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Peak Oil: Surveying The Field And Charting A Course

By Guy R. McPherson

16 April, 2010
Guymcpherson.com

It’s all the rage to talk about a double-dip in the industrial economy. That would be an economic trend in the shape of a W. I think an M is far more likely. The assumption of never-ending growth underlies all neoclassical economic assessments, but I think that assumption is about to break up on the shore of resource limitations.

How does one know what to believe, and who to trust? We’re surrounded by lies. During our finest moments, we don’t believe the media, the politicians we elect (from the very small slate of candidates selected for us), or the CEOs and NGOs to whom we give our money. Awash in misinformation yet surrounded by culture’s unrepentant, never-ending message, we vacillate between cynicism and swimming in the powerful current of culture.

Although the happy-talk Obama administration — and its proxy and partner in crime, the mainstream media — would have you believe the industrial economy has recovered, many signs indicate the impacts of the last oil price spike haven’t been fully worked out. The U.S. national debt rises every day, and it already exceeds the value of all currency ever produced and all gold ever mined. It cannot be paid off. Ever. If the notion of a Soviet-style default doesn’t give you pause, consider still-rising foreclosure rates, still-falling home prices, massive unemployment, financial bankruptcy at all levels of government, ballooning entitlement programs, and collapsing pension programs. This is merely the short list of economic issues we face. Needless to say, every single one of them is a profound surprise to the vast majority of neoclassical economists, few of whom saw this economic recession coming (as if passing the world oil peak didn’t provide sufficient warning, well in advance).

Knowing culture will lead us astray, we nonetheless invite scorn when we seek the truth beneath the cultural current of the main stream. Culture does not have answers to meaningful questions. But skepticism for the sake of skepticism is no virtue, either.

Applying reason as a path to knowledge (as I’ve suggested here and here, for example) is easy enough in theory. But in practice, it’s difficult to extract the facts and then synthesize them into a coherent message that guides the way. Much less the Way. And yet, we muddle along, individually and societally, relying on some inexplicable combination of faith and rational thought. For me, the guides include data (recognizing they are undoubtedly massaged before general release), historical anecdotes (ditto), my own dubious moral compass (shaped, necessarily, by culture), and an informed set of predictions from a variety of scholars. As with any gestalt, mine is formed from parts that don’t quite add up to the whole.

So how do we go from this list of economic issues to the notion of economic collapse? I’ve moved from imperialist city educator to economic doomer rural sharecropper in one (damned difficult) step. This move was driven by many factors, including the profound (and profoundly late) realization that we live immorally, buying and selling nature’s bounty at an imperialist whim. Another contributing factor was my strongly held suspicion that we’re headed for a collapse of the industrial economy by the end of 2012. If the industrial age does not end soon, we’re headed for the complete absence of habitat for humans on Earth. Obviously, there is plenty of disagreement with me on both points, and I’ve been asked to make my case. What tea leaves do I read?

I restrict this essay to economic collapse, thus leaving the issue of environmental collapse to previous posts (and perhaps future ones). The data on collapse are clearer than the rest of my guides, so I’ll start with them.

The data interact with other elements: History indicates 10 of 11 recessions since World War II and all 6 recessions since 1972 were preceded by a spike in the price of oil. The lifeblood of civilization, and its price, dictates the direction of the industrial economy. At some point, the price of oil becomes too great to maintain the industrial economy. In fact, a per-barrel price of $147.27 nearly brought the industrial economy grinding to a halt. Only massive, and massively illegal, intervention by the executive branch of the U.S. government kept the lights on in your grid-tied house, the trucks coming to the grocery store, and water coming out the taps. These actions have been written about widely. A quick search on “plunge protection team” is a nice starting point, although the issue is far broader than even omniscient Google reveals.

For information about oil supplies, I rely on Hubbert’s model and data from the U.S. Department of Energy’s Energy Information Administration (EIA). Hubbert’s model indicates we passed the world peak for crude oil in December 2005. Data from the EIA indicate peak month was May 2005. Because the industrial economy is barely limping along today, in far direr condition than when the price of oil exceeded $140, I doubt it will take a second round of $140 oil to bring the industrial age to its overdue close. Several forecasters suggest we’re headed beyond that mark with a year or so.

A little more from history: Empires fall. All of ‘em, so far. Some fall slowly, others rapidly. Some fall with a modicum of grace, others with extreme violence. American Empire is so complex, so dependent on finite materials, and intricately connected with the entire global economy that it’s difficult for me to foresee a long, peaceful decline.

The industrial economy relies heavily on crude oil, and particularly inexpensive oil. We’re perfectly willing to spend $400/gallon for gasoline to support our imperial ambitions in Afghanistan if that’s what it takes to keep the price of oil at a reasonable level for us exceptional Americans. (How exceptional? Check the charts in this essay.) But when the price of gasoline exceeds $4/gallon in the heartland, there’s trouble brewing for our all-important economic growth.

In addition to the near-term price of oil, our empire is threatened by the ever-tightening grip of globalization, which ensures that economic collapse in any of the world’s large economies will lead, domino-like, to economic collapse throughout the industrialized world. This grip was allowed and facilitated by cheap oil, and it’s no coincidence that the end of the cheap-oil era resulted in financial crises throughout the civilized world. Today, Greece is the word. But Portugal, Spain, and Japan hover on the brink (Japan is the world’s second-largest economy). So does the U.S. and the remainder of the industrialized world, though you’d never know it based on mainstream media reports from this country. We have the advantages of the world’s reserve currency and the largest killing force in the history of the world (and the willingness to use it, everywhere, all the time). But when China stops buying U.S. Treasury notes, a process already under way, the de facto rate of interest will rise, taking us inexorably and likely quickly into the land of hyper-inflation. At this late juncture in the industrial era, the only questions of great significance are whether our bubble will pop before China’s, and which of myriad potential events will serve as the proximate cause to the end of American Empire. The price of oil was a trigger event, and it might be again. But it might not, too.

