The End of Degrowth

…or what comes after the realization hits that we've been already in degrowth for fifty years now

Empty. Photo by Marius Walter on Unsplash

With peaking energy supplies humanity faces a massive dilemma. How to adapt to the shift from ever growing supplies of fossil fuels and minerals to an ever shrinking availability of these resources? Is this even possible?

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Let’s take the case of America, the poster child of capitalism, for example. In order to see how degrowth might unfold — wholly unwillingly, I have to add — we must first understand the essence of our current economic system. The key thing to note here is that the core tenet of capitalism is not a belief in markets, free trade or private ownership but unimpeded growth. Unrestricted competition between businesses was nothing more than an ideal which was never met. The larger enterprises grew, the bigger their influence over pricing and regulation became. The repeated appearance of monopolies, an ever growing wealth inequality and a growing number of rent-seeking billionaire oligarchs thus were not unintended side effects of an otherwise benevolent system, but a clear goal towards which capitalism as a complex adaptive system evolved over time.

Concentrating wealth in the hand of the few and limiting competition was simply the best way to maximize profits. In fairness this is not an entirely new phenomena: whenever lootable, hoardable, tradable and storable surplus became available — be it grains, gold, sheep etc. — sooner or later some people always ended up owning much more than the average folk. And when the richest conspired to bend the rules for themselves, civilizations inevitably ended up in the rather unstable state of oligarchy. History never repeats itself, but it sure does rhyme — a lot.

What has made capitalism more “successful” than any of its predecessors was an ever increasing supply of raw materials, energy and labor turned into products and services at a profit. In a more or less stable system, such as in the Middle Ages, it would have been much harder for Rockefellers and Carnegies to rise and contest established power structures. That has changed when fossil fuels started to unlock more and more resources and technology in the industrial age. Whenever a new market or resource (be it real or digital) was opened up for competition, and ultimately for exploitation, a few companies quickly ended up dominating that field — making their owners the new richest kids on the block.

What would happen though, when that material growth finally turns into reverse, consumers can no longer afford to spend as much as they used to, and market after market start to shrink, only to eventually disappear? You see, without adequate surplus energy, it would be impossible to keep producing and consuming at present rates, so something will have to give. Is it possible for capitalism to adapt by degrowth or will this shrinkage — enforced by Nature — cause the system to mutate into something entirely different?

Profits over the economy

Just take a look at what growth has already turned into in the past five decades. In contrast to what it meant half a century ago — new, well paying jobs, a general rise in living standards and improving future prospects — growth has basically turned into a wealth pump. Ever rising asset prices and corporate welfare for the rich, collapsing living standards, food inflation and unaffordable housing and energy for everyone else. The post World War II economic boom revolved around making and selling goods at a profit while paying workers well, thereby creating a self-reinforcing feedback loop of consumption — driving manufacturing and still more consumption. This, however, required cheap raw materials, coal, oil, natural gas and electricity, as well as the “freedom” to dump waste on and destroy Nature free of charge. As environmental regulations became stricter, at the same time when resource extraction and conventional oil peaked (and became more expensive as imports kicked in) in the 1970’s, the old model of “economic” growth became impossible to maintain.

There is only so much you can extract, pollute and destroy without ruining your own prospects.

You see, a continued real, material improvement for the everyday person always required a corresponding increase in resource and energy use. A bigger house, a second car, electronic gadgets, flights abroad, eating out etc. could no longer be provided on a shrinking material and energy base. The only way to preserve growth was to move the manufacturing of the most energy intensive and polluting products and services abroad, where labor, resources and energy was still cheap. This practically meant unfettered growth in company profits, at the cost of disappearing industrial jobs and stagnating wages for everyone else.

Profit per unit of real gross value added of nonfinancial corporate business: Corporate profits after tax with IVA and CCAdj (unit profits from current production), retrieved from FRED, Federal Reserve Bank of St. Louis, October 2, 2025.

Education followed a similar pattern: as working class jobs vanished and salaries stopped growing in real terms, the only prospect for improving one’s lot was by going for a diploma. Asking more and more for higher education, and by financing this activity via student loans, created a lot of economic activity but required very little energy and resources to perform. Hence the birth of a myth: the post-industrial, service economy. (There is, of course, no such thing as a service economy.) These trends, on the other hand, has led to the devaluation of degrees, combined with a swell in administrative and frankly BS jobs. The same “happened” to healthcare, where the number of doctors barely grew as opposed to that of controllers and management. And the list goes on: from “owning” copyrights to creating “intellectual property”, providing financial services and inserting a middle man into every transaction imaginable. Sure, a lot of economic activity could be generated this way (measured as GDP growth and rising stock valuations), while very little — if any — real value was added. Money for nothing? Quite likely.

