World Faces Future Defined by Increasing Fight Over Fossil Fuels

John Rawlins has a B.S. in physics and a Ph.D. in nuclear physics. He retired in 1995 from the Westinghouse Hnaford Co. at the Hanford site in Eastern Washington, where he focused on advanced nuclear reactor physics. He re-retired in 2008 from Whatcom Community College, where he taught introductory courses in physics, energy and astronomy. He currently spends most of his time gardening, getting firewood, hiking/biking/kayaking, reading, and playing music.

The End of Growth

Adapting to Our New Economic

Reality

by Richard Heinberg

New Society Publishers; 2011

321 pages; paperback $17.95

ISBN-10: 0-86571-695-1

ISBN-13: 978-0-86571-695-7

Reviewed by John Rawlins

In late 2011, a former Whatcom Community College student sent an e-mail to the Whatcom Watch editor recommending that I write an update to various articles I authored for Whatcom Watch in years past. This came as a surprise to me, for I thought I had said everything and that nothing had really changed in the world of peak everything and climate change. I wrote my original eleven Whatcom Watch articles between September 2006 and August 2007, and then later added some more articles on various related subjects; the original eleven articles still govern my long-term thinking about how the state of the world will change during this century and beyond. After further discussion with the current editor, we settled on reviewing — actually more like summarizing — the latest book by Richard Heinberg, “The End of Growth.”

While the eleven-article series does cover the relationships between energy resource availability and use and climate change, I never really tried to explain the interplay between those subjects and world economic development — for good reason: my background is in physics (with nuclear physics specialty), not world geo-politics or economics or finance (none of which interested me at all prior to reading about energy resource issues). Even though I have now read extensively about some specifics associated with geo-politics and the financial sector, I don’t feel at all confident about coming to any printable conclusions and have to rely on others for any understanding.

My favorite source for trying to understand the intersection between energy issues and world finance is the blog-site “The Automatic Earth” — http://theautomaticearth.com. Nicole Foss, writing under the pseudonym “Stoneleigh,” and her husband Raul Ilarge Meijer (“Ilargi”), explicitly set out to educate on this energy/finance interplay at the world level. As you might expect, they have been focusing mostly on financial developments in Europe for the past couple of years, with occasional forays on China, the U.S., and other areas. Along with a handful of other contributors, they post high-quality blogs and carefully control content in the comments area; most importantly, they have the necessary qualifications to do what they do. Foss did a presentation June 2, 2011 at the Lummi Island grange hall for what was probably the smallest audience she’s encountered — around 50 folks — and has been a world traveler for the past few years, giving a standard one-hour presentation throughout the developed and developing countries. Richard Heinberg features her thoughts prominently in “The End of Growth.”

Introduction: The New Normal

Foss’s and Heinberg’s main conclusion is that the combination of financial collapse and energy resource peaking are right now resulting in the end of real economic growth, as opposed to the creation and destruction of virtual wealth in the great casino of world banking and government bonds. Right now, financial collapse has the upper hand: recession in the industrialized countries in combination with high oil prices has destroyed enough oil demand that developing countries have been able to consume more oil, even though world liquid fuel production has essentially stayed constant for the past seven years.

However, if and when all ‘de-leveraging’ (financial collapse aka “marking all assets to market value”) is done some years from now, it will be impossible for the world to recover to 2007 conditions because of liquid fuel shortages and high fuel prices, owing mainly to decline of cheap, conventional world oil supply. The world therefore faces a future defined by increasing intensity of international competition over fossil fuels, at the least, as economies attempt to recover. There are simply no cheap enough and voluminous enough substitutes for oil to maintain economies as they are, and as a result the world faces economic decline for many human generations to come.

One of the many conclusions Foss and Heinberg agree on is that the end of growth is at hand, or perhaps even in the past — around 2008. The first organization to fund an academic study of the conditions that might lead to limits to growth were a group of European industrialists called The Club of Rome. In 1968, a group of thirty individuals from 10 countries — scientists, educators, economists, humanists, industrists and civil servants — met in Rome to discuss the present and future predicament of man. Out of that meeting grew The Club of Rome, by 1972, the membership had grown to 75 persons of 25 nationalities. They funded some MIT researchers to develop a computer program and identify key features in the world economy that might one day lead to the end of global growth, and the researchers published their book, “The Limits to Growth: A Report for The Club of Rome’s Project on the Predicament of Mankind” (Universe Books, 1972). I read the book sometime in the ‘70s, but was primarily focused on white water kayaking at the time and only vaguely understood what the relatively dry text was trying to say. I understood they were saying that growth would end in the first half of the 21st century, owing to a diminishing and increasingly-expensive resource base, increasing pollution and waste, and increasing population/consumption trends. All concerned understood the finite nature of the world’s main energy source: non-renewable fossil fuels. The main new offering along with the book was a framework in which modelers could explore the effects of resource depletion and industrial waste as they related to the overall health and wealth of the planet’s humans.

