O.K. happy talk might be overstating the case.
Jeremy Grantham, who works and writes for GMO , a global investment company, had an interesting piece about resource abundance with a particular emphasis on peak oil.
Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever (pdf) – Jeremy Grantham, Quarterly Letter, April 2011 (hat tip: Edward Harrison):
Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum. The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.
Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin. The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.
The above was from his summation. He actually covers a number of other topics, but the combination of compounding growth with resource depletion are his strongest points.
The U.S. is, of course, very well-positioned to deal with the constraints. First, it starts rich, both in wealth and income per capita, and also in resources, particularly the two that in the long run will turn out to be the most precious: great agricultural land and a pretty good water supply. The U.S. is also well-endowed with hydrocarbons. I
ts substantial oil and gas reserves look likely to prove unexpectedly resilient, buoyed by improving skills at fracking and lateral drilling. And, by any standard, U.S. coal reserves are very large. All other countries should be so lucky. Second, we are the most profligate or wasteful developed country and this fact, paradoxically, becomes a great advantage. We in the U.S. can save resources by the billions of dollars and actually end up feeling better for it in the end, like someone suffering from obesity who succeeds with a new diet.
The slowing growth in working age population has reduced the GDP growth for all developed countries. Adding resource limitations is further reducing it. If our GDP in the U.S. grew 2% for the next 20 years, I think we would be doing very well. Dropping to 1.5% would not surprise me, nor would it be a disaster. In the past 28 years, we have increased our GDP by 3.0% per year with only a 0.9% increase in energy required. That is, we increased our energy efficiency by 2.1% without a decent energy policy and despite some very inefficient pockets like autos and residential housing. This would suggest that at a reduced 2% GDP growth rate, we might expect little or no incremental demand for energy, even without an improved effort. If in addition we halved our deficit in energy efficiency compared with Europe and Japan in the next 20 years, then our energy requirements might drop at 1.5% a year. Given the plentiful availability of low-hanging fruit in the U.S., this is achievable.
To some degree he is muddling his message here. Where we are to get our 2% growth from an aging population, and more limitations on resources is not clear. We certainly may get more efficient. But greater efficiency does not equal increased production if inputs go down (aging population) and input pricing (tighter labor market, increased commodity prices) goes up.
He should have stayed with his earlier emphasis on replacing quantity with quality. Yesterday's post did discuss some of the ways we might at least aleviate the oil mess we are in. If we can find a way to live our lives using less “stuff” while using less energy, it does open up at least a sliver of a ray of hope.
I say a sliver because, while he does (not sited here) note global warming, he assumes that his audience is wealthy investors and have navigated the more treacherous aspects of a global winner-takes-all economy. The winner-takes-all super matrix is very efficient, that is why in a competitive market it replaces the older multi-market localized economies. But when the system starts loosing inputs, pieces are likely to start breaking loose. And if you are not within the fraction elite (by competence or relationship) than you are likely to be one of the pieces that is let go. For what that might be like, you could look at certain parts of Africa today, or you might want to think about what happened to all those draft horses that were around in 1900.