23 February 2012

BOOKS / Roger Baker : Richard Heinberg's 'The End of Growth'

Another 'inconvenient truth':
Richard Heinberg's The End of Growth

"The central assertion of this book is both simple and startling: economic growth as we have known it is over and done with." -- Richard Heinberg, introduction to The End of Growth
By Roger Baker / The Rag Blog / February 23, 2012

[The End of Growth: Adapting to Our New Economic Reality, by Richard Heinberg (New Society publishers, 2011); Paperback, 336 pp., $17.95.]

The End of Growth comes as a useful successor and updated sequel to Heinberg's 2004 book, The Party's Over, an important book that led the way by comprehensively describing the economic impact of peaking oil and how that peak would necessarily constrain growth, and then going on to explain how closely peak oil is related to other global resource limits.

Other Heinberg books along the same lines include Powerdown, and Peak Everything.

The new book is clearly written and deserves a much wider audience than it is likely to get, because the news is not that which most people want to hear. Public policy leaders need to read the book because it documents the transition to a stagnating global economy without any easy policy remedy.

Bad news is a hard sell. We can see this by what happened to Al Gore. His warnings about climate change in An Inconvenient Truth were greeted in the U.S. with inaction and denial. This suggests that widespread acceptance of the current situation is also likely to have to wait. Things may have to deteriorate enough that the public consciousness finally reaches a tipping point, leading to a demand for radical action in response to a widely perceived crisis.

There is a huge amount of good reporting and analysis currently available to collect and put together in this sort of book which reviews the global situation from the standpoint of a rapidly growing literature on global resource limits. We can now see a lot more details and tradeoffs and plausible outcomes than we could when The Party's Over was written.

There are many acknowledgements at the front of the book; this book was carefully written and reviewed for accuracy by a number of experts in the rapidly growing peak oil community, and the book is documented with hundreds of references. Not all of Heinberg's recommendations, in particular the Personal Rapid Transit proposal, seem plausible, but most of the advice offered seems sound. Political will is the primary barrier to smart transition.

The book is not shy about describing the daunting problems of a global transition to using less energy, but it clearly tries to be as hopeful as the facts permit. The last chapter, "Life After Growth," recommends a number of appropriate responses and community level solutions.

With less energy to squander, we are necessarily going to be driving less, but we can still do a lot more social networking, as well as developing new local, practical, and pragmatic solutions to our problems. Even though a future without growth seems bleak, the book points out the benefits of understanding the situation and responding appropriately so that we can make the best of a crisis that appears to to be introducing the most challenging period in all of human history.

The economic theory that maximizing the gross domestic product, or GDP, is a meaningful index of social progress, is thoroughly debunked. This old economic expansionist credo was that the more the economy expands its reach, and the more material goods the system produces, the happier we will all be as a result.

According to this way of thinking, wars and planned obsolescence are socially productive. It is probably no accident that those who benefit most from this outlook are those who own the means of production. By contrast, a focus on leisure time and better social relationships, which may equally be sources of happiness, don't show up in the economic data, and thus don't count as progress.

Most of the economic transition recommendations appropriate to a non-growth economy seem like good advice. The last chapter, "Life After Growth," recommends a number of appropriate responses and community level solutions. With less cheap energy to squander on discretionary driving, we are probably going to have to do a lot more social networking and developing local, practical, and lawyer-free pragmatic solutions to our problems. For example Heinberg describes "Common Security Clubs," and the importance of replacing the current consumerist sources of happiness with other neglected social sources.

Heinberg's talents extend considerably beyond writing teaching and lecturing. Heinberg began as a teacher and writer who arrived at an ideal time to help popularize progressive environmental thinking about the implications of global resource limits and tie it all together.

He has been a key force in helping to organize the Post Carbon Institute into a think tank with a large pool of respected associate fellows. Post Carbon Institute has now become a highly regarded source of peak oil preparedness information. Writing books is one way to spread the word, lecturing is another, and sponsoring multi-media videos centered on energy issues is another.

Post Carbon also sponsors the Energy Bulletin, with an excellent editor, Bart Anderson, who provides a daily digest of news centered on energy, and also offers useful coverage of topics like the Occupy Movement. [The coming of the Internet has created a new golden age for editors and analysts; it is like a new meritocracy benefiting those who are skilled at the collecting, editing, and attractive repackaging of content to facilitate easy public access.]

This book is not for everyone. Traditional liberals who believe in the application of Keynesian economic stimulus policy as the best route to economic recovery will be disappointed by this book. So will many sincere environmentalists and socialists. They tend to promise an end to hard times by reform involving a change in better leaders within the current inherently expansionist economic structure of capitalism, or else a resumption of past growth via socialist reorganization.

Has the time arrived for the Peak Oil
message to be widely accepted?

Just as polls show even less public support for belief in global warming than a decade ago, those who warn of peaking oil, water, or food are inclined to generate natural disbelief. We live in an expansionist society with a culture deeply in denial of natural limits. We tend to deny limits that cannot somehow be circumvented by continuing scientific progress, or by the help of market-driven substitutes for scarce resources.

These are concepts that most Americans who grew up after WWII will find naturally hard to believe. One of the hardest ideas to abandon is that the steady scientific and technical benefits of the last century -- and the easier and longer life that seemed to be the result -- cannot be extended indefinitely, even with the help of sufficiently good social management of some kind.

The proof of this prevailing cultural outlook is the regular improvement in living standards seen by most Americans throughout their lifetimes. From the depths of the great depression, say about 1932 until about 2007, a period of 75 years, it seemed that in the USA, for those willing to work, a formula for permanent prosperity had been discovered.

There were already academic warnings that there were natural limits to growth such as the Club of Rome book The Limits To Growth. The energy crisis of the 1970's, with a lot of agreement in the popular and scientific press, supported King Hubbert's prediction of a global oil peak.

