Abstract:
Since 2005, (1) world oil supply has not increased, and (2) the world has undergone its most severe economic crisis since the Depression. In this paper, logical arguments and direct evidence are presented suggesting that a reduction in oil supply can be expected to reduce the ability of economies to use debt for leverage. The expected impact of reduced oil supply combined with this reduced leverage is similar to the actual impact of the 2008–2009 recession in OECD countries. If world oil supply should continue to remain generally flat, there appears to be a significant possibility that oil consumption in OECD countries will continue to decline, as emerging markets consume a greater share of the total oil that is available. If this should happen, based on these findings we can expect a continuing financial crisis similar to the 2008–2009 recession including significant debt defaults. The financial crisis may eventually worsen, to resemble a collapse situation as described by Joseph Tainter in The Collapse of Complex Societies (1990) or an adverse decline situation similar to adverse scenarios foreseen by Donella Meadows in Limits to Growth (1972).

Full article by Gail Tverberg

UPDATED LINK: http://www.sciencedirect.com/science/article/pii/S0360544211003744

Guest post by Gail Tverberg of Our Finite World

In a recent post, I talked about why we may be reaching Limits to Growth of the type foretold in the 1972 book Limits to Growth. I would like to explain some additional reasons now.

Figure 1. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil” http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

In my earlier post, I talked about how rising oil prices are associated with rising food prices, and how these high prices can make it harder for borrowers to repay their loans, as is now happening in Europe. These same problems can lead to a contraction of credit availability. A contraction in credit availability can be doubly problematic: it can lead to a cutback in demand because buyers cannot afford goods using oil, such as new cars, and it can lead to a drop in financing for industrial uses, including expanded oil drilling. All of these issues may lead to contraction of the type expected in Limits to Growth. US governmental debt limit problems and European debt defaults are also outcomes of the type expected with rising oil prices.

In this post, I would like to discuss some other basic issues that seem to be associated with Limits to Growth, and that may eventually lead to an abrupt downturn or collapse.

Limits to Growth: More Basic Issues

1. The over-use of resources by humans seems to be of very-long standing origin, dating to the time-period 100,000 BC when there were fewer than 100,000 people on earth. Capitalism today is an extension of this long-term pattern.

2. World systems often seem to work as a gradual build-up of forces followed by a cataclysmic release. Examples include earthquakes and hurricanes. Even getting hungry, and then eating, follows this pattern. A similar pattern may happen with the Limits to Growth that we seem to be reaching.

3. The extent to which humans can gather resources for their own use depends on their geographical reach. As hunter-gatherers, our reach was quite limited. This reach has gradually grown through inventions such as ships, through the settling of new lands and colonialism, and most recently through international globalization. Globalization is necessarily the end of this growth.

4. Globalization sows the seeds of its own demise because factory workers are effectively forced to compete for wages with workers from around the world. Workers in the Global South can get along with lower wages for a number of reasons, including the fact that they tend to live in warmer areas, so do not need to build as sturdy homes and have less need to heat them. With fewer jobs and less investment in the Global North, demand falls and debt defaults become more of a problem.

5. In the normal scheme of things, world systems would rest and regroup once resources reach some sort of crisis point, defined by Liebig’s Law of the Minimum. Soils would build up again; aquifers would refresh; climate would reach a new equilibrium; and a different group of plants and animals would become dominant. Oil and gas supplies might even be rebuilt, over millions of years. It is not clear that humans will be part of the new world order, however.

Long-Term Overuse of Resources

Over the past 100,000 years, man’s record of sustainably using natural resources has been poor. Humans differ from other primates because of their relatively larger brain size, but humans have not used this intelligence to preserve the environment. Colin McEvedy and Richard Jones in Atlas of World Population History report that the final increase in Homo sapiens’ brain size to the current average of 1450 cc took  place about 100,000 years ago.

There have been five periods in the history of the world in which large numbers of species have died off. These are sometimes called “mass extinctions“. (See my post European Debt Crisis and Sustainability.) According to Niles Eldridge, the Sixth Extinction is occurring now:

• Phase One began when the first modern humans began to disperse to different parts of the world about 100,000 years ago.
• Phase Two began about 10,000 years ago when humans turned to agriculture.

According to Eldridge, humans have been like bulls in a China shop. They disrupted ecosystems by overhunting game species and perhaps also by spreading disease organisms. Regarding the development of agriculture, he says:

Homo sapiens became the first species to stop living inside local ecosystems. . . . Indeed, to develop agriculture is essentially to declare war on ecosystems – converting land to produce one or two food crops, with all other native plant species all now classified as unwanted “weeds” — and all but a few domesticated species of animals now considered as pests.

