I recently discovered Gail Tverberg’s Our Finite World Blog which explores the longer term issues that face us in a post peak oil and AGW world. Her blogs expertly point out and explain why our current global recession is a direct result of the end of cheap and abundant oil and that the current plateaux of growth and oil production will ultimately turn into a decline.
There has been much debate as to what that decline will be: will it be less than 3% = not too bad, or more = bad; yet if one were to listen to politicians in any country and the economists that advise them then any kind of long term decline is not going to happen. It may seem madness to assume that oil will continue to gush out the ground in ever greater amounts for an ever growing global population in an ever growing world economy but the arguments in favour of this our loud and prominent.
The voice of un-reason goes like this- there is plenty of oil and gas, and we are better at finding it and getting it out of the ground. Even without climate change this logic is flawed. The rational conclusion is that oil [and other fossil fuels] is entirely linked to the last 200 years of population, innovation and economic growth so without the fuel of growth there won’t be any. Where next in a world without growth?
Initially I started writing this blog mentioning how China and Russia have lent the baleouts to us in the West, I commented on how this relationship between China and the West was ultimately doomed. We bought goods with Dollars, Sterling and Euros then went into debt and were lent the money back by China so we could carry on shopping. Quite clearly it is a doomed relationship. But once I got to the topic of financial markets that have invented products to keep the notion of growth going my head started to get confused.
In simple terms what we know as growth and prosperity has been driven by oil so naturally when the oil starts to decline in output so does global growth. The recession we are currently in is nearing 5 years which is a record, and the oil price is at an all time- long term high, yet the oil producers are unable to increase demand despite the continued rise of Brazil, India and China. The optimists will say there is nothing to worry about, there is plenty of oil, in fact trillions of barrels in Canada but the easy oil is gone. The stuff left over, the undiscovered fields in the Arctic and the deep water wells in the Mexican Gulf are expensive, really expensive and not only that these difficult to get reserves don’t have a tap as big as the old oil fields.
Peak oil was never about running out but the bigger picture is the end to the easy growth we have seen over the last fifty to a hundred years. Slow or no growth is a bigger issue than more expensive petrol or electricity, its biggest consequence is the inability of governments to pay back debt. Greece is the current demonstration of what happens when debt cannot be repayed. Even the current Greek crisis is far gentler than the next global crash because Germany is committed to maintaining the Euro and is a lender and as such the Greeks are still being lent money to payback interest on its debt. There is also universal optimism shared by most if not all politicians and economists that things will return to the growth experienced in the past and it is this infectious economic outlook which means that lenders continue to lend. If, however, growth grinds to a halt those debts will not be paid back which in turn means governments will be unable to borrow which means that tax incomes will have to match spending. We won’t be descending into chaos where money is a thing of the past but our currency will be devalued making imported goods and energy even more expensive. Projections of gas prices rises are a doubling over ten years but this is on the international market: if the pound is massively devalued then that gas will cost even more.
The lack of flexibility in government income means that sudden increased unemployment, caused by ever rising fuel costs for instance, will mean increased welfare spending will have to come from other government spending. With such pressures on spending it will be difficult for the UK to maintain such a big military or free libraries or arts grants or free t.v. licenses for pensioners.
Peak oil [indeed peak gas and coal] is not just about energy bills and the amount of driving any one can afford to do it will be about the end of growth. I doubt very much that the wealthiest people or countries will be happy to go down with the rest of the world but the fight for resources is in a world where China, Russia and the developing world and especially amongst the oil producing nations will be impossible. America is one of the few countries with the military might to continue to demand its huge share of global resources but just like Rome 1500 years ago it will not be able to compete with small nations surrounding it. Military conflict consumes even more resources than normal so ultimately a domineering military becomes self defeating.
How can the world’s politicians and economists be so blind to the blindingly obvious? Some countries are not so blind: Germany is investing heavily in renewables and has been in negotiation with German industry to come up with solutions. The main innovation will most probably be the storage of surplus solar and wind energy as hydrogen to either make into natural gas or to power a new technology in transport. It is expensive not only in the cost of investment but also with Germans paying the highest price for electricity in the world. Other nations seem hooked on the illusion of growth and it is ultimately a comforting illusion.
