Give us some examples of how societies can fight this
08:33entropic process. Energetic renewal at a very foundational level, at a substrate level in a sense, so
08:40investing in research and development to find new ways of accessing nature's energy that can
08:46bring energetic renewal. So as energy return on energy invested declines, functional societies
08:55are able to replenish their energetic stock, if you will, and get that energetic return on energy
09:01invested, you know, back on a rising trajectory. Until, of course, those resources begin to diminish,
09:08we're constantly needing to find ways of doing that. And so energetic renewal is absolutely critical to
09:17how successful societies are to sustain themselves and to literally
09:26continue kicking the can of entropy down the road. Okay, so when we're talking about this process here,
09:33we're not just talking about, say, using solar or wind to replace traditional fossil fuel energies. We're also
09:39talking about how industrial processes can become more efficient and everything around industrial capacity
09:46serving the purpose of kicking the can down the road because resources are finite. So if we think of
09:52economies now as energetic transformation systems, what they, in effect, are doing
09:58is harnessing energy available by means of machines and humans to mobilize other resources, things, material
10:07stuff, going through processes of transformation to make things that are useful. Okay. Now, all of these
10:16processes, of course, are literally just transformations of energy from one form into another form. And as that happens,
10:23entropy, entropy, of course, implies that there is waste in these processes, we also need to have ways of
10:31streamlining the flow of these things, because every time there is a blockage in the system,
10:36it incurs essentially some kind of entropic price, because we are having to incur an energetic cost
10:46for something that is not actually in circulation. So reproduction implies circulation.
10:52And, you know, a practical example would be goods having to be stored in warehouses for a long
10:59period of time. And, or goods being stuck in transit because, you know, the road system's no
11:07good, or the bridges haven't been built, or what have you. Produced the product that the market doesn't
11:13want. And that's right. And now we've wasted it. So that's, you know, that's a real sense of waste,
11:18right? And so what ties this system together is actually information. We can't have information
11:25systems without consuming energy, whether it was using energy to make paper or to grind the powder to
11:32make ink, or what, or to feed pigeons to fly things around. Or, of course, today, you know,
11:38to be able to have data collection systems. So currently, we know, for example, with the
11:45the war against Iran, that there are active efforts pretty much every week to
11:52to affect the fluctuations in the paper price of oil. And information that is being produced
12:05has very definite financial implications in the short term, but which arguably are actually
12:13entropic in the long term. Because whilst you might keep prices from fluctuating too much in the short
12:19term, it masks the fact that the available stock is actually running. 20% is just taken off. It's
12:25taken off. And yet the price arguably doesn't reflect that. Right. So that's an example of, I guess,
12:33what you would call ultimately a kind of unviable. This is very interesting, because as I was reading
12:40your book, and I have to be honest here, I only finished about two thirds in, and the first half
12:45was
12:45very theory-related. And part of the interview I want to do is to illustrate to the listeners how
12:50you can apply this way of understanding the world into real world events. And I think the conflict
12:56in Iran is a perfect example. And you mentioned how information works in price manipulation. But
13:01I want you to set up a contrast between your understanding of the conflict and how a more
13:08standard geopolitical analysis and say what they missed by not applying your method.
13:13Yeah, look, I'll finish the theoretical piece with one more thing to try to paint the picture.
13:19So we've talked about this sort of energetic transformation piece. We've talked about the
13:23information piece. And I've kind of hinted at the financial piece, right? So complex systems,
13:30economic systems are basically three intertwined circuits that nonetheless have their own
13:37dynamic dynamic. And the circuits are the energetic reproduction circuit, the payment circuit. So as
13:45energy is transformed into useful things, and it circulates, what's actually circulating in the
13:51other direction is money. We have financial circuits where money as a claim on the future
14:00is injected into the system as liquidity to mobilize resources. But it can have a life of its own. Because
14:08once it's mobilized a set of resources in the real economy, and those resources have been transformed,
14:16the money still exists in exactly the same form. And if money is understood as a right to something,
14:21some value in the future. The challenge the system as a whole has is that if that available claim on
14:31the future is greater than the ability of the future to deliver on it, so there's an efficiency process,
14:40but there's a rhythm there or a cadence. But the monetary circuits and the fictitious capital circuits
14:46actually can accelerate. New liquidity can be injected into the system quicker and easier and cheaper than
14:58energetic transformation. And we start to see a bifurcation in the economic system where
15:05the monetary and fictitious capital circuits, in a sense, outgrow the capacity of the real economy.