U.S. per capita energy use (from all sources including fossil fuels) is falling since 2000. China is set to surpass the EU in 2025 on a per capita basis. In absolute terms, China has already left behind the EU and U.S. (combined!) in 2020 already. Source

The real state of the economy

Despite the lack of real value added, and much to the reasons explained above, U.S. gross domestic product — the total value of goods produced and services provided during a year — just kept rising and rising. Lacking real material growth this expansion was increasingly financed by credit institutions and government debt. That is, by conjuring money into existence. (Yes, banks create around 80% of the money circulating the economy as electronic deposits.) And as of late: the government running massive deficits — i.e.: spending more than what gets collected as revenues.

Deficit spending, besides creating even more inflation, has a direct stimulating effect on the economy as a whole. When you take a look at what the government spends taxpayer money on, you find expenditures such as social security, Medicare, national defense etc. Retired workers spend their benefits on goods and services, Medicare pays doctors, nurses and the administrative staff (who then also use this money to buy stuff), while national defense drives entire industries (besides being a massive racket). In the end most of this government deficit spending ends up circulating the economy as consumption and investment a.k.a. GDP growth. On the other hand, this practice also increases inflation and locks future governments into a debt trap, where ever increasing amounts of money will have to be spent on servicing this debt. Short term benefits, long term costs — sounds familiar?

The effect of U.S. government deficit spending on GDP. The total height of each bar shows the “official GDP” reading for Q3 each year (in trillions of Dollars, seasonally adjusted annual rate) — source. The effect of deficit spending (source) was marked by diagonal stripes. The red line shows real gross domestic product (source) minus deficit spending — both converted to chained 2017 Dollars (seasonally adjusted annual rate). 2025 values are my estimates. Based on these real values, U.S. economic growth was 2% year-over-year in the past quarter of a century.

If we take a look at the actual GDP figures, we can not only discern a growing trend when it comes to overspending, but a tendency to use deficit spending to fill in the gaps after a recession. Governments in the past 25 years, it seems, have done everything in their power to a) hide the true depth of each recession, and to b) show higher than normal GDP growth. But that’s only half of the story. If we take inflation into account by using chained 2017 Dollars, and deduct government overspending, the true size of the U.S. economy in the middle of 2025 would have been around $22.5 trillion — some 27% below the official figure ($30.5 trillion). And that’s by using the seriously under-reported and heavily massaged CPI figures… If real inflation had been just two percentage points higher than the official figure, economic growth over the past eight years would have simply disappeared into the mist.

Take note how we got to this point: starting with the peaking of conventional oil production in 1970’s, then the outsourcing of manufacturing jobs, followed by neoliberalism and credit adventurism leading to a financial meltdown in 2008/2009. Then came zero interest rate policies, wage suppression, tax cuts for large corporations and now a cost of living crisis in the wake of the 2021 energy crisis (which has never ended). Is it any wonder the U.S. economy is where it is: drowning in debt?

Degrowth is already on — Now comes war

Let’s face it: degrowth is already here — since the 1970’s at least. So far it was offset by globalization (mainly by importing cheap goods from China) and a massive expansion of debt — both federal and private. However, no economy can be propped up artificially forever. With the coming peak and decline in U.S. oil and natural gas production later this decade, revenues can expected to fall dramatically, at the same time when the country becomes import dependent again. Should that be the case, a major economic downturn would be inescapable, and it would be only a question of time till the rest of the world realized that the U.S. economy would deflate like a balloon without incessantly increasing its debt levels, or seriously and heavily taxing its major corporations (1). The former would further erode trust in America’s ability to honor its obligations which, together with the realization that with less and less oil it would be impossible to repay these debts, would be devastating. The latter move, however, would make paying prodigious dividends to shareholders practically impossible, and quite possibly trigger a stock market meltdown. A rock and a hard place?

No wonder that slashing social benefits, Medicare, Medicaid are all on the top of the government’s list — we can take severe cuts to those as a given. But then what’s there to do the year after? Sure, cutting social spending will result in lower consumption (and lower GDP growth), but resource depletion won’t stop just because we no longer give adequate medical and financial support to retired citizens... The now accelerating long decline of high-tech industrial civilization will demand more and more cuts each and every year. Unless… Unless there is a way to “convince” other nations to give up their consumption and resources first.

The European economy is already in self-destruction mode for four years now, resulting in a massive (10%) drop in their overall energy consumption compared to 2014. And not only that, they also became more dependent on U.S. energy deliveries than ever. Should any of their nations decide not to put up with American pressures then, LNG shipments could easily drop to zero overnight. Or the last remaining pipeline underneath the Black Sea could suffer a severe blow. Europe, the second largest importer of energy in the world is now on a strict slimming diet, enforced and controlled by their biggest friend and ally. Next one on the list: China, the globe’s largest importer of oil and gas.

