1336. Former BP Geologist: Peak Oil Is Here and It Will 'Break Economies'

By Nafeez Ahmed, The Guardian, December 23, 2013

A former British Petroleum (BP) geologist has warned that the age of cheap oil is long gone, bringing with it the danger of "continuous recession" and increased risk of conflict and hunger.

At a lecture on 'Geohazards' earlier this month as part of the postgraduate Natural Hazards for Insurers course at University College London (UCL), Dr. Richard G. Miller, who worked for BP from 1985 before retiring in 2008, said that official data from the International Energy Agency (IEA), US Energy Information Administration (EIA), International Monetary Fund (IMF), among other sources, showed that conventional oil had most likely peaked around 2008.

Dr. Miller critiqued the official industry line that global reserves will last 53 years at current rates of consumption, pointing out that "peaking is the result of declining production rates, not declining reserves." Despite new discoveries and increasing reliance on unconventional oil and gas, 37 countries are already post-peak, and global oil production is declining at about 4.1% per year, or 3.5 million barrels a day (b/d) per year:

"We need new production equal to a new Saudi Arabia every 3 to 4 years to maintain and grow supply... New discoveries have not matched consumption since 1986. We are drawing down on our reserves, even though reserves are apparently climbing every year. Reserves are growing due to better technology in old fields, raising the amount we can recover – but production is still falling at 4.1% p.a. [per annum]."

Dr. Miller, who prepared annual in-house projections of future oil supply for BP from 2000 to 2007, refers to this as the "ATM problem" – "more money, but still limited daily withdrawals." As a consequence: "Production of conventional liquid oil has been flat since 2008. Growth in liquid supply since then has been largely of natural gas liquids [NGL]- ethane, propane, butane, pentane - and oil-sand bitumen."

Dr. Miller is co-editor of a special edition of the prestigious journal, Philosophical Transactions of the Royal Society A, published this month on the future of oil supply. In an introductory paper co-authored with Dr. Steve R. Sorrel, co-director of the Sussex Energy Group at the University of Sussex in Brighton, they argue that among oil industry experts "there is a growing consensus that the era of cheap oil has passed and that we are entering a new and very different phase." They endorse the conservative conclusions of an extensive earlier study by the government-funded UK Energy Research Centre (UKERC):

"... a sustained decline in global conventional production appears probable before 2030 and there is significant risk of this beginning before 2020... on current evidence the inclusion of tight oil [shale oil] resources appears unlikely to significantly affect this conclusion, partly because the resource base appears relatively modest."

In fact, increasing dependence on shale could worsen decline rates in the long run:

"Greater reliance upon tight oil resources produced using hydraulic fracturing will exacerbate any rising trend in global average decline rates, since these wells have no plateau and decline extremely fast - for example, by 90% or more in the first 5 years."

Tar sands will fare similarly, they conclude, noting that "the Canadian oil sands will deliver only 5 mb per day by 2030, which represents less than 6% of the IEA projection of all-liquids production by that date."

Despite the cautious projection of global peak oil "before 2020", they also point out that:

"Crude oil production grew at approximately 1.5% per year between 1995 and 2005, but then plateaued with more recent increases in liquids supply largely deriving from NGLs, oil sands and tight oil. These trends are expected to continue... Crude oil production is heavily concentrated in a small number of countries and a small number of giant fields, with approximately 100 fields producing one half of global supply, 25 producing one quarter and a single field (Ghawar in Saudi Arabia) producing approximately 7%. Most of these giant fields are relatively old, many are well past their peak of production, most of the rest seem likely to enter decline within the next decade or so and few new giant fields are expected to be found."

"The final peak is going to be decided by the price - how much can we afford to pay?", Dr. Miller told me in an interview about his work. "If we can afford to pay $150 per barrel, we could certainly produce more given a few years of lead time for new developments, but it would break economies again."