15:12So you've got these three circuits, and you're trying to keep them reasonably aligned with each
15:18other. And if they're reasonably aligned with each other, and you are continuing to make possible
15:26innovation at the real economy level, then the system has a high probability of being able to perpetuate
15:32for a reasonable amount of time and deliver the kinds of things that modern societies expect.
15:39But if they get out of sync with each other, then the likelihoods of crises are much more.
15:47So we bring all of that back to what's happening in Iran. I think it's my one way of reading
15:55it, I guess,
15:56is that it's a US-Israel war for the Holy Land. So there's an argument around that. And it's not
16:04that
16:04the elements of that aren't true. You know, that the passions that come from a certain kind of apocalyptic
16:11politics doesn't play a role in energising people to do things, and also gives people,
16:20you know, particularly those in positions of decision-making power, that sense of invincibility
16:26and purpose. It's not entirely untrue that it doesn't play a role. Other people talk about it as
16:33sort of security competition in a broad sense. So the China containment stuff, you know, it's about
16:41China, you know, containing China, blocking off China's access to energy, you know, whether it was
16:47the Strait of Malacca or the Straits of Hormuz or what have you.
16:50People like Albert Kirby.
16:51Yeah, there's a part of an argument of that. What I would say is that there's actually
16:57one other part, which actually goes very much to how this substrate of real energy
17:04transformations, dissipation and entropy play out almost as the backdrop, if you will.
17:11Do you think this is the backdrop parallel to the other geopolitical analysis? Or do you think
17:16this is a fundamentally determinative aspect of this conflict?
17:20It will determine the final parameters. And it will do that because when national systems
17:31finally confront and realise that their systemic energy efficiency is actually declining,
17:38they have a few ways in which they can respond to it. A few negentropic responses.
17:46One is to do some of the things that we discussed earlier to improve efficiency in the systems and
17:53and all of that. Another one would be to try to drive transformations to access new higher EROEI
18:01possibilities. Energy invested. Now that isn't always about somehow changing a fuel type. So the argument
18:11that I run is not really fuel type prejudice. It's quite agnostic. It's really about the energy
18:20return, energy invested, whether it's renewables or what have you. For me, that's not the metric. The
18:27metric that matters is that energy return ratio. So a nation state could seek to extract more energy
18:37from available known sources because they've improved the technology of some sort. So we're able to get
18:44to the oil that we know is there, but which 20 years ago we couldn't get because it was like
18:50the
18:50shale revolution. Shale or what have you. So I can do that. Alternatively, you can go to the world and
18:59seek to enter into trade, to buy low entropy energy from other parts of the world. That's the commodity
19:07market. Commodity market. Enter into trade relationships with the global market for available
19:13energies. And last but not least, we get a kind of thermoeconomic imperialism, which is we don't want to
19:20buy it. We don't want anyone else to have it. So we're going to take it ourselves. And in a
19:27sense,
19:27I think what's happened in Venezuela and what's happening in Iran is a reflection of the fact that
19:34the US political economy has reached a point where it's elite, together with those other factors that
19:41I talked about. You bring all of that together under the pressures of declining energy return on energy
19:47invested. And you've got the preconditions for, and so it doesn't have to be determinative,
19:54but it certainly creates the pressures that societies and their economic systems and institutions need
20:02to deal with. This particular presidency has a particular way of dealing with these issues,
20:09and they include going to war. How do you respond to people who say that this all makes sense,
20:15but it doesn't really add much new to the old imperialism analysis of just people going around
20:21and taking oil, which the Dutch, the English, the Americans have been doing for hundreds of years?
20:26Well, that's what we observe. What I try and do is actually explain the reasons why this ends up
20:30happening. It's not always that somehow countries or organisations just work on a whim and one day
20:40wake up and decide to go and start a war or to take something. It's actually fundamentally conditioned
20:45by these sorts of constraints, because once you reach a point where you are unable to reproduce what
20:53you had before, you in a sense have no choice but to seek to supplement and replenish your energetic reservoir.
21:03There's a few ways you can go about doing that, as I said.