The development of fossil fuels ramped up the attack on natural systems further. Fossil fuel could be used for irrigation, and to produce herbicides, pesticides, and fertilizer, allowing farmers to choose the crops they preferred to grow. Fossil fuels also enabled large fishing boats to deplete the oceans of large fish.

Capitalism furthered this attack on the natural order by giving those who extracted resources from the earth profits based on this extraction. While governments may have taxed these profits, these taxes, too, were used for developing infrastructure so that man could continue his attack on the natural order, and this extraction of resources would become more efficient.

The final tool man found in his attach on natural ecosystems was debt based financing. While debt had been used for many years, it took on a new role when economists started realizing that greater debt could be used to increase demand for goods. This happens because debt financing gives people money to spend in advance of when it is earned (for example, a car loan allows a person to buy a car that he could not otherwise afford).

Because debt allows people to buy thing that they would not otherwise be able to afford, it has a tendency to raise commodity prices. These higher commodity prices make it economic to extract more marginal resources, such as oil in difficult locations.

Natural systems often operate through a build up of forces, followed by a cataclysmic release

There are no doubt some natural forces operate at a pretty steady level indefinitely–gravity, for example. But many of the processes we experience are “batch processes”. We remain awake during the day; by evening we become tired, and fall asleep until the next morning. We eat, digest the food, and become hungry again. Movement of earth’s plates gradually builds up forces which are released by an earthquake. When force is released, the change can be quick and dramatic.

Right now, one stress is that of  limited oil supply. This is leading to rising oil prices and stress on economies of oil importing countries.

Figure 2. Two views of future growth

The problem is that when limited oil supply is rationed by high oil prices, economic growth slows down, and eventually decreases (Figure 2). When this happens, it becomes much less advantageous to borrow from the future, because the future is no longer better than today. If an economic contraction occurs for very long, the whole debt system can be expected to undergo a major “unwind”.

Logic says the result would be fairly cataclysmic. We recently started seeing the beginning of this unwind with the financial crisis of 2008-2009. We are seeing more of the potential unwind with the problems in Greece and the rest of Europe, and with the US government reaching limits on borrowed debt. Exactly how this will play out is uncertain, but debt defaults in Europe could spread to banks worldwide, in one scenario.

With much less credit available, demand for extracted energy products would fall, because with less debt, people can afford to purchase fewer products that use energy, such as new cars. Prices of oil and oil substitutes will fall, making oil extraction unprofitable in locations where extraction costs are high. The result is not likely to be a slow decline, of the type attributed to M. King Hubbert. Instead, a much more precipitous decline can be expected (Figure 3).

Figure 3. Historical crude, condensate, and NGL production based on BP and EIA data, plus a Guesstimate of Future Oil Supply.

Human Geographical Reach

The amount of food and other goods we have access to and the steadiness of supply depend very much on our geographical reach. In the earliest days, humans were nomadic, so that they could gather food from a wide area. It was not until about 10,000 years ago that humans began to settle down with agricultural existence. When a change to local agriculture took place,  this change led to shorter stature and earlier deaths. Part of this was due to poorer nutrition from a less varied diet; part of this was due to an increase in the incidence of infectious diseases, because of closer proximity to other humans and domesticated animals.

Now, with globalization, we have reached the logical maximum in our geographical reach. Those who are rich enough can buy foods from around the world. We also have access to computers and other high-tech devices that can only be made with inputs from around the world. Most people’s expectation is that somehow we will keep up this wide reach, even if our world financial system fails due to debt defaults, but we have no guarantee that this really will be possible.

If we start re-localizing, we will likely run into problems that people have had since the dawn of agriculture. It is hard to grow a wide range of crops in one area. Weather conditions are often bad in one year, necessitating either multiple-year storage of crops, or trade with other areas. If we cannot maintain our use of antibiotics and of water and sewer treatment, deaths from infections may soar.

Globalization Sows the Seeds of Its Own Demise

From the point of view of profit-making businesses, globalization is wonderful. Workers can be found in “less developed” areas of the world who will work for lower wages. As a result, wages of workers in the Global North are put in direct competition with wages for workers in the Global South. Wages in the Global South can be lower for several reasons:

• Workers may expect to work more hours per week to earn the funds needed to support themselves and their families.
• Payments to workers do not need to include as much for healthcare benefits, or as much for retirement payments to the elderly, because of the younger workforce, and differences in the healthcare systems.
• Energy costs of workers are likely to be lower because of greater use of coal, smaller homes, less needed for heating in warm climates, and use of bicycles instead of cars.

