Oct 292011

Rifkin’s most recent books:  The Empathic Civilization and The Third Industrial Revolution.

The interview makes one painfully aware of the lack of enlightened political leadership in Canada.  The back-up plan:  we have to become informed ourselves.  Drive the change from the bottom-up, if it’s not coming from the top-down.

The Third Industrial Revolution — an interview with Jeremy Rifkin

October 29, 2011

What was the real cause of the Great Recession? More importantly, in a country accustomed to robust rebounds from burst bubbles, why is our economy stuck in neutral?

In his latest book, the Third Industrial Revolution, economist and author Jeremy Rifkin argues that the crash of the US housing market was not the proximate cause of the Great Recession, but was instead an aftershock of crude oil hitting a price of $147 per barrel oil in July 2008 – 60 days prior to the crash of the financial markets.

Mr. Rifkin makes a compelling case that our economy reached the end of the second industrial revolution in the 1980’s, and has been largely sustained by debt and the consumption of savings ever since. He argues that the kind of growth witnessed after the first and second industrial revolutions will be impossible to achieve without a third energy-communications revolution – one that leverages Internet-esque smart grids to transition from a centralized “elite” energy paradigm to a highly granular, lateral model. He contends that, as was the case with the first two industrial revolutions, the third revolution will be the foundation of the next great wave of economic growth.

Our energy infrastructure may not be the only thing that requires a rethink. In his book, Mr. Rifkin takes on Adam Smith, challenging classical economic theory with the contention that it does not take thermodynamics into account. the Third Industrial Revolution presents economic theory that incorporates entropy and the relationship between commerce and the planet.

Mr. Rifkin is the principle architect of the European Union’s Third Industrial Revolution long-term economic sustainability plan to address the triple challenge of the global economic crisis, energy security, and climate change. the Third Industrial Revolution was formally endorsed by the European Parliament in 2007 and is now being implemented by various agencies within the European Commission as well as in the 27 member-states. He has served as an advisor to Chancellor Angela Merkel of Germany, President Nicolas Sarkozy of France, Prime Minister Jose Socrates of Portugal, and Prime Minister Janez Janša of Slovenia, during their respective European Council Presidencies, on issues related to the economy, climate change, and energy security.

Mr. Rifkin is president of the Foundation on Economic Trends and the author of seventeen bestselling books on the impact of scientific and technological changes on the economy, the workforce, society, and the environment. He has been a senior lecturer at the Wharton School’s Executive Education Program at the University of Pennsylvania since 1994, where he instructs CEOs and senior management on transitioning their business operations into sustainable Third Industrial Revolution economies.

Todd: so if we can, can we start by framing the discussion with the cause of the Great Recession.  and I understand that your contention is that the Wall Street crash was not the proximate cause of the recession but was actually an aftershock of the real economic earthquake, which was $147 barrel oi

Jeremy: yes.  I spend the whole first chapter on the book on it because I’m at real odds with my colleagues as to what’s going on here.  I think what happened is that when oil hit $147 a barrel back in July of 2008, purchasing power plummeted all over the world and the economy totally shut down in July – completely shut down.

And the reason, of course, is that everything’s made out of fossil fuels or run by them – pesticides, construction materials, pharmaceutical products, synthetic fiber, power, transportation – everything.

So what happened is, in late 2007, crude oil started going over $75 a barrel.  what we saw is all the prices started going up across the supply chain.  and then at $120 a barrel you remember we had food riots in 22 countries because 40 percent of the human race is living on $2.00 a day or less.  Wheat, rye, barley and rice were doubling and tripling.  and you remember, the UNFAO put out a report saying “We have an alert.  We’ve got a billion people who could be in big trouble here.”

so what happened is speculators came in to game the market around $100 a barrel.  but the reason this is happening, this is peak globalization – at least in the business community.  I chair a group of 120 global companies that are involved in this.  we now know the outer limits of how far we can globalize this economy based on fossil fuel energies, the technologies that go with them, and the infrastructure.  It’s about $150 a barrel, and it’ll shut down every time.

This is an end game.  and the reason it’s happening is we’ve hit peak oil per capita, and now peak oil production – both.  Peak oil per capita no one talks about much.

Global peak oil production per capita is not well known.  it happened in 1979, it’s not controversial.  BP did the original study, and it’s been confirmed by everybody else since.  If we had distributed all the crude oil we had at that point to everyone alive in the planet, that’s the most each person could have.  We’ve found more oil since then but population rose quicker.

So if you distributed all the crude oil we have now to 6.8 billion people, there’s enough to go around.  but then add to this – we hit global peak oil production as well.  That’s when half the crude oil was used up by the geological bell curve.  When half your crude oil is used up, you can’t afford it.  Prices aren’t affordable.  and that’s been pretty controversial about global peak oil when it would hit.  the optimists’ spot maybe mid-2020’s to 30s, the pessimists’ models show 2010 to 2020.