21:10What I'm trying to do here is to say, look, we can observe all of these things, the war, the
21:15imperialism
21:16and things. What ultimately in our material world creates the conditions that make these kinds of
21:23actions more likely than not. And so if we're interested in reducing the probability of warfare,
21:32then one of our key challenges is actually to find ways of enhancing energy efficiency systemically,
21:41not only as single nation states, but also at a global level. Right. One thing I found really
21:47disturbing was that the United States launched this war, arguably because of the energy crisis,
21:53precisely at a decade where it's coming off the high of the shale revolution when its domestic reservoir,
21:59at least the ones that they can successfully exploit, has been going up. And under your analysis,
22:05I would assume you would argue that the energy return on energy investment of those shale is going down.
22:10Correct. Correct. And we know this because we know that the useful life of many of the wells,
22:16their useful life in terms of time is diminishing, right? So, you know, two or three years and
22:21they're having to move on. The effort that's required, the energy that's required to be consumed to
22:27tap the next unit of energy continues to rise. Again, it's not to say that the stock isn't there.
22:36The issue is that the energy required to convert that dormant stock in nature into usable flow is no
22:46longer as efficient as it once was. That manifests itself in very interesting ways because it also
22:53shows how the gap between the world of fictitious capital, how things get priced, exchange value,
23:03if you will, and the world of use values, the sort of real constraints in the end.
23:08And the use value is? Is the material, energetic foundations of our world. And if those two things sort of
23:15separate too far, they ultimately will get brought back down to earth because basically thermodynamic
23:23reality has the last say. But what happens in the meantime is quite paradoxical because
23:31if the exchange value of shale, for instance, goes up, which it will, and LNG goes up,
23:37it will actually attract more resources to be deployed into it that will accelerate the depletion
23:44of whatever EROEI level stocks available and actually accelerate the depletion of that resource.
23:51I've actually heard energy analysts arguing that this process, instead of depleting it faster,
23:57would actually make the exploration process cheaper. So the EROEI would go up in this process.
24:06Unlikely. It's not like we need to do much more exploration per se. A lot of the reserves are
24:14known. The work's been done. The stocks are available. It's just a question of what cost
24:19there is to access them and how long they will last. And so it would lead to essentially, you know,
24:26the accelerated exploitation of a stock that is actually at a diminishing level of EROEI.
24:32And again, it's important to make the distinction between this as somehow running out of oil versus
24:39just having to be less efficient at getting the oil that is there. And it's a very important
24:45distinction. Maybe it will run out, maybe not, right? You don't know that it's run out until you take
24:51that last slurp, right? When you take that last slurp and realise that there's nothing left.
24:55It's like my bank account. Yeah. Then you have to, because it looks okay, right? As you keep going,
24:59until the last minute. So my own sense is that the United States has confronted
25:04this reality that despite the fact that it has abundant raw available resource, that it's EROEI
25:10is actually diminishing. That's a systemic problem, right? But when financial signals actually
25:17encourage more exploitation of this resource in the short term, it actually perversely leads to
25:23financial enrichment on the one hand. So the shale oil guys are laughing all the way to the bank,
25:29whilst at the same time accelerating the depletion of available energetic surpluses
25:34to the United States as a whole. Financial benefits, system energetic depletion.
25:40It's like an addiction that keeps the patient going without the patient knowing that addiction
25:44is killing it. That's right. It's hollowing them out from the inside.
25:48Right. And this is, and so it's not a determinative thing. So what I try and avoid
25:55in the structure of the argument in the book and thinking about the dynamics is that
25:59in the end, whether human societies succeed or fail in these processes of energetic renewals
26:06is not a function of the fact that it somehow automatically successfully finds a new way.
26:12Right. It may or it may not. It may stumble on new things by chance. More often than not,
26:19it won't stumble on them by chance. It will be based on discoveries. It's also about the systemic
26:26efficiencies of energy to circulate things. And so you've really got to take that holistic view about
26:32this. So yeah, Iran, I think we can better understand Iran by understanding that substrate.
26:39Iranian oil is still relatively high EROEI globally speaking. Same with Russian oil, by the way.