Miller argues that for all intents and purposes, peak oil has arrived as conditions are such that despite volatility, prices can never return to pre-2004 levels:

"The oil price has risen almost continuously since 2004 to date, starting at $30. There was a great spike to $150 and then a collapse in 2008/2009, but it has since climbed to $110 and held there. The price rise brought a lot of new exploration and development, but these new fields have not actually increased production by very much, due to the decline of older fields. This is compatible with the idea that we are pretty much at peak today. This recession is what peak feels like."

Although he is dismissive of shale oil and gas' capacity to prevent a peak and subsequent long decline in global oil production, Miller recognises that there is still some leeway that could bring significant, if temporary dividends for US economic growth - though only as "a relatively short-lived phenomenon":

"We're like a cage of lab rats that have eaten all the cornflakes and discovered that you can eat the cardboard packets too. Yes, we can, but... Tight oil may reach 5 or even 6 million b/d in the US, which will hugely help the US economy, along with shale gas. Shale resources, though, are inappropriate for more densely populated countries like the UK, because the industrialisation of the countryside affects far more people (with far less access to alternative natural space), and the economic benefits are spread more thinly across more people. Tight oil production in the US is likely to peak before 2020. There absolutely will not be enough tight oil production to replace the US' current 9 million b/d of imports."

In turn, by prolonging global economic recession, high oil prices may reduce demand. Peak demand in turn may maintain a longer undulating oil production plateau:

"We are probably in peak oil today, or at least in the foot-hills. Production could rise a little for a few years yet, but not sufficiently to bring the price down; alternatively, continuous recession in much of the world may keep demand essentially flat for years at the $110/bbl price we have today. But we can't grow the supply at average past rates of about 1.5% per year at today's prices."

The fundamental dependence of global economic growth on cheap oil supplies suggests that as we continue into the age of expensive oil and gas, without appropriate efforts to mitigate the impacts and transition to a new energy system, the world faces a future of economic and geopolitical turbulence:

"In the US, high oil prices correlate with recessions, although not all recessions correlate with high oil prices. It does not prove causation, but it is highly likely that when the US pays more than 4% of its GDP for oil, or more than 10% of GDP for primary energy, the economy declines as money is sucked into buying fuel instead of other goods and services... A shortage of oil will affect everything in the economy. I expect more famine, more drought, more resource wars and a steady inflation in the energy cost of all commodities."

According to another study in the Royal Society journal special edition by professor David J. Murphy of Northern Illinois University, an expert in the role of energy in economic growth, the energy return on investment (EROI) for global oil and gas production - the amount of energy produced compared to the amount of energy invested to get, deliver and use that energy - is roughly 15 and declining. For the US, EROI of oil and gas production is 11 and declining; and for unconventional oil and biofuels is largely less than 10. The problem is that as EROI decreases, energy prices increase. Thus, Murphy concludes:

"... the minimum oil price needed to increase the oil supply in the near term is at levels consistent with levels that have induced past economic recessions. From these points, I conclude that, as the EROI of the average barrel of oil declines, long-term economic growth will become harder to achieve and come at an increasingly higher financial, energetic and environmental cost."

Current EROI in the US, Miller said, is simply "not enough to support the US infrastructure, even if America was self-sufficient, without raising production even further than current consumption."

In their introduction to their collection of papers in the Royal Society journal, Miller and Sorrell point out that "most authors" in the special edition "accept that conventional oil resources are at an advanced stage of depletion and that liquid fuels will become more expensive and increasingly scarce." The shale revolution can provide only "short-term relief", but is otherwise "unlikely to make a significant difference in the longer term."

They call for a "coordinated response" to this challenge to mitigate the impact, including "far-reaching changes in global transport systems." While "climate-friendly solutions to 'peak oil' are available" they caution, these will be neither "easy" nor "quick", and imply a model of economic development that accepts lower levels of consumption and mobility.

In his interview with me, Richard Miller was particularly critical of the UK government's policies, including abandoning large-scale wind farm projects, the reduction of feed-in tariffs for renewable energy, and support for shale gas. "The government will do anything for the short-term economic bounce," he said, "but the consequence will be that the UK is tied more tightly to an oil-based future, and we will pay dearly for it."