Well, the IEA dropped the bombshell last December.  That’s the International Energy Agency, and they’re the authoritative body for the oil industry and the energy industry.  They said “It looks like we now peaked in 2006 at 70 million barrels a day.  and we’re going to plan for around 69 billion barrels of crude oil for the next 20 years, but it’ll cost $7 trillion to get the remaining oil out.

so what happened is this.  When China and India made a bid to drag a third of the human race into the game in the last 10 years, at an 8, 10, 12 percent growth rate, the actual aggregate demand for oil has just shot through the roof – and then all the other prices went up.

So what I’m suggesting is every time we try to regrow the global economy at the same rate we were growing before July 2008, oil prices go up – all the other prices made out of crude oil go up – purchasing power goes down – we collapse.

That’s what’s happening right now today.  the economy was dead flat in 2009, so oil was $30 a barrel.  Nobody was using it.  As soon as we started to try to restart the engine, to replenish it towards 2010, oil shot to $100 a barrel for crude.  Brent crude.  That’s how we measure – not Texas crude.

And now what’s happened is all the other prices are going up, and purchasing power is going down, and we’re headed toward a second collapse right now.

So these are wild gyration cycles that I believe are four-year intervals, or less.  Every time we try to restart the engine, this process will happen and it’ll collapse within four-year cycles.  It’s really a dangerous end game.

We can go to the dirtier fuels like tar sand, heavy oil and coal, but they’re more expensive and they’re dirtier – which gets to the second problem, which is climate change.  right now the real problem is we’re now in it so it’s affecting agricultural yields dramatically, and it’s only 2011.  and, we’re having infrastructure affected by extreme climate change.

And, obviously, that’s the elephant of the world because it is a crisis for the species – not a crisis for the civilization.

So the question is, what do we do about it?  I advised the European Union.  it began with discussions in 2002, and we said, look – what we now is a compelling vision, a deliverable game plan, that can be implemented within 40 years, that can move as quickly in a developing world as a developed world, and that will get us post-carbon.  and we asked the question, “How did the great economic revolutions in history occur?”  Because we wanted to get a scenario, a roadmap.  In at least my read – I teach at Wharton – this is my read on how history occurs – at least with our corporate programs.

I think the big changes in history occur when new energy regimes emerge.  They make possible more complex civilization because the new energy flows can bring more people together, can integrate bigger commercial and social units, etc.  but when that happens, you have to have a communication revolution at the same time that’s agile enough to manage the complexity, the pace, the flow and the reach of the new energies.  and when those two come together, communication and energy, those are the real paradigm shifts.

So, for example, in the 19th century, print technology became really cheap, when we went from manual to speed printing – linotype and rotary.  so we could mass-produce print very quickly, cheaply, and lower the transaction costs.

Then we introduced public schools in the 19th century – Europe and America, and we created a print-literate work force with those communication skills.  Print literacy demands the complexities of a centralized coal, steam-driven, rail industrial revolution.  If they were illiterate, the work force, we couldn’t have done it.

The 20th century had another convergence of communication/energy for the second industrial revolution, centralized electricity, telegraph transitioned to the telephone, and then later radio/television became the communication tools to manage the complexities of an oil, auto, and suburban roll out, and a mass consumer culture.

Now, obviously, those energies are sun setting – coal, oil, gas, uranium– the prices have gone through the roof.  the technologies are old, like the internal combustion engine, and the whole infrastructure is based on carbon.  we are beginning to see the convergence of communication and energy in the European Union – we’re building for it, we’re not just seeing it. we had a powerful communication revolution with the Internet in the last 20 years.  and what’s so interesting about this communication, from the point of view of a new third industrial revolution is it’s distributed/collaborative by nature, and it’s scales laterally.  where as centralized electricity communication scales vertically top-down.

So what we’re seeing is the Internet, and what we’re moving toward is the Internet communication technology which is distributed, collaborative, and lateral in its management, is beginning to converge in the last 24 to 36 months Europe, and especially in Germany, which is the engine, to create a new nervous system for a new infrastructure, for a third industrial revolution roll out which will create millions of jobs, thousands of new business models, and hopefully get us post-carbon if we make it in time.

So we’ve committed in the EU to a five-pillar infrastructure for this technology revolution.

These five pillars I’m going to lay out are a mega technology.  They’re a platform.  Separately, they’re just components.  together, their synergies create a completely new mega technology platform.  so, we’ve committed to five-pillar infrastructure.  First of all, we recognize that renewable energies are distributed.  They’re found everywhere.

So, if you have Internet communication technology to manage them, you have a very, very interesting lateral shift in the economy.  so, we committed to the following five pillars:

Pillar one – 20 percent renewable energy by 2020.  That’s a mandate across Europe – not a suggestion – every country has to do it.