26:46And partly I think the US wrapped up with this sense of rivalry, this sense of containment,
26:53together with some of this millenarian zealotry that you get. You put all of these things together
26:59and that created the cauldron. The real pressure point ultimately comes from the energy efficiency
27:06depletion. Yeah. I want to talk about countries and places that are obviously unable to deal with
27:11the energy shock caused by the Iran conflict by themselves. Places like Vietnam, Cambodia, Laos,
27:17Taiwan, of course. And just to use Taiwan as an example, there's widespread report that Taiwan doesn't
27:23have much reserve in terms of oil and gas. It has a limited ability to buy it from the commodity
27:27market because it's not a large buyer. It has a very limited capacity to scale up its renewable energy
27:32production capacity. So if you were advising the Taiwanese leaders, tough job, and especially
27:39given its industrial profile, places like TSMC uses up to, I heard, 10 percent of oil electricity
27:45generated in Taiwan. What kind of advice would you give them in this time junction?
27:50Look, it is a difficult thing because moments of crisis often force you to do things that you
27:57would otherwise not do. And the mainland has made overtures or at least indicated to
28:06the folk in Taipei that the mainland would be willing to provide energy assistance to the island.
28:13Obviously, at the moment, the island has rejected those overtures, but time will tell, right? Because
28:22as I said, when the pressure finally comes and you're on the brink of having to shut down
28:29your most lucrative export enterprise because of a shortage of energy and that those processes are not
28:37ones that you can really afford to interrupt anyway, then there will be a different set of considerations,
28:43I think. But doubtless, Taipei will seek to defer as much as they can through and almost at any price
28:54at the moment. And in large part, that's for domestic island political considerations. You know,
28:59we are now one week or so on from when KMT Chairwoman Zhengli Wen visited Beijing. And I think that
29:08in and
29:08of itself has placed some pressure on the DPP to address this issue of peace across the straits in a
29:20way that I don't think they've had to face for quite some time. And we've already seen the DPP try
29:28to
29:28criticize Zhengli's visit and in a sense rejected the 10-point proposal from the mainland, which will
29:37be there anyway, you know, more flights, youth groups and all of that. But it's certainly, I think,
29:45creating an environment where there are many people on the island are increasingly wondering
29:51whether they would have once thought of as a stable status quo.
29:55Yeah. But it's never stable, right?
29:58The status quo is always changing.
29:59Right. It's always dependent on the US remaining in East Asia and continuing its military or ambiguity
30:04of committing to the threat.
30:05And its relative strength too, right? So, you know, the status quo in 1996 is certainly not the status quo
30:13in
30:142026, even though on paper everyone says, well, you know, it's the same status quo, but of course it's not.
30:20And we know that with all the opinion surveys that are done around this question,
30:24the issue of what constitutes people's understanding of the status quo today is very different,
30:29I think, to how people thought of the status quo 20 or 30 years ago. The challenge for the island,
30:34I think, is that the status quo has radically changed. The military balance, of course, is very different today.
30:44But I think this issue of energy, again, is the final arbiter. And if it cannot find
30:55a non-mainland related pathway to sustaining the energetic systems that they have, then,
31:06well, I think, one, it'll become a political issue on the island. They've got some elections at the end
31:11of this year and then in, what, 2028. And these things won't go away. And I mean, for those who
31:18follow energy politics on the island, they'll know that there's been a longstanding debate about the
31:23nuclear power plants. They just shot off it last year.
31:27Yeah. And of course, they're now talking about possibly having to turn them back on.
31:32There was a referendum run not so long ago. It didn't get the requisite number of
31:38votes to even be valid. But nonetheless, the numbers that did vote in favour of turning those
31:45nuclear power plants back on showed that people did want something to be done.
31:51Right. And that's the point that really, really bothered me. Because as you mentioned,
31:56public opinions is a big thing on the island. Despite I'm being completely aligned with your
32:02view on how this issue theoretically should be resolved in the best interest of the Taiwanese people,
32:09peaceful reunification given Taiwanese energy and industrial profile should be the way to go.
32:14But polls after polls, we see that there's a big chunk of the Taiwanese population
32:21saying that they do not want reunification, at least in the immediate term, with the mainland
32:25government. How does your framework take into consideration a localised particular political
32:33will against perhaps an optimal energetic path?
32:36Well, as I say, the energetic path will, in a sense, be the ultimate arbiter of success or failure.