But there are adverse effects of sending manufacturing oversees:

• The unemployed need to be taken care of by government programs, even if they don’t have jobs.
• Demand for goods produced may fall. Neither the low-wage workers producing the goods in the Global South nor the workers without jobs in the Global North are likely to be able to afford the products that are being produced.
• Economic growth is likely to decline in countries of the Global North that outsource manufacturing and other processes.
• Debt is likely to become more of a problem in countries of the Global North, because of low economic growth or actual contraction. Laid-off workers are likely to find themselves less able to repay their loans. Governments are likely to find themselves in difficulty because of low tax revenues, high benefits to laid-off workers, and high debt levels.

Thus, globalization sows the seed of its own demise.

Regrouping is Likely to be Needed

At some point, the system can be expected to fail, and regrouping will be needed. The path to failure seems to be through debt defaults, leading to falling demand for the products that capitalism provides.

Once this decline starts, it is hard to see a natural “stopping point” for the decline. On the “way up,” businesses, governments, traditions, and even religious beliefs are built that reinforce the processes that are in place. For example, if a certain amount of oil, gas, and coal is being extracted from the ground, businesses will be formed that use these fossil fuels, and traditions will be started (for example, expensive healthcare for many, and college education for most) that will use these fossil fuels. Economics becomes the new religion, touting the benefits of more consumption.

If the decline is to stop, we need a whole different set of businesses and traditions to support a much lower level consumption of fossil fuels and other inputs. It is not at all clear that we can adapt quickly enough for a change of this type.

When we look back a few thousand years, societies had a surprisingly rich tapestry of businesses and traditions to support them. For example, David Graber, in Debt: The First 5,000 Years talks about the ancient (2700 BC) Mesopotamian city-states being dominated by vast temples where trading was done. It wasn’t until about a century later that Abraham left “Ur of the Chaldeans” (Genesis 11:31), a major port at that time.

Part of our problem in going back is that we can’t even imagine what web of businesses and traditions would be needed to support a lower fuel use than we have now.  We can build a garden in our backyard, and we can print some “local currency” for local citizens to trade, but these types of activities do not really fill the major void that would be left if our current approach to civilization fails.

Sustainability: What Would Work

If we think about it, it is pretty obvious how humans could fit into the natural world better. We could behave like other animals. We could stop wearing clothes. We could stop living in houses. We could eat food in its raw form. This food would be only that which we can pick or catch with our bare hands. We could co-evolve with our fellow creatures. If a virus or bacteria comes along and kills off a significant share of mankind, or if a woman dies in child-birth, we could simply accept that as the natural order of things.

I don’t think any of us would accept such a solution, though. It is just too harsh an outcome. Such a solution would not work except in very warm climates, and even there, we would need fire to cook meals and tools for killing animals. Under one theory, cooking of food is necessary for our current level of intelligence, so we could not give that up.

We can’t know how our current predicament will turn out. Logic says that the natural system needs to rest and regroup after Limits to Growth are reached, in one way or another. Perhaps there is a “happily ever after” solution that will include a large number of humans. Unfortunately, it is hard to see what that solution might be.

Guest post by Gail Tverberg of Our Finite World

We know high oil prices have an adverse impact on the economy, often leading to recession. According to Economist James Hamilton, 10 out of 11 of US recessions since World War II have been associated with oil price spikes. But where do continuing high oil prices lead us? How will economic contraction “play out,” if tight oil supply and high oil prices continue?

Figure 1. Structure built with blocks. (Barkless tree blocks from www.childmode.com) Our economy is also built piece by piece, based on the rules and prices that are in effect when individual decisions are made.

Clearly there are many possible ways forward. Using Figure 1 as an analogy, there is the theoretical possibility of continuing to build our economy to ever-higher heights, as we are told by economists and politicians, despite the obstacle of high oil prices. There is the possibility of taking down parts of the economy, and rebuilding in a more fuel-efficient manner. There is also the theoretical possibility of eliminating unneeded parts of the economic structure we have built to date, so that the structure is more compact. And, unfortunately, there is also the possibility that a major portion of what we have built to date will inadvertently be knocked down, as constricted oil supply makes its effects known.

Before discussing what paths may lie ahead, I would like to talk about how contraction of an economy differs from continued expansion.

Economic Expansion vs. Economic Contraction

It is easy to assume that economic contraction is similar to economic expansion, just with the sign reversed, but anyone who has lived through the last few years knows that this is not the case.

For example, on the way up, it appears that the size of the current economic system easily “scales” upward, as the economy grows. The number of available workers gradually rises, as does the number of job openings, and the amount of goods and services produced. Everything rises together, and the system “works”.

On the way down, there is a good deal more “stickiness” to the system. There are now seven billion people on the planet, and they all would like to eat on a regular basis. There are perhaps two-thirds as many potential workers, and most of them would like to have jobs, even if the economy is contracting, and their particular job is disappearing.