Pillar two – how do we collect the energies?  our first thought, which now kind of is almost amusingly embarrassing, but our first thought was “Well, that’s interesting.  go where all the sun is.”  the Mediterranean – grab it.  Spain, Italy, Greece – put a high voltage line in and ship it.  the Irish have the wind, and the Norwegians have the hydro – centralize it and ship it in a high voltage line.

And then we began to realize we were using 20th century thinking, based on fossil fuels, which are found in a few central places.  none of us oppose large concentration solar, wind, geothermal, and some hydro.  we think they’re pretty essential for the transition.  but we realize they’re a small part, a very small part, of a third industrial revolution.

And we began to ask a question a couple years ago that now seems naively simple.  we said, “Look, if renewable energies are distributed and they’re found in some proportion everywhere in the world – the sun, the wind, the heat under the ground, garbage that can be decomposed back into energy through bio mass converters, ocean tides and waves, rural waste – they’re found in every square inch in some proportion.  Why in heaven’s name do we think of collecting them in only a few central points – 20th century thinking.   This got us to pillar two.  Big pillar – buildings.

Number one use of energy: buildings, number one cause of climate change: buildings – number two, parenthetically, of course, is beef production and consumption – related animal husbandry. Number three is transport.  I always mention two because no one seems to want to talk about two.

We got 191 million buildings in EU –  all the offices, factories.  the goal is to convert every single building, 191 million buildings, if possible, to green power plants.  think mainframe computer, think Steve Jobs, and everyone at a desktop computer. think mainframe, centralized power plants – we’re now converting every building so people have their own power plants with solar on the roof, wind off the side wall, geothermal heat under the ground, bio digesters to convert garbage, tap the energy, etc.

Todd: and this is not just buildings, right?  it could be distributed even further into people’s homes.

Jeremy: yes – homes, offices, buildings, infrastructure, every place where there’s a human infrastructure artifact, we can collect.

That’s happening in a very major way now across Europe.  Germany is doing it all over the place, buildings, offices, homes.  now, the new buildings are positive power.  They actually generate enough energy for their own needs and can send surplus back to the grid. This is how we create millions of jobs in Europe, thousands of businesses to convert the entire infrastructure.  we had to put in thermodynamic efficiencies and retrofit and convert them to power plants.  That’s huge amounts of jobs, all local, over 40 years.  and the boost starts immediately, day one, as soon as you begin investing into it.

Germany created a quarter of a million jobs in three years.  and in the first month of these conversions, as many jobs in the renewable energy converting as the entire rest of the energy could buy, even if only 10 percent of the energy.  It’s really a lot of jobs.

Pillar three is the toughest one – storage, because the sun isn’t always shining, and the wind isn’t always blowing when you need the electricity.  and water tables can be down for hydro electricity with a drought or a climate change.  They’re Internet energies, so we have to put in storage or we lose three out of four kilowatts.  and that’s what’s happening in places where there’s no storage is that the electricity is not when you need it.

So the EU is committed to every kind of storage – water pumping, batteries, capacitors, flow batteries, everything.  but, we are putting most of the money into hydrogen.

Todd: so the idea is that you use surplus energy to crack water into hydrogen, store it, and burn it for energy when the sun’s not shining?

Jeremy: you got it.  you can burn it for energy or you can simply convert it back to electricity when you need it. the thermodynamic is infinitesimally small compared to fossil fuels and uranium.

Todd: and the byproduct is water.

Jeremy: and the byproduct’s water.  and also, the reason hydrogen’s good is it can take any load.  It’s modular.  you can do little homes and huge factories, and whole utility systems.  you can’t do that with batteries and the others.  Water pumping’s probably the best of the others.

So we’ve committed 8 billion Euros to a public/private roll out of hydrogen to store the energies.

Pillar four is where the Internet converges with the new renewable energies.  We’re taking off-the-shelf Internet technology and we’re including new apps every day that allow us to set up an energy Internet across Europe.  Germany is testing six sites around the country.  so that when millions of buildings are collecting their green electricity on site with the sun, the wind, the heat, the garbage, etc., they store it as hydrogen – like you store media and digital.

And if you don’t need some of that you convert it back to electricity, and if you don’t need it at a given moment, you can program your building – your own private power plant – to share it and send it across an energy Internet across Europe just like we create our own information – store it digitally – share it online.  Same stuff.

Pillar five is electric plug-in transport.  Electric vehicles out this year, hydrogen fuel cell vehicles in mass production by Daimler, GM, Toyota – 2014.  This is all in production.  This is going to happen.  so you’ll be able to plug in your vehicles anywhere in the infrastructure to get green electricity.  and then anywhere you travel there are power charging units at every street corner, every parking meter.  so you can plug back in and get green electricity.  Or, if the price is right, your computer in your car will say “Sell.”  You’re going to make a little money while your car’s sitting here.