32:46Social institutions can try lots of different things. And whilst there is no single
32:55success pathway, meaning that there are many ways of being close enough to being optimal, to be
33:02viable and continually refined and improved, the aim of politics perhaps on the island will be to
33:09defer for as long as they possibly can the confrontation with energetic reality.
33:15And they may seek to reactivate the nuclear power plants, for example.
33:22There may be attempts to secure, you know, alternative gas supplies. Because, you know,
33:31public institutions will be seeking pathways to achieve a negentropic outcome that they believe is tolerable.
33:44So that means economic hardship and maybe even rationing if they can't secure independent energy
33:49resource. That's right. You know, Australia is going to go through this as well, right?
33:54And to me, like the case, the cases between Australia and Taiwan, the obvious difference
33:59is that there is a solution for the Taiwanese people and the solutions on the table offered repeatedly
34:05by the government in Beijing. So what is the policy implication following your framework for Beijing's
34:12Taiwan policy? The political layer, if you will, isn't reducible to the energy layer. The energy layer
34:18will determine in the end whether the political choices are correct. And if the political choices can
34:25defer confrontation with energetic reality for as long as possible, then they will get away with things for
34:32people as long as possible. If the political choices ultimately lead to a situation where
34:40that energetic substrate essentially just says, this isn't going to keep going. There simply isn't enough
34:49energetic surplus within this system, this particular structure, to meet the aspirations of the society,
34:58to pay for schools and hospitals and whatever else it is that it's trying to deliver.
35:04If it comes down to it and the Taiwanese government has to shut off part of TSMC's production capacity,
35:12what do you think the global AI and chip supply chain, what kind of shock will it be to the
35:19supply chain as a whole?
35:19Well, it'll just be another shock to the AI supply chain now because I think the AI supply chain,
35:25particularly in the US, is confronting electricity supply issues. And in fact, the third part of my book
35:36actually goes into this issue of electricity and AI in quite a bit of detail as a way of explaining
35:44how
35:44two very different systems are approaching this question of AI from a thermoeconomics point of view.
35:51The US AI system is, well, all AI is ultimately a question of electricity. And what we do know is
36:02that
36:02AI in China benefits from a relatively lower cost of electricity and an abundance of electricity. AI in
36:09the United States is now confronting electricity constraints. We know that a number of planned AI
36:17data centers have been deferred. And why is China's AI capacity benefiting from a...
36:23An abundance of electricity. Right.
36:25And in large part because China has been on this processes of energetic renewal.
36:33Is it because of their investment in energy efficiency, in alternative sources,
36:37building infrastructure, everything? The entire system has been transformed from...
36:42If you think of China in 1990, say, it was a country with unstable electricity supply.
36:50I remember it. Yeah, me too. I remember visiting family in villages in Guangdong province in 88 and 89,
36:58for example, where the villages still had no electricity. They had yet to be connected to the grid.
37:05That Guangzhou itself used to have scheduled brownouts
37:11each week. Different districts, you know, would have to take their turn because there actually
37:17wasn't enough electricity production available. And I think also the transition mission network had
37:24limits, so it couldn't carry enough electricity anyway. So this was only 35, 36 years ago.
37:30Guangzhou. Guangzhou, yep. And that system was mainly reliant on coal. Today's electricity system in China is
37:41multi-dimensional. It has, of course, coal, nuclear, some gas, hydro, and increasingly wind and
37:52solar as part of its mix. And this transformation process has delivered an abundance of electricity in
38:00China. Many mainstream Western economists would, of course, say that that represents wasteful investment.
38:06But I think history will show that this commitment to building out this capability
38:16will hold China in good stead, particularly as it goes through this phase of
38:21energetic renewal in its industrial systems with AI, robotics, etc.
38:27Right. And when you were saying renewal, it's not just growing capacity, right? It's also about
38:31rebuilding the infrastructure and making it more efficient.
38:33And transforming some of the qualitative dimensions. So if you think about renewable energy, particularly
38:41wind and solar, they're often seen as intermittent sources. The wind doesn't always blow,
38:47and of course, the sun's not always shining. And an important part of the solution to that is
38:55storage technologies, 15 years ago, were really very inefficient, not really up to handle that kind of
39:03role systemically. And so at that point in time, things like solar panels were actually pretty inefficient,
39:12even with those innovations from the Chinese Australian researcher. But nonetheless,
39:17you know, got to a point where you could use solar panels on a house and people would be able
39:23to run electric lights and things.