Dr Nafeez Ahmed is executive director of the Institute for Policy Research & Development and author of A User's Guide to the Crisis of Civilisation: And How to Save It among other books. Follow him on Twitter @nafeezahmed

1335. Video Clip: The Dance of the Starlings

Artist Unknown, February 14, 2013

1334. Study Links Global Warming to a Peruvian Glacier’s Rapid Retreat

By Justin Gillis, The New York Times, February 25, 2014

In a 2012 photograph, a glacier on the Quelccaya ice cap in Peru, the largest piece of ice in the tropics, which is melting at an accelerating pace. Many see the ice cap as a symbol of global warming. Photo: Doug Hardy

Sitting on a flat volcanic plain 18,000 feet above sea level, the great Quelccaya ice cap of Peru is the largest piece of ice in the tropics. In recent decades, as scientists have watched it melt at an accelerating pace, it has also become a powerful symbol of global warming.

Yet the idea that the ice cap has retreated over time because of a change in temperature, rather than other possible factors like reduced snowfall, has always been more of a surmise than a proven case. In fact, how to interpret the disappearance of glaciers throughout the tropics has been a scientific controversy.

Now, a group of scientists is presenting new findings suggesting that over the centuries, temperature is the main factor controlling the growth and retreat of the largest glacier emerging from the ice cap. If they are right, then Quelccaya’s recent melting could indeed be viewed as a symbol of the planetary warming linked to human emissions of greenhouse gases.

In a paper released on Tuesday by the journal Geology, a group led by Justin S. Stroup and Meredith A. Kelly of Dartmouth College in Hanover, N.H., used elaborate techniques to date the waxing and waning over the past 500 years of the glacier, called Qori Kalis.

The group then compared the glacier’s movements to a record of ice accumulation on top of Quelccaya, obtained from long cylinders of ice drilled by the glaciologist Lonnie G. Thompson of Ohio State University.

The new paper suggests that the glacier sometimes grew during periods when the accumulation of ice in the region was relatively low, and conversely, that it retreated during some periods of high ice accumulation.

Dr. Kelly and Mr. Stroup conclude that the glacier is sensitive to temperature and that other factors, like the amount of snowfall, are secondary, thus supporting a view long held by Dr. Thompson that the glacier can essentially be viewed as a huge thermometer.

“The big driver is temperature,” said Dr. Thompson, who was not involved in the new paper.

Assuming it holds up, that is a sobering finding, considering how fast the Qori Kalis glacier is now retreating. Dr. Thompson documented last year that a part of the glacier that had apparently taken 1,600 years to grow had melted in a mere 25 years. He interpreted that as a sign that human emissions and the resultant warming have thrown the natural world far out of kilter.

Qori Kalis is hardly an outlier, though: land ice is melting virtually everywhere on the planet. That has been occurring since a 500-year period called the Little Ice Age that ended in about 1850, but the pace seems to have accelerated substantially in recent decades as human emissions have begun to overwhelm the natural cycles.

In the middle and high latitudes, from Switzerland to Alaska, a half-century of careful glaciology has established that temperature is the main factor controlling the growth and recession of glaciers.

But the picture has been murkier in the tropics. There, too, glaciers are retreating, but scientists have had more trouble sorting out exactly why.

That glaciers should exist at all in the warmest part of the earth is perhaps strange; they do so only in high, cold mountain regions. The tropical glaciers receive intense sunlight virtually year-round. Ice atop these glaciers can sometimes vaporize without even passing through a stage as liquid water. Over short periods, at least, the tropical glaciers appear to be sensitive to changes in clouds and many other factors.

One group of scientists is coming to the conclusion that even in these conditions, temperature is nonetheless the main factor controlling the ebb and flow of tropical glaciers over centuries.