The key here is these five pillars have to go together to form synergies that create the new technology platform and all the applications that come from it.  If they stand alone, if they’re piloted, if one pillar gets ahead of the other – the whole thing collapses. That’s the lesson we’re learning in Europe – and that’s the lesson Obama didn’t learn.

For example, a memo was leaked purposely by the European Commission a few months ago saying, “Uh, oh.  we need a trillion Euros for the energy Internet now within the next ten years.”  Why?  we put in feed-in tariffs across Europe, meaning you raise the electricity price slightly for the consumer.  you don’t even notice it on the bill.  but the funds that are available then allow early adopters to put these power plants on their buildings.

And then they get premiums for sending their electricities back if it’s green.  They get better than what you get on the grid.  And so thousands of places now are doing this, and are trying to send their energy, electricity, back to the grid.  The grid is 60 years old, servo-mechanical – not digitized.  It’s one direction, uni-directional and it’s leaking – it leaks 20 percent of the electricity.

Jeremy: so it can’t take the energy and we’re losing it.  Then we realized – holy mackerel!  We’ve got some regions because of the feed-in tariffs that are 20, 30, 40, up to 70 percent green electricities – seventy percent!  Well, guess what?  Because we don’t have storage yet for hydrogen, we’re just losing three out of four kilowatts – which is a bad investment wind blowing at the wrong time, the sun not there when you need it, etc.

So we have to incentivize pillar three – hydrogen storage.  Then we realized pillar two wasn’t being incentivized – buildings for the little guys – the homeowners and the small businesses.  Big companies in our group can put the big solar wind powers together, but how does someone afford to put a 30,000-Euro photovoltaic power plant on their roof?

Finally, Germany and Italy now – the banks have come together, and they’re doing green loans – very low interest rate green loans.  you can get a power plant on your home in Italy, which is a pretty bureaucratic country; 60 days from the time you sign your loan.  and the reason the banks are willing to do this now is they look at your electricity bill.  They can see exactly month to month how much you’re going to save, based on the power plant on your roof, and when you’ll pay it back.  and you pay as you save.  and why aren’t we doing that?  This is like a win.

And then (pillar) five, we realized with Daimler – Daimler and GM are in my group.  We’re nervous because if we don’t have the other four pillars phasing in – the electric and hydrogen fuel cell vehicles – truck, busses, and cars, will be all orphaned.  nowhere to go.  so, this is where Obama – and I say this respectfully because I think he really wanted a green economy – he didn’t have a narrative.  When he introduces his great economy, it’s a laundry list – a policy wonk laundry list of items.  and they put billions into individual stand-alone items – batteries, solar factories, cars.

But he didn’t connect the dots and realize that a green economy is not just independent, stand-alone projects.  It’s the infrastructure that creates industrial revolutions, and when you put the infrastructure together, it’s the synergies between, in this case, these five pillars that create the millions of jobs and thousands of new businesses, and a multiplier effect with a platform that’ll give you 75 years in it.  He didn’t do it.  He wasted a lot of money and the American public is now saying, “Where’s the pay off?  where are the jobs?”

You could turn it around, but they’re not doing it at this point.

Todd: I’m curious about the relationship between the market and politics as they pertain to the third industrial revolution.  here in the US we have large, entrenched energy companies that don’t seem to be particularly motivated to change the status quo.  and it seems that if things are left up to natural market forces, nothing changes until the market completely collapses and then the third revolution rises out of the rubble.  and so what do you think about that and what’s the role of politics in making the third revolution happen?

Jeremy: the fact is that in every communication-energy revolution, infrastructure’s a public/private deal.  This whole libertarian myth that the marketplace has created America’s greatness – it never has in any country.  In the first industrial revolution, the government seeded the public land.  the government financed the first telegraph.  the government, at the local and state local level put in the utilities and subsidized the electric coops in the agricultural areas.  the government put in the FHA so people would have low interest mortgages so they could build suburbs on the interstates.  the government created the interstate highway system.  it goes on and on.

But this kind of myth is almost amusingly alarming about America.  at least in Europe and other countries they understand it’s always a public/private venture.  the infrastructure is a public good.  it requires everybody ponying up a little bit.

Todd: please correct me if my facts are wrong here, but my recollection is that if we adjust it for inflation, it’s something like $30 trillion was invested in the great depression WPA and in war spending, and then later with the Eisenhower administration on public highways.

Jeremy: huge.  yes.

Todd: and it seems, to a large extent, we’ve been coasting off of that public investment ever since.

