Wednesday, October 24, 2012

United States = Saudi Arabia?

And not just because both are chock full of religious wackos. This article by the Associated Press is getting some attention: U.S. Poised To Become World's Top Oil Producer; May Soon Overtake Saudi Arabia.

When it comes to Peak Oil, it seems both camps have things to point to that they are right about.

1.) Technological innovation really has made more energy supplies available to us. Note that the innovations do not include any fundamental new ways to generate energy apart from fossil fuels, just that we can access fuels that were not previously accessible. Also note that many of these technologies were developed years ago, and are only being deployed now.

2.) U.S. domestic fossil fuel production is rising relative to the rest of the world. Certain fuels, such as natural gas, are very cheap right now.

3.) There are some major new discoveries which are now accessible.

4.) We are getting more efficient with things like cars, buildings, etc., and new economic activities are less energy-intensive.

1.) Additional fossil fuels take much more effort/cost/resources leading to higher energy prices overall. High prices are actually required, in fact, to make these methods viable.

2. These techniques are hideously environmentally destructive, from injecting toxic chemicals into the earth and water to putting massive amounts of carbon into the atmosphere, wreaking havoc with the climate.

3. Competition for the remaining fossil fuels from developing economies will keep driving the prices high. The US still has to import fuel to meet its needs.

4. You have to add in biofuels which are net energy sinks, take valuable cropland out of production and have less embodied energy.

5. Growing biofuels and fracking use a lot of water. Will we have enough?

Of course, no matter how much we drill, all hydrocarbons will eventually become depleted anyway, and if spend all that hydrocarbon fuel growing our economy we’ll be in an even worse predicament when they run out, which they will. How will we cope in a bigger, even more polluted world? Is it worth it to keep the status quo going?

And if you know the Vicious Circle Principle, you know that increasing energy just creates the conditions for economic and population growth, leading to another inevitable period of scarcity, and with an even worse shortfall and more dire consequences down the road (leading to more innovation, and the circle turns again...)

One thing's probably true though - people who predict a fast crash of the U.S. economy due to energy shortages are probably off the mark, as well as people who predict rapid changes in lifestyle being forced upon Americans. This includes Dmitry Orlov, John Michael Greer and James Howard Kunstler. Three thousand mile supply chains are still not a good idea, but I don't think the shelves are going to be empty overnight, or the combines stop turning in the fields.

I’m of the probably minority opinion that our economy will crash and fail to its fundamental problems rather than any kind of energy shortage in our lifetimes. This puts me in a minority camp, I suppose.

Consider the Great Depression. In the 1930’s, the United States was the Saudi Arabia of oil. Yet despite being awash in energy, a quarter of people were unemployed with widespread poverty and misery. Farms were going bankrupt, workers were selling fruit on street corners, factories sat idle. Obviously none of this had to do with energy shortages. This leads to my rule, below:

Sufficient energy does not guarantee a functional economy.

Corollary : Energy shortages all but guarantee a non-functioning economy.

In other words, your economy can be fucked up by a lot more than energy shortages and high prices.High prices can theoretically be absorbed.

People of the United States have been experiencing declining living standards now since the 1970's well before the advent of Peak Oil. Some people say that the U.S. domestic peak was the cause of that. I disagree. Remember, correlation does not equal causation. If that were the case, then how do you explain that Germany and Japan (I'm omitting Britain because of the North Sea), countries that import nearly all their oil, continued to have thriving middle classes, even as ours was gutted like a fish? The average German had a higher living standard in 1980 then in 1930, when Germany passed Peak Oil. As long as you can import oil, you can continue to raise living standards and incomes. Of course, once global peak passes, this may change. No, the reason Germans continued to maintain a middle class society when we did not is because of political choices. We chose offshoring, union-busting, "staving the beast," tax cuts for plutocrats, mass immigration from poor countries, H1-B visas, financialization, predatory health care, and a host of other things that all but insured the middle class was toast, Peak Oil or not. Even if we really did have all  the oil we needed domestically, there will still be overall less jobs, more debt, less pay, longer hours, less vacation, more expensive health care and housing, and so on.

The economy will continue to falter for a number of reasons which have nothing to do with Peak Oil:

- Insufficient opportunities for people to sell their labor. Surplus labor greater than that in all of human history combined. Competition among all the world’s workers driving wages down. Efficiency sidelines ever more workers with no opportunities for supporting families or advancement. According to figures, 600 million new jobs are needed worldwide for population growth. Anyone living in the real world knows that will never happen.

- Only low-wage/temporary/scut jobs are predicted grow and will be the only employment avenues for the majority of people.

- Unfathomable chasm between rich and poor, slowing growth. Increasingly two-tiered societies will reject any idea of a shared commons, causing conflicts as the rich pay for everything “out of pocket” and the poor are left with no access to basic services (schools, libraries, health care, etc.). Breaking the back of unions and lowering workers' pay will prevent the natural mechanisms in the economy from absorbing higher energy prices, leading to a worse situation than necessary, especially in the U.S.

- Technological plateau preventing the rapid growth of the past. Low-hanging fruit of innovation has already been harvested. New inventions will be prohibitively expensive, low marginal utility, and new industries will only employ a small number of specialists.

- The globalized economy will continue to suck up all the world’s wealth and deliver it to a handful of super-rich based in a handful of financial centers. The super-rich will be a nation unto themselves,with no loyalty to the country of their birth, its government, or its citizens.

- Governments will continue to go bankrupt because future revenue streams will not materialize. The rich will continue to play regions against one another and hide money offshore, depriving governments of revenue. Necessary infrastructure will continue to deteriorate.