After the beginning of the 21st century, the surviving authors of “The Limits to Growth” published “The Limits to Growth: The 30-Year Update,” (Chelsea Green Publishing Company, 2004) They expressed confidence that their initial model was still a valid way of looking at world growth, and that then-current conditions seemed to indicate that the peaking of industrial output (aka growth) would occur two to three decades (!) earlier than most model simulations in the original book — in other words, very very soon. To those who paid attention to the initial book and its 30-year update, as well as world oil supply, it is no surprise to see a book announcing that the end of growth at the world level is here. The housing bubble collapse, combined with flat-line world oil production, has probably brought the actual date forward a few years earlier than if there had been no financial collapse.

Heinberg then asks: “Why is Growth so Important?” The end of the era of fossil-fuel-induced expansion means that politicians and others clamoring for a “return to growth” have:

• Not heard of the possibility, or

• Are deliberately lying, or

• Have lost contact with reality.

As of this writing, no world leader has even suggested that we may have reached the end of economic expansion, that the world needs to come to grips with this new reality, and that - starting now - world leaders should develop contraction strategies and plans: The New Normal. Delay in making this course reversal will only make the ultimate situation worse.

The remainder of the book goes into details and facts behind these statements. I will briefly outline the contents of each chapter, and leave it to the reader to order the book and read it. In my opinion, it will become a classic of the same stature as the “Limits to Growth” text from 1972.

Chapter 1: The Great Balloon Race

Chapter 1 gives some history of economics, or how humans have created and distributed wealth. He then describes the origin of modern economic theory, which worked reasonably well so long as industrialists had access to increasing amounts of energy from 1800 until the present. He next describes a world financial system on steroids, loaning money to people who could never repay their debts to purchase homes that rapidly increased in price, and of course the recent use of various leveraging techniques to further inflate the ultimate consequences of the popping of the housing bubble.

He also critiques a long-standing assertion of most economists, that running short of one resource just means ingenious humans will simply discover a substitute for that resource. Oil is, of course, an exception: cheap oil has been very cheap indeed, is easy to move around even from one country to another across large oceans, is easy to refine into a variety of useful products, and most of all: it has the highest energy density of all natural materials, related to the amount of energy available from a given quantity of oil. All alternatives turn out to be very limited in extent, much more expensive, and collectively might someday be able to support one tenth or so of today’s real economic activity, but at much higher prices — typically ten times. The assumption of substitutability does not apply to oil. That is obviously a huge problem for the one fuel responsible for moving everything and everyone around on this planet. A decline in world oil supply means declining world economies that will not stabilize for several generations. An obvious corollary is that any given region can only have a growing economy at the expense of other regions. This in turn is a tipping point for sharply increased international resource competition.

Since world economies are virtually all based on growth by borrowing, these debt-based economies can remain healthy only if they produce more and more goods and can pay off those debts. No growth means no interest payments, which leads to loan defaults, which causes economic collapse, in rapid-fire order. Where, one might ask, is a formalism of economics that might govern trade during a century or more of economic decline? In recent years, a few books on the subject of steady-state economics have appeared, but I have yet to see one on decline economics.

Chapter 2: The Sound Of Air Escaping

Chapter 2 documents the history, beginning around 1970, leading up to recent economic shocks. To get a feeling for the size of the present bubble in which we live, you really have to see the graphs in this chapter. When this super-bubble does pop (and all bubbles eventually do just that), we can anticipate a relatively quick retreat to world economic output similar to that in the ‘70s and ‘80s — with about twice the population. This is true in the U.S. and worldwide. Since Gross Domestic Product (GDP) includes payments for all goods and services, and since services include those in the highly leveraged financial sector, it is very hard to know how much of that super-bubble is virtual and how much is real. The virtual portion will deflate as all the fancy financial assets eventually are marked down to real market value, and nobody seems to know when that might happen. The real portion will more or less follow the decline in oil consumption, and will certainly vary widely by country and region. In any case, we now have a textbook’s worth of information on how to create a financial crisis of magnificent proportions, and Heinberg describes it as well as anyone I’ve read.

