Joseph Tainter in his groundbreaking book The Collapse Of Complex Societies makes the following trivial, but nonetheless tantalizing observation: “The number of challenges with which the Universe can confront a society is, for practical purposes, infinite”.
It will probably be noncontroversial to formulate a follow-up to the Tainter’s observation thus: “The range of possible responses of a society confronted with the Universe’s challenges is also, for all practical intents and purposes, infinite”. We know from history that past societies have used (with a mixed record of success) a whole range of responses to their problems — from sacrificing vestal virgins to invading and enslaving their neighbors, and from institutionalizing infanticide as a population control mechanism to reorganizing their industry and food production systems.
If the responses of our political and economic mainstream to the challenges presented to our particular society, in that very special slice of space-time that we happen to inhabit, truly represent our best shot, we are virtually guaranteed to enter a very interesting period in history (interesting as in the well-known (faux) ancient Chinese curse1, May you live in interesting times). A dispassionate observer from the outer space may watch with amazement how an incredibly complex and resourceful society of Homo economicus, armed with the most advanced technology and all of the knowledge amassed through their entire history, that is voluntarily, with determination, even enthusiastically painting itself into a corner and reduces its future options to what in the game of chess is termed zugzwang (compulsed move) — by deferring the recognition of the Universe’s challenge until the crisis that is currently clearly visible on the horizon becomes detectible through economic and monetary mechanisms, signals from which in this particular peculiar civilization apparently take precedence over the other six senses.[I follow the modern philosophical tradition and count rational reasoning, which clearly distinguishes our kind from the rest of flora and fauna, as a sixth sense. However, it appears as if it almost doesn’t matter whether we possess that prized and unique sixth sense or not, as we choose to ignore what it tells us, unless, of course, the message also becomes recognizable as a signal from the free market.]
This unique form of behavior — idealization and absolutization of the free market — is especially puzzling, considering that inability of the market signals to reliably serve as a long term indicator of anything at all has been established beyond any controversy, as lakes of ink have been spilled over documenting the minutia of Enron and LTCM collapses, the hazards of the current real estate bubble and other market phenomena, and as the same breed of analysts who in 1999 were seen busily convincing the public that, say, the common stock of Intel Corp. had been a bargain back then at the price of $80 a share, were spotted in 2000 spreading the message that the same Intel stock had a long way to fall at a price of about $25 a share.
Exhibit A is the argument I have seen being used all the time, starting from the Vice President Dick Cheney in televized interviews, to TV personalities characterized by Nassim Taleb as “financial entertainers of the excessively commentating variety” on the CNN’s The Money Line with Lou Dobbs. This same argument is utilized explicitly and implicitly in a range of documents from pronouncements by Chief Economists to publications by IEA.
The argument goes like this (I generalize it from all these multiple sources):
Because our economy requires a lot less oil circa 2005 for each dollar of GDP that it generates than circa 1973, therefore it (the economy) is much less vulnerable to oil supply disruptions and oil price spikes than it was 30 years ago.
It is just incredible to me to hear this argument again and again in our enlightened age from such a diverse group of seemingly intelligent people (although I suspect that, say, Dick Cheney may have much more insight into the nature of our energy predicament than he is letting on). If our economy, for the sake of the argument, doubled in terms of dollars of GDP since 1973 (let’s measure everything in constant dollars, adjusting for inflation), and (again, for the sake of the argument) our annual oil consumption did not change from back then, we have twice as many dollars of GDP riding on the same barrel of oil we consume, do we not? Doesn’t it make the economy twice as vulnerable (as expressed in the monetary impact) to the same amount of oil shortage (as expressed in barrels), instead of less vulnerable?
Let me use this example. Let’s say, thirty years ago I started a business leasing out a circa 1973 Buick as a taxi. By 2005, my business has doubled in size and revenue, and currently I lease out two super energy efficient Toyota Priuses as taxis, which together consume the same amount of fuel as the old Buick consumed alone, but produce double the revenue amount (again, in constant dollars). Say, an oil supply disruption grounds my taxi fleet. What will have a bigger impact on the economy in terms of lost revenue — one stalled taxi or two stalled taxis? Which economy has more capacity to optimize its energy usage and find reserves for growth, instead of shrinking its GDP — an energy inefficient economy or an energy efficient economy? Which economy is more likely to contract in the face of shortages?[Important disclosure: I will be the last one to claim that the US economy as currently observed has utilized all possible reserves for energy efficiency. I only attempted to demonstrate the inherent speciousness of this surprisingly popular argument for “reduced vulnerability”, which seems to have engulfed the crème de la crème of the political and the economic world]
The next exhibit — exhibit B — is a small, sloppily written, but highly opinionated, borderline arrogant article by an energy economist and author Peter Huber (who is also a senior fellow of the Manhattan Institute) that asserts such a sweepingly generalized new economic principle that it reads almost like a manifesto of the “New Age” energy economics. The article, titled Thermodynamics and Money, was published by the Forbes magazine and can be viewed here.