- Breakdown of the rule of law in legal affairs as governments become co-opted by the rich. Frauds and scams will proliferate and undermine the trust required to make economies function properly. Laws will be determined by the biggest bribe or campaign donation, rather than fairness or equality under the law.

- Increasing consolidation of big globalized corporations. Monopolies, monopsonies, oligopolies, anti-competitve practices, corporate welfare, bailouts, and all sorts of other “distortions” in the market. Central planning by a handful of producers worldwide, except with profits flowing to a small elite. Small businesses will be bought up or put out of business.

- The natural tendency of the rate of profit to fall as described by numerous economists. Increasingly diminishing returns.

- Oversupply/glut of consumer goods piling up on shelves with inufficient wages to buy them.

- Funding models for non-scarce goods like internet/music are destined for failure. Draconian methods to enforce artificial scarcity, like copyright policing, will harm the economy.

- Expenditure cascades will force the poor to pay more for everything, even in a declining economy.

- Governments continue to embrace "austerity" by gutting their societies in order to make debt repayments to already wealthy banks and bondholder classes. Diminishing of human capital will most likely be permanent.

- Higher education available only to the rich. New hereditary aristocracy forming based on ownership of assets. General population reduced to virtual peasanty.

- Public government goods replaced by rent-seeking and extractive institutions. Infrastructure sold off and essential government services "privatized" as part of Neoliberal economic orthodoxy.

- Shortages of other key materials such as rare earth elements, copper, helium, water, phosphorus, etc.

- Climate change leading to bad harvests, massive property destruction, increased health costs, etc.

- Soaring housing, health care and education costs, especially in the U.S. where education and health care are predatory industries based on profit rather than public utilities.

- Increased health care costs due to more pollution, more stress, unhealthy food, an aging population, medical advancements, etc.

- Extreme social instability due to the above. Nationalist/fundamentalist/proto-fascist parties already gaining in popularity around the world.

- The growing repression and police state required to keep citizens docile will eat up resources from elsewhere. The incarceration rate in the U.S. is already higher than any civilization in history. Out of control military spending will divert needed resources from economic activities that enhance future living standards rather than blow people and things up.

As we saw with the Robert Gordon paper which we covered here, we do not need to bring in Peak Oil at all to our analysis to see that our economic system is in serious trouble and is falling apart. Now you know why we spend a lot of time covering things like the growing gap between the rich and the poor, the encroaching police state, automation and joblessness, and the lack of any new technological innovations to magically turn the economy back to 1955. In my opinion, those are even more dire than the Peak Oil situation.


  1. Might it be that what's different about us vs. Germany or Japan is that we've been, on some level, and extractive state while they haven't been? Many of the characteristics you list are true of extractive states around the world (as you mentioned in a previous post), and now that the other industries that were pillars of the U.S. economy are gone or a shadow of their former selves, we're left with mainly a) extractive industries and b) information industries (i.e. tech, finance).

    Greer made the case that globalization is rooted in reversing the trend towards automation, and so given the resource base of the U.S., we've gotten ourselves into a tight spot, where the boulder of globalization got rolling too fast for it to be stopped and as a result left only extractive industries and financial shenanigans as options to keep the country moving. I.e. these issues (both the ones you list and peak oil) have been creating a positive feedback loop.

  2. I'm not sure this is a direct reply, but just a couple of thoughts:

    I would say every society goes through periods when there a lot of opportunities for innovation and "frontiers" for growth. This is especially true in America. Imagine moving to a newly settled Midwestern town and being the first lawyer. Or the first chartered accountant. Or the first architect. Or opening the first general store or lumber mill (or auto body shop or anything, really). Pretty hard not to get business and make money, right? And if the town became saturated, you just moved farther west to, say California or Portland or Seattle. Now imagine doing any of those things today in a major American city (Chicago, Seattle, Portland, etc.). Not exactly the same. Good luck going up against Wal-Mart or Home Depot, or against X Law or architecture firm with millions of dollars in billings and thousands of established clients with preexisting relationships. It's a first-in gets the spoils situation. Imagine a world where even the flush toilet or paperclip has yet to be invented. I noticed in most towns and cities that the wealthy and prominent families were were always the descendants of the people who got to these opportunities first. Their offspring had the head start, and plied that into hereditary dynasties (and often obscured the family's ultimate wealth source). This often explains why so many people of average intelligence seem to have money for everything, and don't even have to work.

    At one point everywhere was like this, even in Europe. But in America, this came far later and lasted far longer, giving Americans the Horatio Alger, anyone can be rich mentality they have today, completely naive of course in an era of corporate/financial gigantism. When saturation hits, it becomes a zero-sum game, and elites can only grow by taking from those below them, which is where we are now. I think there's a cultural difference between Japan and Germany here. We think we don't need a safety net and the frontier never closed. The Germans and Japanese, having been through a tumultuous twentieth century, know better.

    As for extraction, I always remember seeing a reporter on PBS (Moyers' show, maybe?) at an American West Coast port noting that raw materials were leaving the U.S. and manufactured products (mainly Chinese and Japanese) were coming back in. Note that this is the exact inverse of how the British Empire got rich - by importing raw materials from its colonies (often produced by literal slave labor), and exporting manufactured goods by highly skilled British labor. Germany and Japan still hold onto this model; Britain and America relied on finacialization, which always does two things reliably - 1.) siphons the money to the top and 2.)crashes.

  3. This comment has been removed by the author.


Note: Only a member of this blog may post a comment.