Tuesday, October 11, 2011

So What Happens if the "Bumpy Plateau" Lasts for Another Decade?

In his most recent Saturday Oil Report, blogger Dave Cohen of Decline of the Empire wrote the following as part of his analysis:
I am not among those who believe peak oil will cause the End of the World sometime soon. I expect global oil production...to remain on a bumpy plateau through 2020, which is as far out as I am willing to look. I also expect American oil production to stay on a bumpy plateau over the same period. A global production plateau will not result in civilization's demise, but it will certainly constrain economic growth if another demand shock occurs. I've been thinking of calling off my prediction that we'll have another oil price shock next year. A global depression seems to be imminent. We'll see.
For the record, my own position is that absent a catastrophic geopolitical event such as a nuclear conflagration, Dave Cohen is probably going to be proven correct, with one caveat...the political stability of Saudi Arabia is absolutely crucial to the world being able to maintain oil production at the plateau levels. If at some point an internal revolution overthrows the Saudi monarchy and takes offline the production of the world's most important oil producer--and the only one with a significant amount of apparent reserve capacity--then all bets are off. The U.S. and NATO would no doubt intervene were that to happen, but as in Libya there would be no way to prevent a substantial disruption of Saudi oil supplies for an extended period.

Putting all of that aside, the possibility of the status quo in energy production being maintained for another decade got me to thinking about what the likely effects on our society are going to be. Already, just three years into the Great Recession, the social and economic fabric in America is becoming frayed.

Whether you sympathize with the Tea Party or Occupy Wall Street, or neither one, it must be acknowledged that the real motivating force behind both movements is the sense on behalf of certain segments of our population that the prosperity they have enjoyed is slowly being taken away from them. From that perspective, both movements appear to be merely the opening salvos of what is likely to be increasing social unrest within the United States despite the propaganda efforts of the media aimed at preventing it.

On the political front, it is already painfully evident from the presidential campaign and the recent debt ceiling debacle that the system is already broken beyond repair. Just this weekend, it was reported that the federal deficit again topped $1.3 trillion for Fiscal Year 2011 that ended on September 30th. Since the end of Fiscal Year 2008, the national debt has increased by around $4.8 trillion. To put that number in perspective, according to the U.S. Treasury's own figures the total national debt did not exceed $4.8 trillion until the very end of 1994, meaning that the U.S. has racked up as much debt in just the past 3 years as it did in its first 218 years. And that was just to prevent the economy from completely imploding.

All of this says to me that America is likely to undergo a financial and political collapse well before it experiences chronic energy shortages. The system is currently being propped up by massive amounts of debt, which can only be serviced in the long run if there is continued economic growth. Given that the lack of increase in energy production makes real economic growth impossible, at some point the current system is going to implode.

But that does not mean the government is going to go away and that citizens will be left to their own devices. Quite the contrary, I expect that within the next decade the facade of representative democracy will be stripped away to be replaced by a naked authoritarian regime. Under such conditions, we can expect that the government will come to increasingly control most of the remaining available resources, likely in conjunction with the corporate elites. Anyone who doubts that the government will be able to accomplish this should look no further than the example of Nazi Germany circa 1943 and 1944, when that country's munitions production peaked despite suffering massive aerial bombing and the fact that it should have been obvious to any sentient observer that the war was already lost. Never make the mistake of underestimating what any government can do to preserve itself when it feels it is being backed into a corner.

As time goes on, daily life is going to progressively suck worse and worse for the average person. The unprepared majority will likely continue to slog along, working ever more desperately for less and less reward until such time as they eventually get laid off for good and tossed upon the unemployment scrap heap. Expect that without an increase in economic growth to line their pockets, the elites will accelerate their project of strip mining the wealth of the working and middle classes.

Over the next decade, America will increasingly resemble a third world nation, with tiny pockets of well fortified elite prosperity existing within a sea of ever increasing poverty and desperation. I actually saw a preview of what such a society might resemble last year on a trip to the resort town of Sharm El-Sheikh in Egypt, where the number of cops on the streets actually exceeded the number of tourists. Yes, just a few short months later the Egyptians revolted against the hated President Mubarak, but by all accounts his removal has done little to improve the lot of the average Egyptian.

America crossed a very important threshold in 2008, which was the changeover from 232 years of long term economic growth to an era of permanent economic contraction. Looked at from an historical perspective, it makes sense that what took more than two centuries to build up is going to take more than a handful of years to tear down. The demise of the Roman Empire took well over three centuries after peaking under Emperor Hadrian in the second century A.D. until the barbarians finally stormed the gates for the last time. Our decline and fall will no doubt be greatly accelerated in this age of instant communication and weapons of mass destruction, but it is still very unlikely to happen overnight.


  1. Excellent analysis, BH, one of your best posts. I agree we will undergo a financial collapse before taking the plunge over Hubbert's Peak, but for the ordinary schmoe the sensation will be indistinguishable. As for the nascent protest movements, civil unrest will grow as unemployment accelerates. One thing that Occupy Wall Street has accomplished, perhaps inadvertently, is that it has taken the stigma of joblessness out of the closet, and made it okay to be pissed off about being unemployed, underemployed and/or in hopeless debt - rather than feeling guilty about it.

  2. Good post Bill, this is the nub of the question are we facing slow decline or a sudden fall off a cliff. Only time will tell, but the Middle East is looking more unstable by the day and as you say a rebellion in Saudi, will accelerate decline. Right now with Turkey becoming much more assertive the risk of a full scale war in the region is rising.

    The Occupy Wall Street thing is spreading, we now have Occupy Dame Street in Dublin. Dame Street is HQ of our Central Bank.

  3. "Given that the lack of increase in energy production makes real economic growth impossible, at some point the current system is going to implode."

    The thing about peak oil, at least to me, has never been that it would cause a catastrophic collapse. It could, depending on circumstances, but I never felt it was a sure thing.

    What peak oil does do is to put a cap on our ability to overcome obstacles. For the past 150+ years, virtually every obstacle we've faced we've been able to overcome by, basically, throwing more energy at the problem. Peak oil, combined with peak net exports and the financial/debt system problems, will mean that that option is increasingly off the table. Probably forever.

    As problems arise (as they are now), what resources are we going to rely upon to address them? In the past, we could "redouble our efforts" in some area because we had increasing amounts of cheap energy available with which to perform the work. And now? Not so much.

    Without the ability to respond with some kind of renewed upward push, the future looks to me to be unfolding in something more along the lines of John Michael Greer's catabolic collapse.

  4. Great post, faux Bill,
    One of the best thoughts on the issue of the timing of the collapse came from George Mobus in 'Question Everything' blog. His point was that for those people out of work with no prospects, the collapse has already occurred. My own guess is that the 'cliff' is coming in about 5 years, give or take.

  5. @HueyLewis - right on. And we've missed you around the Hubbert's Arms discussion boards!

  6. Bill -

    I've posted this before on other blogs, notably Dave's, but I think before the decades end, the US will embark on a serious, worldwide military solution to capture the rest of the world's oil.

    Whether you can call this WW III or not, that's where we're headed. Sorry.

  7. People need to understand that conventional crude oil is still the core of global supply, and tight oil like shale and tar sands are a temporary bump compared to it. Once crude starts declining beyond a certain flow-rate, unconventional oil will be unable to fill the supply gap for 90+ MBPD global demand. That's when the real oil shock will hit. The shortsightedness of average people is the problem. They don't understand geology and merely respond to price swings, which barely tell the story of oil.