39:27But my parents' apartment got the first solar panel about 15 years ago, and it was very limited,
39:32even for a three person household. Yeah. And it was just a supplement.
39:37So today, combined with the batteries that are available and the efficiency of the harvesting of
39:45the sun's energy, a house can actually be more or less self-sufficient in energy. So that's an important
39:52transformation. It's taken solar from something that was actually relatively low EROEI to something that
39:59can operate at a much higher EROEI level. It also enables renewable energy now to become an industrial proposition
40:08and a commercial proposition. And we see that with things like micro grids. So there's a lot more distributed
40:16solutions now where batteries enable the provisioning of electricity into places where rolling up the grid
40:23might have been, you know, too costly, too difficult. But now micro grids, batteries make all of that viable.
40:34And of course, the best battery of them all is the battery on wheels, otherwise known as the EV.
40:39And so you add in the electrification of transport, which 15 years ago, again, very few people believe
40:48that transportation could be electrified. You know, maybe the odd scooter, but they certainly didn't
40:55think things like trucks could be electrified. And of course, they are increasingly now. People didn't
41:02believe and couldn't conceive of electrification enabling maritime traffic. Now, we've now seen some
41:11electrified container boats. Now, they're not competing with the supersized 24,000 container types.
41:19But nonetheless, they're using containerized batteries to power maritime shipping, which will be very useful
41:30for coastal shipping, just hopping for a month. And so they will be great for sort of coastal shipping.
41:38They will, of course, work very well in places where there's a significant river or canal or estuaries
41:46network. Obviously, China has some significant canals and river systems, but also through Southeast Asia,
41:54you know, Cambodia, for example, and the Mekong Delta. And I think also some of those ships will
42:01be able to support intra-island trade in, for example, the Pacific Islands, which have historically
42:08been dependent upon fossil fuel-based transportation to get things from A to B. So these are developments
42:15that are happening as a result of this renewal in China. But on the AI question, the United States is
42:23confronting a situation where it's constrained in terms of its ability to meet the growing demands that
42:32AI is placing on the electricity network. That constraint in and of itself in parts of the United
42:38States has caused the deferral or the cancellation of some data centers. And in other parts of the United
42:45States, it's caused a significant increase in electricity prices.
42:48Yeah, sometimes both happen at the same time.
42:50At the same time, right. And it creates what I think we could call an intensified situation of
42:58the electricity haves and the electricity have-nots. And it's not just, well, householders,
43:04of course feel, you know, voters feel the pain of rising electricity prices, but so do other industries.
43:13And so as AI makes greater claims on the available energetic system, it actually adversely affects
43:22the performance of other parts of the system. And we often call that a Dutch disease problem,
43:28right, where resources sort of rush to, you know, the boom sector, but often means that other sectors
43:36are undermined. And I think one of the risks that the United States faces now, and my book goes into
43:44it a bit, is precisely this dynamic. And this is an energetic surplus problem.
43:50Right. I remember there was an article that you wrote just a couple of weeks ago arguing that the
43:55reshoring of manufacturing in the United States is a fantasy, largely because of the lack of energy
44:02reserve. And at the time, I didn't feel quite, I didn't quite get it because I was thinking about
44:06the sheer amount of energy the United States has in store, but I wasn't thinking about it in terms of
44:11the energy return on energy investment and how unlikely it is that TSMC can just plug up and
44:17re-plug in in America and replace the 50% of production.
44:20Well, and that's, again, that's the one that ultimately is the final arbiter. You can get away
44:27with not being 100% optimal. Right.
44:32But if you are way too far off that optimal path, then your EROEI levels really are going to,
44:42well, they're going to shut you down, because you're never going to be able to
44:48achieve your both economic competitiveness. But it also works its way through systemically.
44:54Right. So Hegel, the German philosopher, he had a theory, of course, or a metaphysics of history,
45:03where reason unfolded. And he often called it, or he called it the cunning of reason,
45:12where individual human beings would go about their daily existence,
45:18making the decisions that they make and doing the different things that they do,
45:21never once being conscious that in many ways they were the bearers of this broader historical force,
45:30the spirit, the spirit of reason. In a sense, my own systemic approach to these questions is
45:38that we have in operations, the cunning of thermoeconomics or the cunning of entropy.