Jeremy: Well, that’s why when you read chapter one you’ll see what I’m saying is how the financial crisis was connected to the oil crisis.  what happened is that we put in the second industrial revolution – a juvenile infrastructure between 1900 and 1929.  the oil pipe lines, the autos, centralized electricity.  we built out the first highways and suburban tracks, etc.  Then we had a hiatus, a depression and war.  and then we put in the interstates – the biggest public-works project in history in the ‘50s.  that allowed us to build out a massive suburban roll out of buildings and homes, which got FHA loans.  and then we changed commercial incentives that allow depreciation for commercial building so big businesses could set up shopping malls, strip malls, fast food culture, traveling, tourism, etc.

That all peaked in the ‘80s.  When we finished the interstates, the suburbs across the exits were finished.  but what happens is we overbuilt, and we went in a huge housing recession in the late ‘80s in the South and the West because we overbuilt the shopping malls and the suburban construction. that was the end of the line with the interstate highways.

The question is – how did we get out of that recession in ’91?  we didn’t have a third industrial in place with the same multiplier effect as the second industrial revolution.  the IT and Internet revolution was only part of the equation – the communication part.  by itself, communication doesn’t give you a multiplier effect for a new nervous system.

so in lieu of that, the way we got out of the recession in ’91 is by dipping into family savings that we amassed during the height of the second industrial revolution from the ‘50s through the ‘80s.  we built globalization based on American savings from the second industrial revolution because we had peaked in terms of our industrial infrastructure in the late ‘80s.  Wages started to go slightly down and remain stagnant from there on.

So the way we grew the economy is we went from a family savings rate of nine percent in 1990 to zero in 2005.  Then we maxed out on consumer credit cards, and then we went to the sub-prime mortgage to keep it going, when you can get a house with no money down – start paying your interest ten years later.  but in the meantime, your house appreciates in value on the positive scheme – you use it as an ATM machine and refinance your mortgage and then that all collapsed.

But the point is, we built all of globalization in the last 20 years on American purchasing power.  but that was bought not by new productivity and massive new economic value, but by using up the entire largess, the savings that we amassed from the ‘50s and the ‘80s as we matured the second industrial revolution.

So what happened is when the real economy finally collapsed in July 2008, you couldn’t keep the fictional economy going. Because it was all based – that debt, that credit – on living off the largess and finally we used up the savings of the second industrial revolution.  And if I’m wrong, I’ve asked my colleagues where I’ve got this wrong.

Todd: and so now we’re stuck in these diminishing return four-year economic cycles.

Jeremy: That’s right.  and now you can no longer live off that debt fiction either.  and what I’m saying in chapter one is the emperor has no clothes.  the emperor is us.  It’s society.  That’s my analysis on how the two are connected.  and so you can’t continue to live off debt because we’ve run out of money.  all the savings that we amassed in all of our institutions for 40 years of the greatest economic burst forward in history, the maturation of the second industrial revolution infrastructure, it all peaked out and plateaued in the late ‘80s.  We’ve been living off it for 20 years.  It’s an old infrastructure.  old technologies. old energies. Big entropy bill.

So anecdotally, I’ll share a story.  When Chancellor Merkel came into office, she got a hold of me before the election.  She thought she was – hoped she was going to win.  She asked me to come to Berlin, early on, to address the question “How does the Germany economy grow and create jobs in the 21st century?”

Now here’s the most robust industrial economy in the world – employment-wise, job-wise, leading exporting power along with China. so when I got there, the first question I asked the Chancellor is, “Madam Chancellor, how are you going to build the German or European or world economy in the last stages of an energy era?”  that Germany is moving toward the transition now.  That’s what we’re doing in Germany.

And the fact is, what every American would have to ask is “How in heaven’s name – whether you’re a republican, democrat, homeowner, employer – how in heaven’s name are you going to regrow the American economy when the energies of this economy are all getting more expensive.”  and if we have to go to tar, sand, heavy coal, they’re even more expensive and dirtier.  the technologies based on those energies – like the internal combustion engine – are shot. the whole infrastructure’s made out of carbon and on life support.  There’s no multiplier effect.  They’re all sun setting.

but Germany realizes.  You’ve got to get to the new sunrise energies, technologies and infrastructure quickly – and you can start from day one once you start placing these nodes in city-by-city and start phasing them in.

Todd: Why do you think Germany is more willing than the US to embrace these concepts?  They seem to make so much sense. Speaking with you reminds me of W. Edwards Demming going to Japan in the ‘50s to teach companies how to make high-quality cars and other products that came back to bite us later on.  I’m just wondering, is a prophet not without honor except in his own country?

Jeremy: Well, look.  I don’t know.  what happened was, I organized the first oil protest in 1973.  and remember the 200th anniversary of the Boston Tea Party.  and we brought together – people’s bicentennial commission – 20,000 young people and middle-class professional people – at the 200th anniversary — the OPEC crisis that just hit.  Oil was going through the roof.  People were lining up at the gas stations.

