Sunday, August 26, 2018
America's Declining Prosperity
written 18 Aug 2018
published 25 August 2018
On August 8th, UDJ syndicated columnist Robert Samuelson reported on the downward mobility in America. While 90% of people born in the 1940s financially exceeded their parents, only 61% of those born in the '70s, and 50% of those born in the '80s accomplished this. He blames poorer schools, income inequity, weak housing construction, inadequate innovation, and over-regulation. However, I believe these are all symptoms of four systemic changes; population growth, peak empire, peak oil, and climate change.
Population in America has more than doubled from 144M when I was born in 1947, to 326M today, and global population has more than tripled. This increase, the most rapid in human history, has depleted easily accessed resources, increasing scarcity and prices.
Second, economic empires of exclusive gain, in conflict with the reality of holism, have an arc of rise, peak, and decline. Following WWII, America was the only intact manufacturing economy, with the most developed oil infrastructure, and we ruled the planet. From 1945 to 1972, Americans had access to the best the world offered, and the middle class, with strong unions, expanded and flourished.
The rest of the world eventually rebuilt their manufacturing capacity with more efficient technology, and challenged American economic supremacy. At great cost, we fought two major wars, one to a stalemate and the other to defeat. In 1972, our empire peaked. We had to abandon the dollar convertibility to gold to avoid bankruptcy, and we lost control of the price of oil because domestic oil production peaked.
America shifted from lending money, to being the largest borrower on the planet. Increasing interest on the debt and relentless tax reduction for the wealthy, meant less money for education, producing poorer citizens. Corporate efforts crushed unions, resulted in stagnant wages and accelerated wealth inequity. Declining value of the dollar created a series of fiscal crashes for the first time in decades, further concentrating wealth at the top, and impoverishing the middle class. Seeking higher rates of return, money was invested overseas, and reduced domestic manufacturing caused loss of high wage employment.
Third, economies run on money, but civilization runs on energy, which today is primarily oil. The most important measure of any energy source is the energy surplus available beyond what is required to produce that energy, the Energy Return On Energy Invested (EROEI). It is this surplus that powers our civilization, currently so energy intensive it requires an EROEI greater than 20:1.
When the oil age began, a new well in a major field would geyser oil into the sky, and produced for decades, creating an EROEI up to 100:1. But most of the large global fields have been developed, peaked, and are now declining, so new fields are more difficult "unconventional" oil (very deep water, tar sands, and hydraulic fracking), which require more energy to produce, reducing global EROEI to 19:1. Shale oil, which has been vigorously developed in the US, has an EROEI of about 4:1 because the wells are expensive to drill and deplete in less than a decade. The current American fracking boom began about a decade ago, and the industry has lost more than $250B so far.
Fourth, climate change is eroding prosperity. As the planet heats, we are seeing more extreme weather events, particularly drought and flooding, which will continue to worsen. As I write this, there are over 100 large fires burning in the US, 15 in California, which spends more than $440M annually fighting a year-round fire season. In the US, the 2017 insurance costs for rebuilding after firestorms and floods exceeded $300B, and this year is hotter. This doesn't include the adverse impact on food production, which is beginning to cause scarcity and higher prices. Rising sea levels are also raising costs. Miami is spending more than $400M to protect against a 3' rise in their downtown area. Real estate prices are beginning to drop on shorefront properties vulnerable to sea level rise.
These systemic changes will crash our civilization if we fail to redefine prosperity as more than material accumulation. The pursuit of happiness is in our Constitution, but the hoarders of money have confused wealth with happiness, and we are a poorer nation as a result.