The nation was rather prepared to sacrifice under the Carter administration. From that time of missed opportunity for a transition until now, we have had a prevailing resource limit denial culture. The current election year strategy revolves around campaign promises that propose that there are neglected polices that, if only implemented, would lead to jobs and economic recovery. No politician is willing to risk defeat by failing to promise a recovery and a brighter future. The public seems to understand that we are in a crisis, but not much about its causes.

The facts argue that we are in now deep into the crisis that James Kunstler outlined in his book, The Long Emergency. In such times we really need leaders who help us break through our denial, who can lead us to make the difficult sacrifices appropriate for times of war, as soon as possible before our ability to respond is paralyzed by a shrinking capacity to respond.

Widespread blindness toward resource limits like auto-addictive suburbia, plus ignoring unsustainable trends, have led us toward what Heinberg terms "a perfect storm of converging crises," a situation so encompassing that it demands a fresh and radical solution.

With peaking oil now widely accepted as fact by many experts, it appears the tide may be turning. The global production of cheap conventional oil, the stuff we used to help win WWII, is known to have already peaked in 2005, according to widely accepted IEA data. Given this fact, the evidence is compelling that only the addition of costlier and harder to access oil, plus equally costly alternative fuels like ethanol, have filled the gap and prevented a global decline in global fuel production since that time.

About the best we can now expect is to keep global fuel production from all sources level at about 90 million barrels per day, despite an ever-rising global population that depends on this fuel for survival.

In reality, a widespread public consciousness of implications of the end of cheap oil will probably have to be come about in large part as the result of the frustration caused by higher gas prices. This is likely to happen as soon as this summer. Higher gasoline prices can be seen and understood by everyone. Unfortunately, the way things play out, the economic relationships are not always easy to see, because high fuel prices depress the economy enough to lower oil demand. This temporarily lowers the oil price until the economy recovers enough to tighten up the market again.

Where things stand now

It has been about six months since The End of Growth was written. How are its main conclusions holding up? Rather well it, appears.

On January 26, 2012, Nature magazine, a top scientific journal, ran an article, "Oil's Tipping Point Has Passed," which documented the arrival of an alarming new phase of oil price economics extending from about 2005 (when the global production of cheap conventional oil peaked) to 2011. During this latest period, global oil production has no longer been responding as previously to rising oil prices with an increase in output. This has profound economic implications which limit growth, as the article describes here:
What does this mean for the global economy, which is so closely tied to physical resources? Of the 11 recessions in the United States since the Second World War, 10, including the most recent, were preceded by a spike in oil prices. It seems clear that it wasn’t just the "credit crunch" that triggered the 2008 recession, but the rarely-talked-about "oil-price crunch" as well. High energy prices erode family budgets and act as a head wind against economic recovery.
The last year has been one of global social rebellion, and this may not be a coincidence. When the price of the oil that powers the world economy rises by a factor of five in only about a decade, it reduces profit throughout the global economy. That causes the system to become meaner and more exploitative of labor to compensate and restore profit. World leaders at their yearly meeting at Davos recently expressed their belief that the prevailing system of global finance capital may be in serious trouble.

The Occupy Movement hasn't yet questioned the concept of economic growth. However it has challenged the concept of corporate-led consumerism with its trend to concentrated wealth, and to favor a tiny elite, while failing to distribute the benefits widely enough to prevent widespread discontent.

The Saudis alone produce enough of the total world oil production, about 10 million barrels a day, that their oil production is vital to hold the global price down, even to its currently elevated level of $120 per barrel for Brent crude oil, now the global price benchmark standard.

As part of a sobering new economic reality, the Saudis have lost much incentive to expand their oil production to hold down its price. On the contrary, the Saudis are effectively raising the oil price by actually cutting oil production in a tight market. The Saudis now maintain that $100 a barrel is a fair price for their oil, which they now argue that they need to conserve for the benefit of their own future.

Peak Oil Consulting economist Chris Skrebowski has recently suggested that the global economy is now caught up in a sort of economic feedback oscillation tied to oil prices. Whenever the economy recovers a bit, especially in the U.S. where fuel costs are relatively unshielded by taxes, and after a delay, it causes a rise in the price of oil until its rising price kills the recovery.

Higher oil prices subtract from and depress consumer spending in other areas. Another factor is that whenever reserve production capacity that still exists is added in response to a rising oil price, this added capacity tends to deplete faster than the big old fields, meaning that such newly added spare capacity is increasingly ineffective at holding oil prices down.

The thinking about peak oil used to be focused more on geology than economics. Recently it has become more clearly understood that there is no natural limit to global petroleum production. There is a natural economic limit that says that you must always produce substantially more fuel than you have invested in its production; a factor commonly referred to as "energy return on energy investment."

In the petroleum industry this ratio of recovery to investment has been getting worse for decades; the remaining oil production sweet spots have become very hard to find, and they are often in politically unstable areas. Skrebowski suggests that the global oil production limit is really economic in character. What is worse, the numbers provide good indications that drilling will soon become unprofitable due to this declining return on investment.

The fact that Brent oil is currently selling for $120 a barrel is partly psychological, due to fear and speculation surrounding political turmoil in the Mideast. Although a lack of political stability can drive the oil price up, it does not follow that a return to stability could lower the price and improve the overall situation very much.

China and India are increasingly able to outbid the industrialized world, with its higher embedded labor costs, for the globally limited amount of economically recoverable oil. This means that, in the new global economy, only a weakening of global oil demand due to its rising oil price can restrain increasing demand.

Oil has become like the new gold -- a new limiting factor tied to the physical world that is uniquely capable of disciplining the world of finance capital by setting an ultimate limit to its economic growth.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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