We brought 20,000 people – working people, students, old people, on the wharfs – Boston Harbor that day – on the 200th anniversary of the Tea Party – and we threw empty oil drums into the water protesting the big oil companies.  so it’s been a long haul from ’73 to 2011.  I made a decision to go to Europe – I started to go very heavily in the ‘90s.  and I realized that for all of its faults, Europe is the idea factory. I’m not naive about all the faults.  but it’s the only place where they’re actually asking the big questions, even faultingly, on the future of the human journey.  What’s our responsibility to the planet?  how do we really envision life?  With all of its faults and failings.

And at the point, some of the political leaders – Romano Prodi, he’s an old friend – was president of the European Commission at that point and twice Prime Minister – said, “this is a good place for you.”  I stayed.  I spend over half my time there.  I still do.  I commute.  and it’s been a rewarding experience in Europe.

I’ll tell you where I’m just amazed.  I’m amazed that America doesn’t get this story.  Obama – he said he couldn’t give up his Blackberry – Internet president – why didn’t he get this?  In other words, he didn’t understand the narrative.  and I’ll give you a classic example. Dr. Chu, DOE Energy Secretary.  the Obama administration comes up with a plan.  Remember, they talk smart grid, but here’s their plan.  the western governors and the midwest governors have a lot of solar and a lot of wind.  so the idea was to build big wind and solar parks – and a lot of the companies in my group do this by making money in the west.  and then raise everyone’s electricity price slightly in the country so you can build a high-voltage smart grid that’s one direction – to send the electricity to the urban population centers.

so, I could have told him what would happen.  the eastern governors, the mid-Atlantic governors come together and they send a letter to Congress and say “No way!  Not on our watch!  we want to create our own electricity and energy here – create millions of jobs, new businesses, put in a distributed grid – so we can share our surpluses with the rest of the country.  so it’s on hold.  but it’s that centralized thinking.  the only thing I can conclude is that the big energy companies have a big hold in Washington.

Obama has never shared what I’ve just talked to you about.  He’ll say smart grid, but he never talks about an energy Internet. Because it’s power of the people – it’s a complete distribution of economic power.  the good thing is it makes everyone an entrepreneur, but then we have to collaborate in social spaces.  For the young kids who are on the streets of Wall Street today and across the country protesting – and the kids in the Arab Spring in the Middle East – this is their third industrial revolution.  In other words, they grew up in power to create their own information on the Internet and share it.  For them, the next stage is the big one, which is joining it with energy and creating a powerful new economic paradigm that fits their idea of power – which is lateral power.

Our power, which I grew up on, was centralized because the first and second industrial revolutions are based on elite energies.  so they have to scale vertically because it costs huge amounts of finance capital to move them.  Therefore, we have to have centralized factories in the 19th and 20th centuries for the first and second industrial revolutions, and centralized logistics.

The third industrial revolution, as young people know, it scales laterally.  it enables millions of little players putting their little energies together, and it’s sharing it in vast distributed loads.  It’s like the music companies.  They just didn’t get file sharing.  and distributing file sharing music wiped them out in five years.  and the newspapers didn’t understand the blogosphere.  now they’re trying to create blogs and they’re all going to be blogs.

So what I’m saying, I think in Washington you have not just the old energy industry, but you have the old politics.  and what we have noticed – I advise Zapatero in Spain, Merkel, and some of the countries that are in trouble – Papandreou.  some of them are center-right.  some are center-left.

And what we found it has nothing to do with the old right/left split.  Whether someone gets this or not depends on the new spectrum that’s emerging among the young people.  the young people do not think right/left.  I’m 66.  I’m of the old school.  They actually don’t even talk about right/left or conservative/liberal or capitalism/socialism.  Their spectrum – their political scale – is very different.  When they judge institutional behavior, they ask, “Is this institutional behavior centralized, patriarchal, top-down, closed, and proprietary?  Or is this institutional behavior distributed, collaborative?  is it open and transparent, and does it give us side-by-side lateral power?”  you can see it in every kid under 25 or 30.  That’s a revolution.

I think the kids on Wall Street and across the country, and the kids in the Middle East and around the world – China and everywhere else – I don’t know where they’re going to take this.  This book is just the beginning of a frame.  but I’m sure they’re going to take this well beyond. There could be a lot of bad bumps that take us off this trajectory and we could have a dark period, and we may not get there.

But pending all of those possibilities, I don’t think there’s a plan B.  I think this is the way the younger generation is going to run.  They’re going to bring the Internet to energy, and they’re going to share vast amounts of green energy and they’re going to create completely new business models that scale laterally.  They’re going to go to lateral power.

Todd: I think the generation that has been raised with the Internet – they get the notion of distributed information.  it seems that the piece that has been hiding in plain sight is the notion of distributed energy and the convergence of that with the Internet and smart grids.