But a second group believes that in some circumstances, at least, a tropical glacier’s long-term fate may reflect other factors. In particular, these scientists believe big changes in precipitation can sometimes have more of a role than temperature.

In interviews and emails, scientists from both groups praised the new paper for its reconstruction of the Qori Kalis glacier’s movements, a feat that required a decade of intensive labor.

A core finding is that the Peruvian glacier was expanding during the Little Ice Age. That adds to a growing body of research suggesting that the cooling during that mysterious event was global in scope, which may in turn help scientists determine the causes.

“I think it’s a great study,” said Aaron E. Putnam of the Lamont-Doherty Earth Observatory at Columbia University, who has done extensive work on glaciers in New Zealand. “They do something that I haven’t seen done in such an elegant way.”

But some scientists were critical of the paper’s broader assertion about temperature as the controlling factor for the glacier. “I actually believe that finding is probably accurate, but I don’t see that they make a compelling case for that with this study,” said Douglas R. Hardy of the University of Massachusetts, Amherst, who worked extensively on Quelccaya, including documenting a recent, sharp increase of air temperatures.

Dr. Hardy and several of the other critics noted that the Kelly paper’s temperature conclusion depended strongly on a record of ice accumulation over centuries that Dr. Thompson had compiled by drilling into Quelccaya. The ice has been compressed over time, so the evidence requires considerable interpretation.

All of the scientists involved in the debate over tropical glaciers believe that global warming is a problem and that human emissions pose a long-term threat to the planet. But the unresolved controversy has served as fodder for skeptics of global warming, who say the scientists do not really know what is going on.

The biggest scientific battle has been fought not over Quelccaya but over Mount Kilimanjaro in Tanzania. There, too, Dr. Thompson has asserted that the glaciers atop the mountain — the “snows of Kilimanjaro,” in Ernest Hemingway’s phrase — are disappearing because of planetary warming.

But Dr. Hardy and other scientists, like Georg Kaser of the University of Innsbruck in Austria, have argued that it is actually a series of other factors, primarily a reduction in precipitation, that is starving the Kilimanjaro glaciers.

That group says the precipitation decline could be, at least in part, a secondary effect of global warming, caused by rising temperatures in the Indian Ocean.

Dr. Kelly is now looking for evidence that may shed light on the Kilimanjaro debate.

Her method involves dating ridges of rock and debris, known as moraines, that glaciers leave at their far edges.

Mount Kilimanjaro does not have the right kind of rock, but she has begun a study of glacial moraines in the Rwenzori Mountains, 500 miles away in Uganda, that could eventually show whether glaciers in Africa tend to behave in the same way as the one in Peru.

1333. Capitalism vs. Democracy

By Thomas B. Edsall, The New York Times, January 28, 2014

Thomas Piketty’s new book, “Capital in the Twenty-First Century,” described by one French newspaper as a “a political and theoretical bulldozer,” defies left and right orthodoxy by arguing that worsening inequality is an inevitable outcome of free market capitalism.

Piketty, a professor at the Paris School of Economics, does not stop there. He contends that capitalism’s inherent dynamic propels powerful forces that threaten democratic societies.

Capitalism, according to Piketty, confronts both modern and modernizing countries with a dilemma: entrepreneurs become increasingly dominant over those who own only their own labor. In Piketty’s view, while emerging economies can defeat this logic in the near term, in the long run, “when pay setters set their own pay, there’s no limit,” unless “confiscatory tax rates” are imposed.

Piketty’s book — published four months ago in France and due out in English this March — suggests that traditional liberal government policies on spending, taxation and regulation will fail to diminish inequality. Piketty has also delivered and posted a series of lectures in French and English outlining his argument.

Conservative readers will find that Piketty’s book disputes the view that the free market, liberated from the distorting effects of government intervention, “distributes,” as Milton Friedman famously put it, “the fruits of economic progress among all people. That’s the secret of the enormous improvements in the conditions of the working person over the past two centuries.”