Another issue is that we have built millions of miles of electrical transmission, oil and gas pipelines, water and sewer pipelines, and roads. It becomes difficult to abandon parts of these systems, even if total resources for maintaining the system are constricted. If we think of the situation in terms of tax dollars (or charges by utility companies), it becomes increasingly difficult to collect enough tax dollars (or utility charges) to pay for the inflated cost of replacing worn out roads, pipelines, and electrical transmission, as the rising price of oil makes these costs rise much more rapidly than salaries.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Another issue is debt repayment (Figure 2). We are used to an ever-expanding economy, where future goods and services produced will always be greater than those produced this year. As long as this growth pattern persists, our system of long-term financing of major expenditures, even if the expenditures are not really income producing, can continue. For example, we are able to buy homes with 20 or 30 year loans, and governments are able to continue borrowing, claiming that they will have more funds to repay loans (with interest) in the future. Once the situation changes to a shrinking economy, it becomes much more difficult to repay loans, and the financial system quickly reaches the risk of collapsing, due to multiple debt defaults.

A related issue is that of financing a new or expanding company. If the economy continues to grow, investment in a new company is likely to make sense because the value of the company can be expected to grow as the demand for products of the type it sells continues to grow. But if it becomes clear that the economy is on a path of long-term contraction, the possibility of failure within a few years rises, so new investment makes much less sense.

Where may continued high oil prices lead?

1. Widespread loan defaults, leading to far less international trade and the manufacture of fewer high-tech goods.

This is my personal view as to a likely outcome of continued high oil prices, unless some approach is developed that will somehow allow economic growth to continue, despite limited oil supply and high oil prices. Renewables at this point are higher priced, and not helpful in this regard.

In this situation, widespread loan defaults would lead to impaired credit availability and difficulty in arranging international trade. Individual countries would presumably continue to issue their own currency, so local trade would continue. In the new environment, countries with debt default problems, such as Greece, would likely have difficulty buying oil (and other scarce goods) without something (besides Drachma) to trade in return.

With limited international trade, there would likely be disruptions to oil and gas extraction, since workers and equipment are traded internationally today. At some point, it may be difficult to make high-tech goods like computers, because of the difficulty in assembling the many inputs from sources around the world.

Political disruptions would seem to be likely as well. Some countries may even see civil war. Some countries may even break into smaller units, similar to the way the Soviet Union did in 1991.

The timing is not clear, but disruption could come as soon as the next few months. The current problems with debt defaults in Europe would seem to have the possibility of spreading to banks and other financial institutions around the world.

We don’t know how much of the system such a contraction would pull down. It seems to me that in the analogy of Figure 1, some vulnerable sections (like Greece) could be pulled down first, with others falling later. Bailouts may help temporarily, but at some point, the bailouts are likely to fail as well, because the underlying problem of restricted oil supply has not been fixed.

2. Planned contraction, with certain parts of the economy left behind.

In this approach, particular unneeded segments of the economy would be discarded. For example, President Obama is planning military cuts. President Obama is also talking about merging agencies and eliminating the Commerce Department.

In a shrinking economy, changes of these types are certainly needed. The problem is that the amount of shrinkage that is being proposed is far too small to have much impact.

Another type of contraction that has been suggested relates to expenditures which seem unnecessary. For example, the US medical care system could be scaled back, because healthcare expenditures in the US accounted for 17.6% of GDP in 2009, far more than for other developed nations. Another area which might be scaled back is animal production on industrialized farms, since corn-fed animals are not good for health, and since the huge amount of meat we eat contributes to global warming. These are just two examples; each of us could name favorite boondoggles to eliminate.

The problem is trying to get agreement on any kind of contraction, such as these. Our current system is the only one most of us have ever known. Most people are not aware of our need for change, and would resist changing what appears to be working at least somewhat well. Employees in the current systems would certainly be unhappy, because they would stand a chance of losing their jobs.

If changes such as these could be made, it would be one way of contracting the current system, hopefully without crashing it.

3. Contraction away from the poles and other areas with bad climactic conditions.

This appears to be a natural approach to contraction.

It takes more fuel to heat homes near the poles. Homes also have to be built more substantially. If we look back at the historical record, populations have tended to be highest in warm climates–India, fairly warm areas in China, and the Middle East. According to scholar Angus Maddison, about 75% of the world’s population lived in these areas in the year 0 AD, and even in 2008, 68% of the world’s population lived in Asia. Northern countries of Europe and America have tended to have lower populations, but higher average real GDP (fueled by fossil fuels).

This past week, newspapers discussed Nome, Alaska’s fuel shortage. They reported that a Russian fuel tanker was being used to deliver additional oil. If oil prices stay high, we will have an increasingly difficult time supporting populations that disproportionately need oil, such as those in very cold areas.