Jeremy: Well also, realize that when energy and communication revolutions come together we really change history.  That’s what changes consciousness.  I wrote a longer book, the Empathic Civilization, last year.  It’s an analysis of communication and energy revolutions through history, and how they change actual consciousness itself because they shift consciousness to fit the new temporal, spacial orientation that communication energy makes available.

If you like that kind of reading, it’s a long book, but these are big things when energy and communication revolutions come together.  and the young people will get this in 20 seconds.  and any politician worth their salt could introduce this in 30 seconds and turn around the whole country.

Todd: It’s more of a collective consciousness, isn’t it, as opposed to a centralized elitist approach.

Jeremy: it is.  It’s funny you say that because in the Empathic Civilization, I actually had done years of research just on this whole idea of collective consciousness.  and I didn’t go into it in depth, but I actually did say is that once these energy/communication revolutions come together, the collective consciousness shifts to the new temporal/spacial orientation.

For example, in forager or hunter societies, the energy was the human body.  the communication was language to forage, hunt and grow, and they all had mythological thinking.  and the basic biological drive and empathic distress – we now know it’s not the predatory, utilitarian drive and the enlightenment – at least our biologists have finally figured out that our neural circuitry is actually wired for a empathic distress.  that drive only went to blood-kind because that was the communication-energy domain.  If you were in another tribe in the next valley, you were a demon.  and if you go to the hydraulic civilizations, the new energy was centralized irrigation, canal agriculture – very complicated.  and they stored the sun’s energy in barley, wheat, and rye in Mesopotamia and Sumeria.  and they had to create cuneiform, and added the complexities of the first urban civilization.

And everywhere they created these hydraulic civilizations – India, China, Mexico, independently people figured out some form of writing.  and consciousness shifted from mythological to theological.  all the great religions were formed back then because empathic drive evolves to a new fictional family – religious ties – because now you have a bigger domain because now you have a new family based on a religious affiliation.  so Jews empathasized with Jews, and in first-century Rome Christians kept kissing each other on the face because they were brother and sister.  that was considered pretty weird.

In the 19th century with the first industrial revolution, we shifted to ideological consciousness – the Enlightenment, the Romantic reaction.  and the empathic drive shifted to a new fictional family – national loyalty.  all of a sudden there’s something called France.  it was a complete fiction.  There were two other languages in France in the 1300s, but they create a common national state now because the markets could be national.  They could have larger markets with the new communication energy revolution.

So now all French people think they’re French.  It’s a fictional family and they empathasize with each other, but not the Germans.  the Germans empathasize with each other but not the Italians.

So in the 20th century, the second industrial revolution, we shifted to psychological consciousness and people of like-minded associational ties bind each other as soul mates.  That’s a bigger fictional family.  and what we’re saying in this book, in the Empathic Civilization, is we may be on the cusp of a biosphere consciousness – a new border.  Why do we stop at national loyalty?

The kids are thinking global.  They’re in social spaces.  and once they start to join the Internet with the renewable energies, those energy Internets cross continents.  They like to run it until they get to the ocean’s edge – like Wi-Fi.  and young people are going to become more and more aware as we move into the century, that they’re responsible for their part of the biosphere.

Because when you’re sitting there in your little power plant, and you have to monitor the sun every day, and the changing wind currents, and how the heat’s moving under the ground, and how the garbage is decomposing – we all become, again, in tune to the rhythms of the biosphere, which we divorced ourselves from with stored sun.  so, it becomes second nature that we become embedded into the ecosystem dynamics.  but then we have to collaborate across continents to make this thing work.  so it is kind of biosphere consciousness.

And the kids are learning it in school; they’re learning that everything they do has an ecological footprint.  it affects someone else – a creature on the planet – that’s a step in thinking.  so, I’m guardedly hopefully, but I’m not naive.  anything could derail it.  we may not get there in time.  I wonder when I see five year olds, what the hell is it going to be like for them in 2080 if we don’t get there?

So this is a shot. As my wife said, “This isn’t rocket science, these five pillars.”  It’s what you’re gonna have to do.

Todd: it does seem like a no-brainer.  and I just love the confluence of energy communications and economics.  I do want to touch on economics just a bit more here – I think your chapter “Retiring Adam Smith,” is just fascinating.

Jeremy: That’s a big chapter. I think this chapter, to my mind, puts the gauntlet down.

Todd: I think it absolutely does – I mean – you can’t do that, right?  Isn’t Adam Smith sacred?  you can’t challenge Adam Smith.

Jeremy: We’re going to find out!

Todd: Well, can you talk about this notion of the relationship of economics and engineering, and thermodynamics versus Newtonian mechanics?