As far as my moral compass is concerned, I’ve written plenty about that. There’s no need to pummel the deceased equine yet again. Check the archives, if you’re interested. Or, for a different take on the situation, read this.

So much for the models, data, history, and my sense of morality. What about those voices I hear words I read?

When I open my browser to start the day, several tabs reveal themselves. Some of these websites give the facts, as accurately as they can be determined: Bloomberg energy prices, American stock markets, and the U.S. national debt clock. Others are information clearing houses with occasional original essays, notably including the sites of Matt Savinar, Mike Ruppert, Rice Farmer, and Chris Martenson, along with Energy Bulletin, Counter Currents, and The Oil Drum. Others provide synthesis and analysis: Business Insider, Baseline Scenario, Dmitry Orlov’s blog, Speak Truth to Power, Economic Collapse Blog, The Automatic Earth, and Zero Hedge. Finally, one tells me what people are thinking out there in the culture of make believe: MSNBC. Needless to say, that’s the scary one.

I’m not foolish enough to read every article, much less read every article linked from these pages. But there is plenty of fodder here, much of it informed by biophysical economics. Biophysical economists, unlike neoclassical economists, know about finite materials. As a result, the former know starvation can kill people. Any self-respecting neoclassical economist assumes the rumbling of his stomach will cause food to appear.

Now let’s pause for a quick story about neoclassical economists.

Four shipwrecked economists wash ashore on a deserted tropical island. The first Asian economist says, “I’ll gather wood and start a fire to keep us warm and cook our food.” The second Asian economists says, “I’ll find water.” The third Asian economist says, “I’ll find food.” The American economist sits down, smiles, and says, “When you’ve got that all taken care of, I’ll consume whatever you produce. You’re darned lucky I’m here: Without me, the entire system falls apart in a hurry.”

Note that confidence among U.S. consumers fell in April. Unexpectedly, of course.

We now return to our regularly scheduled essay.

Among the places these links lead are the following. This summer’s hurricane season likely will contribute to high oil prices. And we might not need the hurricanes: According to the International Energy Agency, world oil demand will set an all-time record this year, exceeding the amount actually being sucked out of the ground by 2.4 million barrels per day. The global financial system is primed and ready to implode. The Fed admits to breaking the law in the name of transferring wealth (and not to me or you). “Real estate built America, and it’s going to take it down. Foreclosures will be the wrecking ball for the American economy.” Recent reports of economic growth are mere mirages from the smoke-and-mirrors cabal behind the curtain (duh). More than half your tax dollars support the military (yeah, that’s sustainable; even an increasing percentage of military personnel is questioning whether they will accomplish their amorphous mission in Afghanistan). Warren Buffett bought the Burlington Northern Santa Fe railroad, calling it an “all-in bet” on the U.S. economy, as if he’d been reading the work of James Howard Kunstler. Buffett’s partner Charles Munger wrote a parable transparently about the U.S. economy titled, “Basically, it’s over.” A large European bank warned its clients about completion of the ongoing collapse by the end of 2011. The U.S. dollar will collapse, causing world economic collapse, by 2012. Catherine Austin Fitts moved from New York City to rural Tennessee to build a doomstead. As should be obvious, “from now on the risk of entering a collapse must be considered significant and rising” (pdf file). And so on. The evidence mounts daily, and it all points in the same direction.

My interpretation and synthesis of these many essays and the data on which they rely suggests the industrial age is near its terminus. How near? Recognizing the difficulty of predictions, and the animus they elicit, I’ll go out on the often-wrong limb of forecast and give us a 99% chance of “lights out in the empire” by 21 December 2012. And I didn’t even look at my Mayan calendar.

Reinhart and Rogoff’s 2009 book, This Time is Different, describes financial crises in 66 nations dating to the 13th century. For a change, I agree with the rallying cry of people subject to previous collapses: This time is different. This time it’s not one of 66 nations. It’s every country in the entire industrial world. Indeed, this time is different.

In short, civilization is only a few days removed from chaos or, if you’re an optimist like me, from anarchy. This has always been the case, for every failed civilization as well as the one left standing. With every passing day, we move further into ecological overshoot and also closer to the end of western civilization and its apex, the industrial economy. For most individual industrial humans, the end will not be welcome. But for the living planet on which we depend, and therefore our very species, the end of industry will bring a welcome relief from decades of oppression. It might even give us back our humanity while granting our species a few more decades of planetary existence.

This essay was inspired by a comment from Marguerite Daisy.

Guy R. McPherson is Profesor Emeritus at the University of Arizona. Educated in the ecology and management of natural resources, his early scholarly efforts produced many publications of little lasting importance. In mid-career, he began to focus on development and creative application of ecological theory, primarily with an eye toward conservation of biological diversity. Currently, his scholarly efforts focus on social criticism, with results that appear most frequently on newspaper op-ed pages. In addition, he facilitates research by students and he prepares synthetic documents focused on articulation of the links between (1) environmental protection, social justice, and the human economy and (2) science and its application. These efforts have produced more than 100 scholarly papers and nine books.

contact information:

Guy R. McPherson, Professor Emeritus
University of Arizona
School of Natural Resources & the Environment and
Department of Ecology & Evolutionary Biology
Biological Sciences East 325
Tucson, Arizona 85721

email: grm@ag.arizona.edu