High oil prices may also limit the amount of infrastructure repairs that can be done. If this happens, decisions will need to be made regarding which roads not to repave and which electric transmission lines not to maintain. I would expect that infrastructure that serves the fewest people would be most likely to be subject to cutbacks.  These areas are likely to be in areas that are unattractive for settlement because they are very cold or very dry.

4. A transition back to “old” renewables

In my view, there are two kinds of renewables:

(1) Old renewables, like wood, and small wind and water power that can be replenished with local materials. This category would probably also include draft animals. It would also include solar thermal water heaters, similar to hot water bottles that can be left out in the sun to heat water, since they can be made simply with recycled materials.

(2) New renewables, like electricity from large industrially produced wind turbines, solar electric, and large hydro-electric dams, that require modern technology for building and repairs. Electric cars might also be in this category.

In this section, I am discussing the first of these categories, Old Renewables. One concern is that at some point, perhaps many years from now, today’s whole economic structure will collapse (Figure 1). How this would play out is unknown. Perhaps we could continue to reuse parts of our current system. If not (for example, if difficulties with international trade greatly reduce access to fossil fuels), we may be faced with creating a new economy, based primarily on “old renewables”.

The problem with this outcome is that old renewables are quite limited in their quantity. The world could not possibly support seven billion people. McEvedy and Jones, in Atlas of World Population History, estimate that if human population followed the population patterns of similar animals (gorillas and chimpanzees), world human population would be somewhere in the range of 70,000 and 1,000,000. This was the approximate probable initial human population, about 200,000 years ago.

Human population gradually grew, reflecting mankind’s ability to appropriate resources for its use beyond what its normal role in the ecosystem would allow.  McEvedy and Jones estimate that human populations grew to 1.7 million by 100,000 BC and to 4.0 million by 10,000 BC. Over time, humans gradually increased their ability to operate outside ecosystem boundaries, killing off other species, domesticating animals, and using resources such as water power, wind power, and burning wood and peat. Total world population grew as follows, according to Angus Maddison:

1 AD – 225,820,000

1000 AD – 267,000,000

1500 AD – 438,428,000

1820 AD – 1,041,708,000

How far back population would fall in the case of collapse is not at all certain. As long as humans keep their ability to appropriate resources that might theoretically be shared by other species, their numbers will remain high. This propensity, however, is what leads to the tendency toward renewed growth, and new pressure on resource availability.

5. A transition to “new” renewables

Some people are hoping for a transition to new renewables–”unbuilding” the fossil fuel structure that we have, and trying to build a new one based on renewables instead. This approach may be appropriate for some wealthy individuals, but it is not clear that it has significant feasibility for society as a whole, because the cost of most new renewables is higher than that of the fuels they replace, making the high oil price problem worse, not better. If new renewables drop in price, this situation may change.

The extent of today’s new renewables is less than many people understand. In the United States, renewable energy (including hydroelectric, biofuels, wood burned as fuel, geothermal, wind, and solar) amounted to 5.4% of total energy consumed in 2010, according to BP energy statistics. If we lived on today’s renewables alone, our per capita energy consumption would be roughly equivalent to that of India. India generally does not need fuel for heating, while we in the United States do. Taking into account the differing fuel needs, the average US citizen living on renewables alone would be somewhat worse off than today’s citizen of India.

The other issue that people tend not to be aware of is that new renewables, as they are built and used today, are very much part of the fossil fuel system. They are built using fossil fuels, and they are maintained using fossil fuels. Except for biofuels, they depend on electric transmission lines, and these need to maintained with fossil fuels as well. Furthermore, if we are to maintain electric transmission lines, we need oil to maintain the roads that lead to the lines.

We probably also need international trade to maintain new renewables, because replacement parts use minerals from many parts of the world, and depend on the availability of computerized systems to support production. If financial problems disrupt international trade, we may find that our “renewable” systems degrade quite quickly, because we are not able to maintain them properly.

Nevertheless, there is a possibility that new renewables will soften the economic fall for those who have access to them, especially if issues of repairs can be kept at a minimum. Because of this, new renewables such as solar PV remain a popular choice among people who are concerned about continued economic contraction.

6. The “Just Use Less” approach

If oil prices remain high, this view suggests that finding ways to use less should be our primary response oil limits. For example, responses might include planting gardens near home, getting people to change their light bulbs for more energy-efficient models, and building more fuel-efficient cars.

While this approach has merit, it is not clear that this approach, in and of itself, is more than a small part of the solution, because of the bigger picture issues that are causing major strains on the system. Saving fuel in one place puts financial strains on other parts of the system. For example, a utility that fails because of bankruptcy could reduce electricity availability. What appear to be frivolous uses of our current systems (for example, game playing and downloading movies over the Internet), help to keep costs down for more serious users. Because of the complexity of our current system, savings in one area could cause problems in another section of our economic structure.