Constraining the world largest energy consumer’s access to hydrocarbons is a more tricky question, though, as they are not as dependent on one source as the EU was (or rather: still is). There are, however, some major suppliers — ruled by governments deemed hostile by the West — whose deliveries to China could be curtailed: Venezuela and Iran. Toppling these two regimes could thus deliver triple benefits: first, U.S. oil corporations could finally return in full to exploit their resources. Second, they could divert oil deliveries to America, instead of the far east, and third it could help reserve the Dollar’s status as the world’s number one currency. As Curro Jimenez observes:

Iran has the third-largest oil reserves and the second-largest gas reserves. If the U.S. were to control Iran and Venezuela’s oil reserves, it would control the first and third-largest oil reserves in the world, while the second and fourth – Saudi Arabia and Canada – are already under its influence. Having control and influence over the four largest oil reserves would allow the U.S. not only to influence prices and distribution, but to dictate in which currency they are paid.

Note, how bailing out Argentina, the last U.S. friendly South American state with a booming shale oil industry in its Vaca Muerta region, fits neatly into this picture. There is, however, a fly in the ointment: we no longer live in the 1990’s when the U.S. was the sole military superpower. Today, we have other players with formidable air defense complexes, hyper-sonic missiles and manufacturing capacities far greater than that of the entire West, combined. Russia, for example, is already busy training and equipping Iran to resist the next wave of U.S.-Israeli bombardment. The recent Tomahawk scare and turning Taiwan and the Philippines into a porcupine are thus part of a diversionary tactic aimed at pinning down air defense and missile resources far away from U.S. targeted countries. As for the success of this strategy… Well, I’m highly skeptical, to say the least.

Conclusion

U.S. per capita energy production and use is already falling for two decades now, despite the shale “revolution” adding record amount of barrels to the mix. Without an ever growing number of well paying jobs, and with a continued cost of living crisis, on the other hand, this cannot be expected to change. So even if American military adventurism were successful, it would most likely end up enriching a few oil corporations, while the rest of the population would still be unable to buy more gas or products made with oil. On a falling per capita energy availability — translating into higher electricity and gas prices — it will be impossible to keep consumption even on its current level. With a continued decline in conventional oil production, and now with peaking shale oil extraction, diesel fuel supply can be expected to fall in the years and decades ahead, making the crisis especially severe in the food, mining, construction and transportation businesses.

Under these circumstances it’s not terribly hard to understand why tariffs were a failed attempt to rein in competitors and to incentivize the re-industrialization of America; as none of these goals were achievable from the get go. Tariffs have thus ended up becoming just another tax on the average citizen, with the only practical purpose of raising government revenues to pay interest on debt, while further eroding people’s ability to buy more products and services. Now add in austerity measures, cuts to social benefits — as well as to many other government programs — and a continued decline in consumer spending is pretty much locked in. With slowing consumer demand, however, even more manufacturing companies will be forced to close doors, and even less oil wells will be drilled — effectively cementing peak oil in place. U.S. oil companies in anticipation of weaker demand and ever increasing drilling costs, are already accelerating layoffs and cutting investments, and not only in the shale business but everywhere.

This, however, is only the beginning. As more and more producers are pulled out, like blocks from a jenga tower, so will the risk of entire supply chains failing grow. Not just in the oil industry, but everywhere else. How this will affect finance and the monetary system is anyone’s guess at this point, but I suspect we are in for a pretty rough ride — potentially involving issuing massive amounts of stimulus checks, investors having to bail-in (2), and CBDC-s being introduced in a rush. Such a major, or even partial, meltdown of the economy, and the draconian measures needed to prevent a complete collapse, however, raises the risk of civil unrest to it’s highest level in recent history… That’s the risk every government around the globe takes, when not explaining that we are rapidly approaching the end of growth, after having surpassed an almost infinite number of planetary and resource boundaries. So, in case you were wondering why there is a war psychosis all over the world, or why the President called certain states and cities ‘training grounds’ or why did he sign orders to criminalize dissent — look no further for an answer. I’m afraid what we have seen up until now is just a dress rehearsal for what comes next: the biggest turning point in human history. Buckle up.

Oh, when did we pass that dead-end sign…? Some fifty years ago? *

Until next time,

B

* and don’t tell me that we haven’t been warned.

Thank you for reading The Honest Sorcerer. If you value this article or any others please share and consider a subscription, or perhaps buying a virtual coffee. At the same time allow me to express my eternal gratitude to those who already support my work — without you this site could not exist.

Notes:

(1) The IRS has collected only $492 billion in 2024 as tax receipts on corporate income, a mere 12% of the $4.1 trillion in corporate profits before tax. For comparison this ratio was 31% in 1947, right after WWII ended.

(2) A bail-in forces bondholders and other creditors of a company on the verge of failure to bear some of the burden by writing off debt they are owed or converting it into equity. This is in contrast to a bailout, the rescue of a firm by external parties like taxpayers. The US has implemented bail-in provisions, giving regulators the power to place banks and bank holding companies in receivership. In Europe, bail-ins have been used in Cyprus, Denmark and Spain.