45:46These aren't things that we have to be conscious of, but they are things that ultimately create things
45:52that we respond to. So we don't run around measuring EROEI at a system level, but we do in the
45:59end
46:00notice that the infrastructure is crumbling. I will ask you eventually about how we can begin to
46:06measure EROEI at a system level. But first, I want to talk about the part of the book that I
46:10felt most
46:11torn about. So the part when you talk about how China is becoming a negantropic economy,
46:19whereas the U.S. is becoming one that's representing entropic decay. On one hand,
46:24I felt your argument very persuasive. The parts about the infrastructure renewal,
46:29about how the continued investment in the past three decades in China has transformed the economy,
46:33that all made sense to me. But I was also thinking at the back of my head,
46:38like the local government debt issues, the ghost houses, the real estate bubble,
46:44like all of those real problems that the Chinese government, the Chinese economists are facing
46:49right now. How do they function into your framework of analysis? And I'm also thinking about the U.S.
46:56The U.S. still has the deepest capital market and so far still the most powerful military on earth.
47:03So how do those things feature in your analysis? My take on it is that, of course, the building of
47:11physical stock is the manifestation of energy. That it is not being used today means that it is an
47:21energetic waste. No doubt about it. That's an entropic possibility. The question is whether or not
47:28that infrastructure can, in the next two or three years or whatever, ultimately become part of
47:35the useful fabric of energetic transformations within society. People move into them and start
47:42using the living in them and all of that. Of course, in a worst case scenario, you'll end up with
47:49incomplete things that will ultimately, well, in parts of the world, nature reclaims them, as we've seen.
47:57Post-apocalyptic movies. Yeah. Well, they're just left in neglect.
48:02Companies and people just walk away from these things and people sort of forget about them.
48:08That can always happen in any society, by the way, when Xi Jinping made that famous observation that
48:15housing is for living in, not for speculating. I agree with you, with your analysis on the housing
48:21bubble. But I think this is a pretty classic economic analysis of the Chinese political economy.
48:29Where do you think your framework of thermoeconomics add to this analysis?
48:33Well, it's just an example of how the system
48:39is constantly struggling. It's the dialectic between entropy and neg-entropy. And this is actually
48:46a pretty important distinction or a way of understanding this because
48:52the hollowing out of American industry over the course of the last 40 to 50 years
48:57is the direct corollary of the expansion of finance. And we hear often in China the political leadership
49:07talking about this idea of finance being there to serve the real economy.
49:14So these are higher EROEI investments. Much higher EROEI investments. And that's how
49:22we need to understand them. And that's why this system works. The fact that you have to manage
49:28the deleveraging at a money capital level is purely to contain the balance sheet fallout
49:38that would otherwise happen. So that's one way of understanding the housing stuff. The local
49:45government debt stuff. And I think that that just sort of continues to reflect the fact that
49:52Chinese governance at a public level through national governments, provincial governments,
50:00city governments or municipal governments is a very large and complex beast.
50:08And the central government isn't really a government that goes and runs hospitals and builds hospitals
50:16and schools. Those things are done actually at the edges. So this issue of debt is really one that is
50:24being managed not really as a balance sheet problem because they're not going to become insolvent.
50:29So the general theme of the analysis is that we should look at what kind of investments
50:33are making. Yeah. And in the past there are some entropic investments in terms of housing,
50:39especially the ones that are in surplus. Well, they can become entropics, but I guess what I try to
50:45inject into that is a tighter frame around when that liquidity injection is more useful than when it's not.
50:53Because if you just spray liquidity into the system, either by dropping checks or what have you,
51:03then you may not necessarily improve your system-wide EROEI. You may actually be undermining it. So you need to
51:14be
51:15framing those system liquidity injections with a mind, how do they ultimately contribute to your
51:21mega-entropic efforts? And I imagine you would agree that part of the way we can read Xi Jinping's
51:28statement that we should direct money into the real economy as opposed to fictitious capital
51:32is a way to direct liquidity into areas of high EROEI into entropic renewal. That's right. And
51:40this issue of the real economy, I think, is also one that can be understood better through the
51:47frameworks that I've been articulating because often when people throw the idea of real economy around,
51:54they have a narrow view that it relates solely to the production of things. The real economy is
52:01manufacturing. Whereas my argument is that the real economy are activities that involve the
52:08mobilisation of energy and the transformation of material things and energy, which means that the
52:12services economy is also a really important part of the real economy. Because the services economy,
52:17first and foremost, involves people and people are embodied energy. We are energetic ourselves.