Thus, this approach would shrink some parts of Figure 1. While this may somewhat work, there is also the possibility that this shrinkage will by itself cause strains or actual breaks in other parts of the economic system.

—–

All in all, we do not have firm answers. Instead, we have a number of views of how the downturn due to high oil prices may proceed, and appropriate responses to it.

This is a guest post by Dr. Gary Peters via Our Finite World. He is a retired geography professor.

Historically people have shifted their belief systems in various ways. The Greeks and Romans believed in numerous gods and goddesses and attributed all kinds of powers to them. Then the great monotheistic religions came along and people began to believe in just one god, though they honored him under different names.

Recently, beliefs have shifted again, with people worshipping just one part of a god, the invisible hand. Thanks to Adam Smith and those who followed him, especially the current neoclassical economic theologians, we have seen such an increase in the world’s wealth and sheer numbers that it is hard to imagine life before the industrial revolution, with its shift from mostly human and animal muscle power to the energy dense fossil fuels—coal, oil, and natural gas. It is also hard to imagine that humanity could someday slide back into another age of scarcer and more expensive energy, but that is a possibility that cannot be excluded from our thinking.

The Faustian Bargain

What about the Faustian bargain? It remains deeply hidden from view because its exposure by the high priests of modern economics would force us to rethink how we live and why we live this way, as well as what we’re planning to leave for future generations. The Faustian bargain goes something like this: Thanks to the discovery and exploitation of fossil fuels, humans (really just a small minority of them) are able to live richer lives today than even the queens and kings of yore could have dreamed of.

Furthermore, we’ve used some of those finite resources to increase food supplies and to expand the human population, which provides the economic system with both more workers and more consumers, a necessity to keep the economy growing under our current economic model. The world’s population increased from 1.6 billion in 1900 to 7 billion today, and we add about 80 million more each year. Humans have quickly become the most numerous megafauna on the planet.

The other side of the bargain, the side hidden from view and never mentioned in economics texts is this: At some undetermined time in the future, one that creeps ever closer, this economic system, fed by energy and other resources at ever increasing rates at one end and spewing out waste products at rates that cannot be absorbed by Earth’s ecosystems at the other, is unsustainable. What that means is simple enough: Industrial society as we know it cannot go on as it has forever—not even close.

Our economic system must exist within Earth’s finite limits, so recent and current generations have sold their soul to the devil for temporary riches, leaving the Devil to collect his due when the system falls apart under its own weight and the four horsemen of the apocalypse ride again across the world’s landscapes. None of this will happen tomorrow or this week or this year, but our economic system is faltering at both ends.

For many, if not most, of the world’s population life may become more difficult, incomes lower, and uncertainty greater. It does not mean the end of the world, as some predict for 2012, but it will mean that future generations probably will not live like current ones. Rather than admit that the current system cannot be sustained, the affluent and powerful will do everything possible to maintain the status quo.

The Fallacy of Long-Term Economic Growth

Economic growth remains a mantra for politicians and corporate leaders, including the banksters who brought us the Great Recession. Even President Obama, like presidents before him, speaks regularly about “growing the economy.” But nothing in the real world suggests that economic growth can continue forever. Nor does much evidence support the notion that economic growth has been a good thing for either the planet or billions of its human residents. It looks more like a colossal Ponzi scheme.

One of the most optimistic supporters of modern economics and its marvels is Tim Harford, who wrote, in his book The Logic of Life, “The more of us there are in the world, living our logical lives, the better our chances of seeing out the next million years.” This may be the dumbest thing an economist has ever written and he shows not even the slightest understanding of the planet on which we live. Homo sapiens has only been around for about 200,000 years, so another 800,000 years at the rate we’re going seems absurd. If our population were to continue to grow at an annual rate of only 1.0 percent, slightly less than our current growth rate, then our numbers would increase to over 115 trillion in just the next thousand years. You can play with the growth rate if you wish, but you cannot escape the cold hard fact that human population growth must stop. Only economists seem to miss the fact that economic growth must stop.

Among the high priests of modern economic theology, Paul Krugman came closer than anyone to admitting that growth could not go on forever on our planet. In an Op-Ed piece in the New York Times (12-26-10) he wrote, “What the commodity markets are telling us is that we’re living in a finite world [my italics] ….” He went on to mention the possibility of peak oil production and even climate change, both of which threaten the modern economic system, but then, returning to the faithful fold, he wrote, “This won’t bring an end to economic growth….” He admitted that our lifestyles might have to change but gave no clue about where and how that might come about or where it might lead.