The important conclusion to this chapter is that policies designed to restore growth by dramatic government stimulus spending (which would have to be debt-financed!) constitute a “Bridge to Nowhere.” The net result would of course be just more un-payable debt and still declining (negative) growth. Neither can austerity lead back to growth — nothing can. In the meantime, voters throughout the industrialized world oscillate between electing pro-stimulus leaders and leaders espousing austerity measures — and those same voters grow more and more demoralized and angry because they do not understand the fundamental problems. Check out Greece, and more recently Spain, and next Italy. And, at some point, the U.S., as Europe’s problems spin even more out of control and the ‘boomerang’ effect hits this country. See “Boomerang: Travels in the New Third World” by Michael Lewis, and its prequel “The Big Short: Inside the Doomsday Machine.”

Chapter 3: Earth’s Limits

This chapter explains in detail why oil is so special, and why substitution — while there certainly will be some attempts at this now and in the near future — cannot fuel a return to growth this century. From now on, as countries attempt to grow out of their financial crises, they will soon hit limits to oil supply. The only way to exceed those limits will be either to bid prices up to destroy existing demand, or to wage war in attempts to take over foreign oil fields. Examples of both these ‘solutions’ will be familiar to all Whatcom Watch readers.

Heinberg and others have also written numerous books about world supplies of other fossil fuels, natural gas and coal. The most recent geologic resource assessments indicate that those two fuels will be right behind oil in peaking — leading to peak everything, the title of a previous Heinberg book. Everything includes food and human numbers, as well as minerals of all kinds. To add insult to terrible injury, fossil-fuel-caused climate change (remember all the waste from burning fossil fuels?) has begun to exact greater and greater costs as time progresses, and scientists fully expect that trend to continue and indeed accelerate.

Chapter 4. Won’t Innovation and Efficiency Keep Us Growing?

In short, no — not by a long shot. We have configured our world based on debt, made possible by ever-increasing energy from the cheapest, easiest fossil fuels. Running that world on decreasing energy and expensive fuel substitutes is simply not feasible, and no amount of innovation can change the numbers behind that assertion. In the near term, we will certainly adapt as best we can to the new reality, and that includes innovation and substitution for those who can afford it, and efficiency and doing without for those who cannot. Such adaptations obviously do nothing to support over-all growth.

Much of this chapter also focuses on the magical thinking of various sorts that has become a hallmark of U.S. citizens the past three decades. The main effect of such thinking is akin to pulling an opaque bag over one’s head and continuing down the freeway. To me it seems far preferable to understand what is really happening, where that leads, and to act accordingly, as soon as possible. While such a strategy may soften the landing for individuals, there appears to be no likelihood that our society as a whole is capable of pursuing it; at least, that is my (conservative) working assumption.

Chapter 5: Shrinking Pie

In chapter 5, Heinberg explores the possible explosion of competition between various countries for a greater share of strategically important resources like oil (I would add lithium and rare metals as well), in attempts to dig out of the negative growth hole. As a leading example of economic growth today he considers China, and asks whether China’s growth constitutes a bubble that must pop when some set of strategic resources combines to prick the bubble. The analysis focuses, of course, on energy, and in particular coal. The continuing expansion of China’s electrical supply, coupled with a relatively limited supply of coal, has combined to force China to begin importing large quantities of coal. U.S. coal producers, faced with declining use of coal in this country, have been quick to note China’s coal problem — and as Whatcom Watch readers understand intimately those U.S. coal producers are pulling out all stops to develop coal shipping corridors from the Powder River basin supplies to the Pacific Ocean for shipment to China and other Asian countries. Heinberg concludes that China will soon prove to be economic growth’s last stand. As economic crisis continues to hammer Europe and next the U.S. (again), China finds itself trying to grow still more in the face of increasing energy prices and declining demand for its products — and it too must soon begin economic collapse. This has begun with official forecasts of declining growth rates for the future.

The topic of the last part of this chapter will, for me, be the most interesting to watch play out during my remaining lifetime: the change in world geo-politics. Heinberg does make a stab at describing the assets and problems of several large nations, but the complexity of the world system of governments and cultures defies prediction of what comes next. People alive today have only experienced geo-politics in the context of three centuries of nearly continuous economic growth, yet we still have a world of stark differences between the haves and have-nots and the wannabes. What I can envision is that the business of writing about (and reading) geo-politics will be considerably more interesting in coming decades.