The illusion strongly held by economists is that we will find a way, that we will either find oil in places we haven’t looked and/or develop new technologies to extract it or we will invent a new energy source like fusion. Energy producing countries boast of reserves that will last decades if not centuries, apparently Saudi oil reserves remain the same after 25 of extraction and China’s coal reserves will last 70 or more years. Yet back in the 70s I remember being told UK reserves would last 300 years yet 25 years later recoverable reserves were cut by 99% without fanfare or explanation with the remaining 30 years of production declining at a faster rate.
What the 2008 crisis should warn us of is that nations and companies like to sell an optimistic future: Enron, Royal Bank of Scotland, and Lehman Brothers [a company worth over half a trillion dollars] went bankrupt with people completely unaware of their decline. Just like individuals who are unable to pay back debt there is the human condition that pretends that everything is normal and it is one that dates back to at least the 11th century B.C.E: Ramasis III is considered to be the last great Pharaoh, his monuments are huge, his memorials to his deeds daring but despite the appearance of a golden age the reality was of famine and war and the closing chapter of the Great ancient Egyptian civilisation. The civilisation did of course continue but only a former shadow of its self, no doubt historians in the future will look at Britain as the empire that went into slow decline following the the second World War.
One could argue that Britain [and indeed the USA and Europe excluding Germany] has already entered a new period of no growth and if we were to look to history as to what is in store we would see other countries and civilisations tended to react in a similar way. Disturbingly it is the extremes who end up with the most credible voices, it is those who summon up a cultural golden age where god or national purity ensured wealth and prosperity. It is often the voice of blame that condemn the godless of a distinguishable group in society for the decline. Take your pick: it can be Jews or Gipsies or single mothers or immigrants. Already UKip [or your local right wing political party] is trying to exploit the situation with some success and in Greece the neo-fascist Golden Dawn is having greater success as it proclaims Greece for Greeks.
Japan’s stagnation called the Lost Decade which in fact started in 1990 and was only slowly coming to an end prior to the 2008 Crash, is another example of what a long term state of no growth means to people. The end of growth in Japan meant that career aspiration came to an end: no growth meant no career ladder to climb as old workers stayed in employment rather than retire and without companies expanding the prospects of employees moving into more challenging roles was restricted. Whilst there are millions of people happy in their job despite the lack of change the prospects are worse for young adults leaving education; the problem is not just dead end job prospects but on a wider level business is not exposed to bright, young and latest thinking which is an element of longer term innovation.
Politicians are not going to even think about functioning in a zero growth world economy and the answer to try to avoid problems in the future will be costly and result prematurely in disruption of the economy. Currently government incentives to kick start the economy is to build confidence in long term prospects and encourage people to spend and businesses to invest. Left or Right the ultimate vision is much the same with only the means being contested but encouraging people to buy our way into growth will just bring about change quicker.
I don’t profess to fully understand what a zero growth future means, I am sure it is not going to be some Mad Max post apocalypse and I am certain some countries will do well despite the constraints on global resources. Doomsday scenarios of mass famine, war pestilence and plague may ensue but currently global food production could feed almost twice the population, it is just half of it is fed to animals to provide meat. What is more likely is a society with more division with a greater separation between the wealthy and poor: a dystopia much beloved by British sci-fi writers.
The solution is a new politics although it would have zero public support. Without mineral or energy resources the choice are either low tech and low skilled but globally competitive workforce battling it out with India and China for the last opportunities of growth or a highly educated workforce and society.The first step is make education free- the notion that students should be taking out loans in a world where loans are reliant on future growth is madness. In a post peak world we would be foolish not to grow our own energy, as every energy import needs to be paid with a growing slice of the cake that is not growing. The future is about abandoning energy greedy lives and inventing products that do everything for a lot less. Governments could start now just by ensuring house building is green and future planning is matched to work and services. Now seems a perfect time to rebuild the infrastructure whilst we still have giga tonnes of carbon credits, before nature forces a halt, whilst borrowing is still cheap and whilst we still have a small reserve of oil and gas wealth. To squander our resources on tax breaks and keeping people out of work and education is and will be regrettable.
bollocks2012 