Economic reality and economic theology don’t fit together very well. In 1988 Edward Abbey wrote, in his book One Life at a Time, Please:

It should be clear to everyone by now that crude numerical growth does not solve our problems of unemployment, welfare, crime, traffic, filth, noise, squalor, the pollution of air, the corruption of our politics, the debasement of the school system (hardly worthy of the name ‘education’), and the general loss of popular control over the political process—where money, not people, is now the determining factor.

Today, 24 years later, virtually every word of Abbey’s statement is truer than ever, yet politicians and economic theologians continue to preach that if we can just grow the economy (local, state, national, and world) then all will be well again. You need not look far or deeply to see how wrong they are and what price we’ll pay when the Devil comes looking for our collective souls.

Among economists, Herman Daly is one of the few who has tried to reveal the Faustian bargain for what it really is, as is apparent in this statement from a Dec. 26 article, Rio+20 Needs to Address the Downsides of Growth:

Even though economies are still growing, and still put growth in first place, it is no longer economic growth, at least in wealthy countries, but has become uneconomic growth. In other words, the environmental and social costs of increased production are growing faster than the benefits, increasing “illth” faster than wealth, thereby making us poorer, not richer. We hide the uneconomic nature of growth from ourselves by faulty national accounting because growth is our panacea, indeed our idol, and we are very afraid of the idea of a steady-state economy. The increasing illth is evident in exploding financial debt, in biodiversity loss, and in destruction of natural services, most notably climate regulation.

As a geographer, I look for signs in my local cultural landscape that look ominous, from potholes in streets to for sale and/or for lease signs strewn around our city like leaves after a storm. Ours is a small city, with about 30,000 residents, yet our city manager, in an end-of-the-year report, pointed out that we would need some $80,000,000 to repair our current infrastructure, a figure out of all proportion to our physical and residential size. That amounts to nearly $2,700 for each man, woman, and child. He also pointed out that our city is operating with below necessary numbers of police, fire, and emergency responders. The potholes will get larger in 2012 and beyond.

Though these and other problems are widely distributed across the nation, I think the infrastructure issue alone is symbolic. The U.S. is becoming a “pothole culture,” one in which the pothole is a symbol of our inability to accomplish all kinds of things any more. (See recent New York Times article.) Other nations are on their way as well.

Despite the continued whirring of the world economy, most people here and elsewhere are not getting anywhere and are feeling jilted by the system they’ve depended on for decades because they thought it could be sustained forever. It cannot, but that doesn’t mean life cannot go on, it means, instead, that we need to move in new directions, but we won’t do that until we understand what is making so many people so unhappy. We need to realize that instead of believing bigger is better we need to decide to favor better over bigger, quality over quantity, less over more.

Two examples illustrate the point that the world economy has exceeded both Earth’s ability to provide ever more inputs and its ability to absorb and purify excessive wastes. Crude oil is a good example of the first; carbon emissions and global warming good examples of the second. Both were mentioned by Krugman, but he provided no details about how we might deal with either issue, nor did he say how economic growth would continue without confronting these and numerous other raw material and waste issues.

First Example of Limits to Economic Growth: Crude Oil

Given that most Americans have a knowledge of history that doesn’t go back much over a month or two, it is no surprise that they cannot conceive of a time without cars, gasoline (preferably cheap), and a pattern of settlement that requires the use of both—our modern suburban landscape. For many years the U.S. was the world’s largest producer of crude oil and the largest exporter of it as well. In 1970, however, our oil extraction reached a peak and then started down hill. We became an importer of oil and today import more oil than any other nation, even though we still produce lots of oil and our extraction has been increasing in recent years.

Since about 2005 the world’s extraction of crude oil has been almost flat, despite prices that rose at one point to around $147 per barrel. Though we may not know for a while whether the world has reached its peak oil production or not, we do know that it will. In the meantime we know that traditional oil fields are getting more and more difficult to find, are harder to get to, and will be more expensive to develop. Alternative sources of oil, such as the Athabascan tar sands, are abundant but also expensive to develop and environmentally undesirable. Substitutes for gasoline, such as corn ethanol, are not only nonsensical from either an environmental or an economic viewpoint, they are also diverting food from humans (mostly via animals) to SUVs, driving food prices upward.

Figure 1 below, by mathematician Tom Murphy on his Do the Math blog, in  post called, The Future Needs and Attitude Adjustment, provides a deeper historical perspective on oil production and industrial societies.

Figure 1: Image by Tom Murphy. Original caption: “On the long view, the fossil fuel age is a blip, with a down side mirroring the (more fun) up side.”