Jeremy: I can.  Modern economic theory was developed in the Enlightenment.  what was a rage at the time was Newtonian mechanics.  and it was a metaphor for everything because every new emerging discipline wanted to use Newtonian physics to get a sound basic framework for legitimacy.  so, all the metaphors were based in Newtonian physics.

And, of course, the classical, neoclassical economic theories are based on that.  For each action is an equal and opposite reaction.  That’s the pendulum of the marketplace, and on and on and on.  They use all sorts of Newtonian metaphors.

The problem is Newton’s physics don’t tell you a damn thing about economic activity.  Alfred North Whitehead, the great scientist in the early 20th century said to his students, “Mechanics – becoming mechanics just tells you about how fast that thing’s going and where it’s located.  and after that there’s not much more of interest to be said on the subject.”  the problem is economics is all about how energy flows, and it’s governed by the laws of thermodynamics, which weren’t discovered until the latter part of the 19th century by engineers and chemists studying energy flows.

So, the laws of thermodynamics really govern economic activity, but almost no economist ever studies the law of thermodynamics. They don’t have a clue.  the engineers, the chemists, the biologists, the architects, the urban planners, the physicists – all of those professions, which actually create economic activity, they do so from a thermodynamic lens.  so there’s a complete disconnect between them and the economists.

I’ll just give you one example. GDP – we think of gross domestic product as a store of wealth we generate. John Locke, an early Enlightenment philosopher said, “Look, ten acres of land in the commons that’s doing nothing is of no value.  It’s waste.  It’s only when you harness that land with your labor and transform it into productive property that you’ve created wealth.”  He got it upside down.  but that’s the basic Enlightenment theory, that we take nature’s waste, add labor to it, and ingenuity, and we turn it into productive wealth.  He got it backwards.

Thermodynamically, economic activity is taking nature’s valuable, low-entropy, high-energy capability in energy form or energy based in material form.  we transform it into goods and services.  and every time we transform it we lose more energy in the transformation than we gain in the product or service.  and then the product and service degrade back into the environment.  and part of it can be recycled, but at a cost.

So GDP is not a measure of your wealth.  It’s a measure of the temporary value that we have been able to engender at the expense of the value we’ve lost in nature and the entropy bill we’ve created.  so if GDP is a measure of temporary value and it’s a measure of our debt that we build up with a natural environment.

There was a chemist at the turn of the century – Frederick Soddy, Nobel Laureate, early 1900s.  He was the first to show the relationship between thermo dynamics and economics – he said “These are the laws that govern economics.”  no one paid any attention to him.

Then Nicholas Georgescu-Roegen, the great Vanderbilt economist wrote several books on entropy in the 1960s.  Then I wrote Entropy in 1980 – Georgescu wrote the afterwards.  and Herman Daly wrote Steady-State Economics.  He studied under Georgescu, known to the World Bank and the University of Maryland.  we attempted, at that point 30 years ago, to generate a conversation.  Georgescu has passed away now, but Georgescu, myself, Kenneth Bowling, used to be the head of the AAAS and Herman Daly, and we got nowhere.

What I’m saying now – the time is right, 30 years later.  I think that the economic theories that reinforced the first and second industrial revolution are dysfunctional.  They actually don’t give us a realistic assessment of our past, present and future.  They’re not a helpful guide.  some of the insides will be retained.  They’ll be retained and we’ll find a synthesis to retain the insides of classical, neoclassical theory, placing it within a thermodynamic frame, a scientific frame, and we’ll begin to create a new synthesis that is different from classical, neoclassical economic theory, as it was different from the ‘just price’ theory of the late medieval age.  I think that’s going to happen quickly in the next ten years as we transition into this new third industrial era.

Todd: I find it so interesting – it’s a global balance sheet, isn’t it?

Jeremy: It’s a global balance sheet. Everyone’s talking about balancing the budget.  the real global financial crisis is connected to the oil crisis.  what we’re paying now is the real debt.

Every society, early on, creates a new energy-communication mix.  at the early stage before scale-up, the energy-communications’ expensive.  Then it’s scaled.  Then it’s adopted.  Then the prices get cheaper.  Then it plateaus.  Then the entropy builds up for the past activity.  Then prices go up.  the cost for the entropy bill goes up.  and the civilization eventually collapses or dies out.  That’s the history of civilization.

Some of the guys that write these books, they have never really captured this – they’re good anthropologists, but they haven’t really looked at economic history.  That’s how it happens.  and so that’s what happening in the second industrial revolution now – it’s on the down side of its bell curve.  and the key is you’re always constantly building up a debt against nature.  and the question is: how do you find a communication-energy regime that allows us to live more in tandem with the rhythms of the planet so that we can learn to live sustainably and not produce and consume faster than we can repay the debt by allowing nature to replenish the stock its best it can?

Todd: so GDP is our debt to nature.

Jeremy: you got it.

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