Chapter 6: Managing Contraction, Redefining Progress

Chapter 6 addresses possible approaches organized societies might undertake to manage the century of contraction in some intelligent fashion. Implicit in this line of thinking is the assumption that humans could respond in an organized and intelligent way. Heinberg then points out that much present-day thinking envisions that slowly-developing issues like over-population, oil supphhhhhhhhhhhhhhhhhhhhhhhly decline, and changing climate will be gradual enough effects that governments and institutions will have time and potentially the political will to soften the economic blows. He then notes that world financial and monetary systems operate on a much quicker time-scale and have the potential to cause unexpected punctuated disruptions, like the near-crash of everything in September 2008. As with the weather, we should expect more frequent perfect financial storms in our future, including the possibility that they can be far worse than the Great Recession of recent years or even the Great Depression of yesteryear.

The remainder of the chapter explores various options available to governments in industrialized nations, and concludes with the assertion that “our problems are resolvable in principle.” I leave it to the reader to check out what he says and answer for yourself the following questions:

• Given the history of historical human behavior, has all of humanity ever simultaneously faced a similar set of challenges, with nowhere to run to?

• Given recent (3-decade) history of governmental behavior in the industrialized countries, what evidence have you observed of intelligent governmental (world, federal, state, and local) responses to either slowly-developing trends or punctuated emergencies with long-term consequences? This is not intended to be a rhetorical question, but as a guide to thinking about which level(s) of government might be helpful in our future.

Heinberg’s discussion of the actual feasibility of his assertion is well worth reading, and one of the highlights of the book.

Chapter 7: Life After Growth

The last chapter is mostly about potential individual adaptation-responses to long-term and punctuated emergency conditions. The idea of Transition Initiatives gets a good boost. Such initiatives can operate at the level of small rural neighborhoods all the way to entire small towns, and again — in principle — at the city level.

However, it seems likely that big local institutional issues like joblessness, homelessness, business failures, energy shortages, and food and water shortages will require a broader level of cooperation than found in most Transition Initiatives. Heinberg points to a program called Common Security Clubs that has the mandate for creation of a suite of ideas for understanding our actual economic situation, forming mutual aid groups, and social action reforms. Transition groups might even create Clubs and benefit from them.

For delivery of essential services (like food) Heinberg touts the obvious potential of non-profit groups, especially cooperatives offering a wide variety of services. At present, such coops are generally too widely-spaced to be of much help for people in extreme need. However, as more businesses fail, empty store-fronts could open up for occupancy by coops, so these too will likely play a role in the near future. Here again, existing Transition groups might be receptive to various coop initiatives.

The last topic of this chapter is discussion of what a truly sustainable society might look like. This is well worth reading for anyone who routinely uses the word “sustainable” without knowing exactly what it entails. Heinberg has been one of the foremost thinkers in recent history documenting what the requirements are for real sustainability — and they are much more severe than nearly anyone using the word imagines.

See: http://old.globalpublicmedia.com/richard_heinbergs_museletter_178_five_axioms_of_sustainability

Following a century plus of population decline and economic contraction, at some point humans will either learn to live sustainably or go extinct. I think it is extremely helpful to have the sustainability conversation now, so that creative thinkers of the future can begin to work toward a comfortable, natural, sustainable lifestyle. Knowing something about the end result does tend to focus the mind.

Conclusion

Keep up with Richard Heinberg’s important thinking via his “Museletter,” where he publishes updates to “The End of Growth.”

• http://richardheinberg.com/museletter-241-end-of-growth-update-part-

• http://richardheinberg.com/museletter-242-the-end-of-growth-update-part-

During my decade of reading Heinberg’s books and posts about resource decline, climate change and now also financial system decline, I’ve seen a significant shift away from “Hope” — which is often just magical thinking — and toward a determination to educate more and more people and to advocate for individual and community-wide adaptive responses. For me, this is a highly-welcome evolution; happy-face endings only irritate me now, as do thought-challenged uses of the word “sustainable.”

Note from publisher: an updated eBook contains over twenty pages of additional material. Here is a short paragraph from the eBook: “As energy and food prices escalate and debt levels explode, paths that formerly led to economic expansion now go nowhere. The ‘recession’ will not end in a ‘recovery,’ yet in the coming years we can still thrive-if we maximize happiness rather than the futile pursuit of growth at any cost.”