You might have heard the news: we're at the end of growth. Growth of the economy, of consumption, of wealth. That this would happen isn’t news to those who’ve followed the writings of Meadows, Heinberg, and many others. What’s different now is that the end of growth may have actually arrived.
On Friday we learned that after only two years of expansion (mid 2009 - mid 2011), the U.S. economy is re-entering recession:
Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.
ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down – before the Arab Spring and Japanese earthquake – to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not "soft landings."
Why is this happening so soon? What's the bigger context here?
We're not just entering a new recession - we're at the end of growth as we've known it.
We have passed or are near many of the peaks in natural resources, both by drawing down non-renewable resources and by hyperexploiting renewable ones.
For example, here are some points we've passed and haven't looked back (approximate dates):
- 1979: Peak per-capita gross energy production
- 1986: Peak grain per capita
- 1989-1995: Peak wild fish catch
- 1990: Peak net energy production
- 2000: Peak fresh water availability
- 2005: Peak conventional oil production
- 2011-14: Peak all-liquids (conventional+unconventional oil) production
It's possible to overshoot a resource base - civilizations have done it time and again - but only temporarily. The list above is a small subset of what we've depleted or are depleting, and many of the critical ones - oil, for instance - have no real substitutes. Even if there were substitutes, we would have to have started a crash program 20 years ago to transition without economic impacts. But it's too late for that.
What's the consequence of these constraints?
There's a simple cycle that everyone should step back and observe, because we're going to be stuck in it for at least the rest of this decade if not the next one as well:
- A recession occurs (2007-2008)
- Demand falls due to the recession (2008-2009)
- Oil/gasoline prices fall (2008-2009)
- A recovery begins (2009)
- The recovery self-sustains for a short period of time (2009-2010)
- Oil prices rise due to increased demand (2010-2011)
- The recovery falters due to increased oil costs (2010-2011)
- A new recession begins (2011)
When oil prices hit $90/barrel last December, those watching oil prices were worried this would cause a new recession. In a diary in May I predicted we'd see a recession within 12 months due to the persistent high oil prices we'd seen from December through May. (My prediction was nothing special - many others who were tracking oil prices came to a similar conclusion.)
How does this lead to the end of economic growth?
As the foundation of oil upon which we've built our industrial system crumbles, we will face direct economic impacts. Hirsch, whose 2005 study for the Department of Energy on the peaking of world oil production is still the gold standard, conducted further studies to try to understand how oil connects to GDP. He concluded that there's a 1-to-1 relationship: for every 1% oil production declines, world GDP declines 1%.
How much does he expect world oil production to decline? Here's what he says:
Best Case Scenario: Maximum world oil production is followed by a period of relatively flat production (a plateau) before the onset of a decline rate of 2–5% per year.
This indicates that in the best case scenario we should expect a yearly 2-5% decline in world GDP, which is roughly equivalent to having a recession nearly yearly (though it's unlikely to be that steady).
The trend break happened in 2005, when global oil production stopped increasing. We've been on a plateau of sorts since then. While the graph above is technically about oil, it maps directly to the economy: we've been on an economic plateau since then.
This recently revised chart from Calculated Risk shows that the latest GDP numbers indicate that we're still below 2007-level economic activity once you adjust for inflation:
Now that we're entering a new recession, that GDP is going to head down again before we even made it past the previous peak GDP. That is, we've hit the end of economic growth in quantitative terms.
Going forward, as I mentioned in previous diaries, it's unlikely that this will result in a constant, smooth decline. Now that oil production is flat and soon to be declining, what happens? We hit our head on the oil ceiling, a recession ensues, and as we begin to recover, we quickly find ourselves hitting our heads on the oil ceiling because production is declining. This has two consequences:
- After a recession, the recovery that ensues will only be a partial recovery - that is, the economy won't recover to a better state than it was in before the recession
- Recessions are likely to be more frequent (maybe on the order of every 3 years)
The right priorities and the wrong priorities.
A good rule of thumb is that when there is consensus on an issue in Washington (or Wall Street), it's probably wrong. And there is consensus among the mainstream left and the right, Democrats and Republicans, liberals and conservatives that growth is good and should be our objective. What all of the above is indicating is that growth isn't possible any more. Doesn't matter if it's "smart growth" or "dumb growth" or growth for the benefit of corporations or growth for the benefit of the 99%. We've reached the long-forecasted Limits to Growth.
What can be done?
To be honest, I don't expect that much can be done top-down or bottom-up. The institutions we have, and the forms of activism we have, don't work well to address problems like this. The best approach may be individuals and communities first coming to grips with this situation, and then taking action to become more resilient.
I'm not going to suggest a rescue remedy that will solve the problems above, because there isn't one.
Rather, the point is that this isn't the end of the world and we can live fulfilling lives with less - something we all know, but sometimes forget to implement.
Here are some things (far from comprehensive) that each of us can do to prepare for this new, harder era both by reducing our costs and by reducing our community's dependence upon the oil economy:
- Pick up a copy of The Complete Tightwad Gazette (and similar books) from your local library and start cutting costs.
- Weatherize your home or apartment.
- Stop purchasing consumables and disposables.
- Eat only organic, local produce.
- Stop eating meat/eggs/dairy not from farms that are local, grassfed, and organic.
- Use public transportation and travel by train.
- Grow, prepare, and preserve and can your own food.
- Use only truly renewable energy sources.
- Withdraw from the money economy as much as possible.
Few people have taken all of these steps today - I sure haven't - but I'm working on them slowly and think that there's the possibility of a simpler and fulfilling life ahead if we're willing to adapt to our new circumstances.
Until next time...
I thought I should add that if you had to read one book that gets into the future we're looking at, it's Bill McKibben's Eaarth. He might be the only popular journalist today who squarely addresses the economic and ecological limits we face, and does so in easy to understand language. If you have time for another book, I recommend checking out Richard Heinberg's new book The End of Growth which goes into more depth on a number of these topics.