by Val Germann
The end of World War II saw the United States as the only modern, industrial economy untouched by the recent carnage. From a purely business perspective the situation could hardly have been better — we had been able to bomb all of our major competitors flat. It was the ultimate exercise in what is now called “creative destruction” and the U.S. was going to be in the catbird’s seat when everything was rebuilt, in its own image, if possible. No one wanted to fight World War III anytime soon.
The combination of a gigantic energy supply and the productive might it made possible created a U.S. military power beyond anything ever seen before. Our armies, navies and air forces ran on pure petroleum during World War II and were faster, more powerful and more numerous than those of any of our enemies. Once the American economic machine got going after Pearl Harbor it crushed all before it, in every way, even technically.
We could afford the best and soon had the best, in both men and materiel. The jet plane, the atomic bomb and the submarine-based ICBM came hard on the heels of the Big War, projecting American power to even higher realms, giving us an invulnerable deterrent against any enemy.
As had happened in the Mediterranean after the Roman destruction of both Carthage and Corinth (146 B.C.), one single power controlled nearly everything that counted in the known world. The Med had experienced its “Pax Romana” and now the whole planet was feeling a new “Pax Americana,” for better or for worse.
Here at home it was definitely for the better. The war scares of the mid-1930s had started U.S. rearmament in 1937, and real incomes for working Americans had been going up since that time. The U.S. was the workplace of the world in the 1940s, churning out materiel for the war and then domestic durable goods on an enormous scale.
We had what seemed like an endless supply of coal, oil and gas, here at home and totally secure. That coal, oil and gas was there to validate our victory, helping to create a new post-war prosperity on an unprecedented scale, the envy of the world.
Tens of millions of people here in the United States moved to a level of consumption previously reserved only for the professional classes and above. The whole country was rapidly electrified and our already extensive road net was expanded, and then expanded again. Every economic indicator was headed up, powered by cheap energy. This process was going full blast in 1949, the year this writer was born.
The graph below outlines the U.S. energy situation over most of U.S. history and will be used to continue our discussion here in Part II. It shows in stark relief the astounding nature of what was happening at that time, the middle of the last century. And it clearly shows the U.S. oil peak of the 1970 period.
Two lines, green and blue, for oil and gas, tell the sad tale, tell what happened thirty-five years ago when a full century of exponential growth in U.S. oil and gas production ended, abruptly and with no warning for the public. The events of this time are now called the First Oil Shock and they brought an end to the Post-WWII Era.
The U.S. went into major recession and war broke out in the Middle East, followed by an oil embargo on the part of OPEC. The whole world shuddered into a new era of instability and relative energy scarcity, an era that continues today, as we all know so well.
This instability exists in part because the mantra of modern business and economics, world wide, is growth. Growth keeps the whole giant system percolating, generating the wealth that is required for its operation. But what happens when growth slows down, or even stops? When that happens then is that the shares of wealth paid to the various sectors of our economy have to change, usually for the worse.
This effect is not a matter for dispute. No, it’s like gravity, economic gravity, and its effects cannot be resisted. The U.S. population is growing, inexorably, and the total resources available to it are getting relatively more expensive every year. The result is inevitable and point to inevitable problems with these resources and their cost, with oil and gas being two of the very most important.
Take a look a the graph below, of U.S. per-capita energy consumption from 1950-2000, basically this writer’s lifetime.
Note what happens about 1970: per-capita energy consumption stops its growth, and even goes backwards for a while. This represents an enormous change in the performance of the U.S. economy because per-capita energy use is what makes modern economies go, is what separates Britain from Bangladesh.
Real income and wealth are derived from energy and resource use, primary manufacturing, and that’s what drove total U.S. real income for a century, until the 1970 time period. But since the early 1970s real income for most working Americans has stagnated, or even gone backwards, as good jobs have been eliminated or moved overseas.
In the U.S. business world wave after wave of consolidation has wiped out whole census categories of activity and left only giant firms still afloat in many others. There just isn’t as much wealth and income around these days for everyone here to do better every year. No, someone now has to do worse if someone else is to do better. That’s what resource “flat-liining” means in the real world.
Nations that stagnate in their energy useage begin to have problems at home, problems with increasing poverty and inequality as good jobs are outsourced nearer to where less expensive factors of production, including cheap energy, can be found. Thus we have the situation in China today, rapidly industrializing over the last thirty years even as the U.S. was de-industrializing. China’s economy and energy use are both growing now at about the same rate as ours were in our glory years right after World War II. And guess what, they are the “new power on the block” that everyone is watching and even emulating.
As for us, we have had to go “backwards” in the development cycle and again import cheap labor through immigration, in part to substitute for our stagnant energy availability. We have also become vulnerable to a cut off of overseas oil because the large majority of our petroleum is now imported, some of it from the Middle East. See the graph below.
Long gone are the days when U.S. petroleum was ultra-cheap and totally secure. Petroleum is expensive now, in both dollars and in security costs, because it is our Navy, Army and Marines, paid for by the U.S. taxpayer, that secure the world trade in petroleum. This trade is not an option for us but rather a necessity, making the real total cost of petroleum many times what it was in the 1940s.
The World Petroleum Peak and Its Likely Effects
The First Oil Shock affected the entire planet just as it did the United States. In 1973, the world burned about 19 billion barrels of petroleum and had a population of about 3.5 billion people. Ten years later, after two oil shocks, the planet burned only about 20 billion barrels of oil yet contained about 4.5 billion people. The result of this was crisis after crisis, across the planet, as inflation took off and 20-percent interest here in the U.S. hammered flat for years the world’s largest economy.
Today, there are about 6.5 billion people on Earth and petroleum consumption is moving up again, to just over 30 billion barrels of oil per annum, which seems like a good thing. But the planet has struggled up to that 30 billion barrels and will continue to struggle to produce new oil. That’s because about half of the petroleum remaining on Earth exists in remote locations or in fields that are far past their prime and increasingly expensive to pump. The costs of petroleum production are on the rise and will keep on rising into the future, as far as the eye can see. These costs, reflecting the geophysical realities of oil, will before too long enforce a top on the oil production curve. At that point the “world peak” in petroleum production will have arrived.
However, consider this: what has already happened to per-capita petroleum consumption, world wide, since 1970? The answer is obvious, isn’t it: it has declined significantly, explaining a lot of what we see in our headlines today.
It’s an unfortunate fact that the world cannot do what we here in the U.S. did after our oil peak, increase our imports. The world has no other planet to import from and so must live with the consequences of the coming oil peak, and even with the effects of its near approach, as it is doing today.
An era of ever more serious conflict and war, that is the future for our planet, unfortunately. Without a world wide agreement on population growth and economic development the only avaliable tools for dividing up the spoils are conflict and war. This is the absolute fact, as history abundantly demonstrates.
A quick check of the World Wide Web will show that those tools are already being widely employed, planet wide, in a new set of energy and resource battles. Another check will reveal that there is little probability for any world wide agreements on either population control or economic development.
And so it seems that the die has been cast, and it’s not a plowshare but a sword.