Huber starts with an unfortunate personal attack on the late oil geologist M. King Hubbert, stating:
“In his day M. King Hubbert was a great geologist who spent his life studying the planet’s deposits of oil and gas. But as he got older, he simply lost it. His “peak oil” theory–which many people are citing these days–is a case study in junk economics.”
Clearly, Mr. Huber is perfectly entitled to express his criticisms of the late M. King Hubbert or anybody else, as there are no “sacred cows” in this world. Marcus Tulius Cicero, for example, was known to have had famously described the hellenized Egyptian queen Cleopatra as a boring woman, in radical disagreement with both Gaius Julius Caesar and Marc Anthony. Thus, obviously, Peter Huber also has the right to state whatever opinion he wants on Mr. Hubbert. He is also free to characterize peak oil as a case study of junk economics, or, say, the Modern Portfolio Theory as a case study of junk geology. However, as someone who is to a degree familiar with the subject, I will humbly suggest that maybe there was more to M. King Hubbert’s life work and impact than meets the eye of Peter Huber.
Nevertheless, the main idea that Huber communicates in his article is that EROEI is a false measure of energy efficiency, and thus it should stop being used, as it confuses things rather than adds value. Per Huber, it doesn’t matter how much energy was spent to acquire a unit of energy; what matters only how much that final form of energy will be sold for per unit. Huber formulates it thus:
“Eroei calculations now litter the energy policy debate. Time and again they’re wheeled out to explain why one form of energy just can’t win–tar sands, shale, corn, wood, wind, you name it. Even quite serious journals–Science, for example–have published pieces along these lines. Energy-based books of account have just got to show a profit. In the real world, however, investors don’t care a fig whether they earn positive Eroei. What they care about is dollar return on dollar invested. And the two aren’t the same–nowhere close–because different forms of energy command wildly different prices. Invest ten units of 10-cent energy to capture one unit of $10 energy and you lose energy but gain dollars, and Wall Street will fund you from here to Alberta.”
I believe that this may be a very happy day for Jim Kunstler, as his message about the coming Long Emergency has finally reached such a high degree of market penetration that it is being broadcast (in a slightly veiled, but clearly recognizable form) from the pages of the Forbes magazine, by a senior fellow of the Manhattan institute, no less.
What is Kunstler basically all but shouting from the rooftops? That in historically very near future the energy in such forms that can be readily utilized by our society and our infrastructure will become scarse and expensive. Everything else is a corollary, a quite obvious corollary, but a corollary nonetheless (for example, that systems such as transportation, food production and distribution, government services, living arrangements, et alia will have to either adjust to this permanent condition of scarse and expensive energy, or they will stop functioning — with pronounced effects on other interrelated systems and the society as a whole).
What is Huber stating in his article? Essentially, the same basic message: that (in Huber’s scenario above) energy will become so expensive that, after investing ten units of cheap energy to produce one unit of the “final form”, consumable energy, that consumable energy will still sell at a handsome profit (why else otherwise would Wall Street care to fund such a business from here to Alberta, as Huber puts it?) In short, selling very expensive energy will be a very profitable business, but no cheaper forms of energy in a consumable form will be available. Obviously, energy production in a society thus described by Huber will be at the very center of the economy, and will remain among the few profitable activities, as many other formerly profitable businesses and entire industries will be killed off by the skyrocketing energy prices. In other words, an economic shrinkage of societal scale in the scenario formulated by Huber is unavoidable.
Moreover, who is to say that the so-called cheap energy will remain cheap, as there will be so much more of it needed — to produce the expensive energy? Won’t the increased demand cause the dearth of the formerly cheap forms of “cheap energy”? (I deliberately pose this question in a form that may be more familiar to the energy economist). Surely Mr Huber will not be arguing that the capacity to produce the cheap energy needed to produce expensive energy can be increased indefinitely at a whim, without any effect on the price and availability of that cheap energy — otherwise he risks to be laughed out all the way out from the Manhattan institute.
It is also obvious that in the Huber’s scenario a lot more overall energy will be required than before, as much more of it will be burned for the needs and within the confines of the energy industry itself and will not be usable by the rest of the economy — except, quite likely, that it will manifest itself through dramatically increased C02 emission. That is what EROEI considerations that Huber ridicules, perhaps unwittingly, are all about — that as more and more energy will be consumed by the energy industry itself, less and less will become available for the rest of the economy.
Furthermore, I would like to point out to all of the esteemed energy economists out there that even today, during the time of relatively cheap energy, with the economy merrily humming along, and consumer holiday shopping season being in full swing, we already have exactly the type of an energy form that fits Peter Huber’s criteria: alkaline batteries. I use one of those, an AAA type, manufactured by Energizer, in my MP3 player right now as I write these lines. Sinse EROEI doesn’t matter in the Huber’s world, but only the price that the consumable form of energy commands in the marketplace, we probably could use AAA batteries as a decent alternative to other energy types in the post-Peak Oil scenarios; after all, this is a successful commercial technology that we are already accustomed to and have a solid understanding of, unlike other, more experimental forms of alternative energy.