52:25So it doesn't make the distinction between whether or not you leave a legacy of a tangible item or not
52:32as the way that you distinguish the real economy from something else. The real economy is simply one
52:39where energetic transformations are taking place. The purpose, therefore, is to look at how those energetic
52:45transformations are being achieved in a way that contributes to social neg-entropy and warding off
52:55the inherent entropic trajectory of nature. And if we could think about it in that kind of way,
53:04then I think we will actually end up directing the liquidity into things that actually are energetically useful.
53:17Right.
53:17But they're not always going to be. It could be things like, you know, the extent to which we provide
53:24infrastructure that supports gaming.
53:27And at one level, intuitively, you might say, too much gaming may be really more entropic than negentropic.
53:37Right. But that infrastructure also facilitates people running like open cloud with AI systems that are productive.
53:44In other ways, right. So you do, again, always need to take this sort of system-wide approach.
53:50Right. It's easy to pick on single things, but sometimes they're offset by other things or they enable other things
53:56to happen.
53:56Or, of course, and we must never forget this, that the human societies are fundamentally about humans.
54:04Right. And, you know, human beings are not simple, optimised energetic machines.
54:14You know, we're complex, sentient beings who, you know, who thrive in cultures that enable us to have pastimes and
54:25all of that.
54:26Yeah.
54:26And so, and by having pastimes and having leisure...
54:31Makes us who we are.
54:33Makes us who we are.
54:34And it also makes societies actually, you know, more stable, more enjoyable and all of that as well,
54:40which in and of itself has some negentropic properties.
54:45When Professor Powell is talking about the consciousness beings, my former colleagues in finance law,
54:51they're not, he's not really talking about you.
54:54Okay. So one last question, Professor.
54:57So if I'm totally sold on your theory and I'm talking to a friend, say, doing policy advice to Chinese
55:05central bank. And he's saying, I need something measurable to see if the economy is moving towards
55:10the right direction. What kind of metrics indexes should they be looking at?
55:15Well, I think we need to actually, in a sense, fine tune and
55:23make more scientific, the Li Keqiang index, if I was to describe it in very Chinese terms,
55:34which is that we, so for a long time, many particularly Western critics of China would
55:41criticise official statistics. And in fact, Chinese political leadership is often just as
55:51sceptical. They're actually very grounded people and they have their eyes and ears wide open. And
55:58so Li Keqiang said, look, whatever the GDP numbers are, the numbers that are much harder to fudge is
56:05how much energy is being created, how much energy is being used, how many tons of this is being
56:11transformed to how many kilograms of that, how many liters of such and such are being used. And I think
56:17we
56:17actually need to be more focused on the, on those very fundamental material metrics. Things like
56:28kilowatts, joules, tons, kilograms, um, liters. And if we did that, I think we would actually end up with
56:38a much more sensible approach to how nature's resources are actually being managed. Certainly
56:44in a way that gives us a clearer picture of the energetic return on energy invested. Increasingly with
56:51digitalization, I think we are finally at a position where we can begin to grasp these elements of
56:59nature in ways that we struggled to before. There you have it, guys. Thank you, Professor Powell. Just
57:04when I saw the theory is getting refreshingly simple, you're making it more complicated. So
57:08that was our conversation with Professor Powell. He offered a dense theory and he'll be the first to
57:14acknowledge that his words are not the final one on either energy or economic development or
57:21national growth. But he is asking a question that most mainstream economists are not. And that is,
57:28how do we reconcile the conflict between imperial ambitions, military adventurism, and the ultimately
57:34finite resources on our planet? That question isn't going away. And neither are the conflicts in Middle East,
57:43the energy shocks that are the results of those conflicts. My name is Yun Peng, and thank you for
57:49watching Pinker's Fall Room.
58:05And this was another episode of Shining Out, a show that opens a window to the present and future of
58:10the Asian Giant. Hope you enjoy it, and see you next time.
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