You don’t need any knowledge of either deep history or the unpredictable future to get the point of this graph (unless, of course, you are an economist). Like Earth itself, the supply of crude oil is finite, even if we don’t know exactly how much is there, where it all is, or how much of it we can ultimately recover. Though we can tweak this curve, argue about its shape, and nibble along its edges, the basic fact remains: World oil extraction will reach a peak, probably sooner rather than later. After that, extraction will decline, though along what kind of curve we don’t know for sure. Just as the Stone Age did not end because of a lack of stones, the oil age will not end because of a lack of oil. Rather, it will end because what is left of the oil supply will at some point cost far more than it is worth; it will take more energy to extract it than we would get from it.

Knowing this, the prudent course would be to wean ourselves from this energy source as soon as possible, in order to treat our addiction before it is too late. However, we live in one of the most competitive periods in world history. Not only do Americans not want to be parted from their cars but millions of Chinese, Indians, and others are lining up to get their first taste of “the freedom of the road.” That is one of the reasons why, despite a sagging world economy and lower crude oil consumption in the U.S. in recent years, the price of crude oil has hovered around $100 per barrel through most of 2011 ($98.83 on Dec. 31).

Second Example of Limits to Economic Growth: Carbon Emissions and Global Warming

Burning fossil fuels to provide energy at the input end of our economic system results in a combination of outputs or waste products that cannot be removed or neutralized quickly enough by our ocean and atmosphere. That leads to an increasing amount of gases and particulates gathering in both, changing the chemistry of both the ocean and our atmosphere. Among the gases is carbon dioxide, a greenhouse gas that we know plays a role in how Earth’s atmosphere is warmed. Adding more carbon dioxide to our atmosphere is analogous to turning our heater up a little—we get more heat.

We know that the carbon dioxide content of the atmosphere has gone from about 280 parts per million around 1850 to 390 parts per million in 2011, an increase of just over 39 percent. Though we did not discover how to measure the atmospheric content of carbon dioxide directly before the mid-1950s, we do have a careful record of what it has been doing since then, as shown in Figure 2 below (from Wikipedia):

Figure 2. The Keeling Curve of atmospheric CO2 concentrations measured at the Mauna Loa Observatory. (From Wikipedia)

It is hard to miss the upward trend in the carbon dioxide content of the atmosphere since 1958. Few scientists would identify a source for this trend outside of humans and our burning of fossil fuels. Figure 3 below  shows how much more carbon dioxide humans are adding each year through the burning of fossil fuels, setting a new record for emissions in 2010 (source):

Figure 3. Greenhouse Gas image from Yahoo News

It also shows the major contributors, China and the U.S. The failure of the U.S. to lead the world toward an economic system less dependent on fossil fuels is monumental. Modeling shows that rising carbon dioxide emissions can be expected to lead to global warming.

Conclusions

Though causes and effects may be difficult to connect, the outbreak of protests around the world in 2011 doesn’t seem coincidental. From the Arab Spring, to Greece and other European countries, to the Occupy Wall Street movement in the U.S., and even to demonstrations in Russia, people have taken to the streets to protest governments, corporations, and policies that are affecting their lives in negative ways. TIME magazine in 2011 chose “The Protestor” as its person of the year.

The are several reasons for people to be angry and upset. High oil prices and more extreme weather conditions have been driving food prices upward and high gas prices act as a tax on consumers, slowing modern economies. In addition, in the U.S. awareness has grown that most of the gains of economic growth are going to the top one percent (or less) of the population. Figure 4 below from Mother Jones (“It’s the Inequality, Stupid,” by Dave Gilson and Carolyn Perot, March/April 2011) says all one needs to know about inequality in the U.S. today.

Figure 4. Average Income Per Family Distributed by Income Group. (From Mother Jones)

Figure 5 below from the Congressional Budget Office shows how things have changed for different income groups in recent decades in the U.S. Citizens who are not in the top 1% are coming out very much worse than those at the top, whether they realize it or not.

Figure 5.

Even as nations continue to prop up banks and the Fed plays games with trillions of dollars, the general feeling seems to be that the “pothole culture” or its equivalent is spreading, that the benefits of what economic growth there is are not being shared equitably, and that many places cannot even maintain what they have in terms of infrastructure. Frustration is widespread, and much of it seems connected to what may be first signs that our modern industrial economy is breaking down. An analogy might be those first tiny pools of oil that you start to see under your car, warning you softly that things may be going wrong.

Unless humanity recognizes the bargain we’ve made with the Devil, and soon, we’ll saddle ourselves or posterity with paying the Devil his due. We cannot treat our current addiction to fossil fuels and economic growth until we admit we have them. Perhaps the best advice I’ve seen lately came from John Greer, who wrote:

Right now, as the limits to growth tighten around us like a noose and an economy geared to perpetual expansion shudders and cracks in the throes of decline, one of the things that’s needed most is the willingness, in a time of gathering darkness, to locate what lamps can still be found, and light them.

Is anyone out there listening? You can bet the Devil is!