We already have a huge profitable market for alkaline batteries, as evidenced by some very savvy investors and conglomerates such as Gillette and Warren Buffet’s Berkshire Hathaway, which invested huge amounts of capital into battery producers like Energizer and Duracell. If we simply keep on increasing our manufacturing capacity for AAA batteries at the rate of 50% per year (which is the growth rate comparable with the one achieved during the early years of the Internet industry), in 20 years we will increase the overall AAA battery production by a factor of over 3,000 (obviously, Duracell and friends will be happy to oblige).
In such Huberian world, where physical constraints play no role, the surplus AAA battery capacity, unutilized by MP3 players, vibrators, and other consumer electronics, could be used in transportation systems and such, thereby mitigating or even completely eliminating the effects of peak oil…
I just can’t help but wonder, how clueless must be that segment of the respectable business magazine’s audience and staff that would lend the arguments such as Huber’s even a shred of credibility.
However, the epitome of cluelessness in this little survey for me is the exibit C, the article published in The Wall Street Journal titled The War Against the Car, by Stephen Moore, a member of this newspaper’s editorial board (WSJ online requires subscription, but the article can be viewed here). It is really worth reading in its entirety (quoting a paragraph or two will not do it justice), if one wants to appreciate the degree to which we as a society have cut ourselves loose from the realities of the world. However, I still would like to comment on the two closing paragraphs of the article:
“The good news is that environmental groups and politicians aren’t likely to break Americans from their love affair with cars — big, convenient, safe cars — no matter how guilty they try to make us feel for driving them. Instead they are using more subtle forms of coercion. The left is now pining for a $1-a-gallon gas tax to make driving unaffordable. Washington has also wasted over $60 billion of federal gas tax money on mass transit systems, yet fewer Americans ride them now than before the deluge of subsidies began. When the voters in car-crazed Los Angeles opted to fund an ill-fated subway system, most drivers who voted “yes” said they did so because they hoped it would compel other people off the crowded highways.
To be sure, if the entire membership of the Sierra Club and Greenpeace surrendered their cars, the world and the highways might very well be a better place. But for the rest of us the car is indispensable — it is our exoskeleton. There’s a perfectly good reason that the roads are crammed with tens of millions of cars and that Americans drive eight billion miles a year while spurning buses, trains, bicycles and subways. Americans are rugged individualists who don’t want to cram aboard buses and subways. We want more open roads and highways, and we want energy policies that will make gas cheaper, not more expensive. We want to travel down the road from serfdom and the car is what will take us there.”
It is quite clear that we, Americans, are suffering from an acute form of hystorical Alzheimer’s desease, for which we may have to pay extremely dearly. We forget that “the end of history” as proclaimed by Francis Fukuyama, turned out to be a dangerous fantasy in the early XXI century. Apparently, many of us feel that we can always get what we want, if only our governing bodies develop the right policies. We have no appreciation for the specialness and uniqueness of our current transitory historical period, during which we still have options, and we mindlessly let this period lapse and thereby foreclose those options forever.
We don’t understand that ruthless competition for resources is much more common and much more fundamental as a driving force of history than, say, our cherished notions of democracy, human rights, and public welfare. We don’t realize that investing into the infrastructure alternative to “big, convenient, safe cars” that we have such a strong love affair with today is what may save our economy from total paralysis in historically very near future, allow it to regroup, and thereby give our civilization a chance to fight another day.
We think that our political and business leaders will solve these problems for us — well, guess what — our political and business leaders read Forbes and Wall Street Journal, and make public pronouncements in the spirit of the above argument by Dick Cheney. We are an infantile civilization that may be foreclosing its chance to grow up.
To close on a lighter note, I recommend the following debate (MP3 file is available here; approx. 52 minutes long) between Jim Kunstler and the energy analyst Michael Lynch on the issue of oil, hosted by Christopher Lydon from National Public Radio. At the end of the debate, at the point of summarizing the show, the host makes the following remark (at 50:04 on the audio file), followed by this reply:
CL: “Walkable cities, denser living, I mean — these are all good things, but my verdict would be, just on the hour, Mr. Kunstler, that you haven’t shown us that they will be absolutely required.”
JHK: “Well, I mean — I don’t know what I have to do — jump up and down and go ‘woo, woo, woo’?!”
1. As was pointed out to me in the reader commentaries below, this so-called “ancient Chinese curse” is neither Chinese, nor ancient. It appears most likely to be a product of the American culture. This and this pages, for example, provide satisfactory explanations. Interestingly, this occurence of faux ethnic (mis)attribution is far from unique. For instance, the cultural phenomenon that is known in the US as Russian roulette in the Russian culture, in which I grew up, is known as American roulette. Only one of these attributions can be right, or they can both be wrong. But they are unlikely to be both correct at the same time!
Acknowledgement: The motivation to write this article came to me as a result of a discussion in the New York City Peak Oil Meetup Group, where some of the most intelligent and thought provoking discussions on this incredibly complex subject are taking place on and off the Internet.