Piketty proposes instead that the rise in inequality reflects markets working precisely as they should: “This has nothing to do with a market imperfection: the more perfect the capital market, the higher” the rate of return on capital is in comparison to the rate of growth of the economy. The higher this ratio is, the greater inequality is.

In a 20-page review for the June issue of the Journal of Economic Literature that has already caused a stir, Branko Milanovic, an economist in the World Bank’s research department, declared:

“I am hesitant to call Thomas Piketty’s new book Capital in the 21st Century one of the best books in economics written in the past several decades. Not that I do not believe it is, but I am careful because of the inflation of positive book reviews and because contemporaries are often poor judges of what may ultimately prove to be influential. With these two caveats, let me state that we are in the presence of one of the watershed books in economic thinking.”

There are a number of key arguments in Piketty’s book. One is that the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.

According to Piketty, those halcyon six decades were the result of two world wars and the Great Depression. The owners of capital – those at the top of the pyramid of wealth and income – absorbed a series of devastating blows. These included the loss of credibility and authority as markets crashed; physical destruction of capital throughout Europe in both World War I and World War II; the raising of tax rates, especially on high incomes, to finance the wars; high rates of inflation that eroded the assets of creditors; the nationalization of major industries in both England and France; and the appropriation of industries and property in post-colonial countries.

At the same time, the Great Depression produced the New Deal coalition in the United States, which empowered an insurgent labor movement. The postwar period saw huge gains in growth and productivity, the benefits of which were shared with workers who had strong backing from the trade union movement and from the dominant Democratic Party. Widespread support for liberal social and economic policy was so strong that even a Republican president who won easily twice, Dwight D. Eisenhower, recognized that an assault on the New Deal would be futile. In Eisenhower’s words, “Should any political party attempt to abolish Social Security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear from that party again in our political history.”

The six decades between 1914 and 1973 stand out from the past and future, according to Piketty, because the rate of economic growth exceeded the after-tax rate of return on capital. Since then, the rate of growth of the economy has declined, while the return on capital is rising to its pre-World War I levels.

“If the rate of return on capital remains permanently above the rate of growth of the economy – this is Piketty’s key inequality relationship,” Milanovic writes in his review, it “generates a changing functional distribution of income in favor of capital and, if capital incomes are more concentrated than incomes from labor (a rather uncontroversial fact), personal income distribution will also get more unequal — which indeed is what we have witnessed in the past 30 years.”

Piketty has produced the chart at Figure 1 to illustrate his larger point.

The only way to halt this process, he argues, is to impose a global progressive tax on wealth – global in order to prevent (among other things) the transfer of assets to countries without such levies. A global tax, in this scheme, would restrict the concentration of wealth and limit the income flowing to capital.

Piketty would impose an annual graduated tax on stocks and bonds, property and other assets that are customarily not taxed until they are sold. He leaves open the rate and formula for distributing revenues.

The Piketty diagnosis helps explain the recent drop in the share of national income going to labor (see Figure 2) and a parallel increase in the share going to capital.

Piketty’s analysis also sheds light on the worldwide growth in the number of the unemployed. The International Labor Organization, an agency of the United Nations, reported recently that the number of unemployed grew by 5 million from 2012 to 2013, reaching nearly 202 million by the end of last year. It is projected to grow to 215 million by 2018.

Piketty’s wealth tax solution runs directly counter to the principles of contemporary American conservatives who advocate antithetical public policies: cutting top rates and eliminating the estate tax. It would also run counter to the interests of those countries that have purposefully legislated low tax rates in order to attract investment. The very infeasibility of establishing a global wealth tax serves to reinforce Piketty’s argument concerning the inevitability of increasing inequality.

Some liberals are none too happy with Piketty, either.

Dean Baker, one of the founders of the Center for Economic and Policy Research, wrote me in an email that he believes that Piketty “is far too pessimistic.” Baker contends that there are a host of far less ambitious actions that might help to ameliorate inequality:

“Is it really implausible that we would ever see any sort of tax on finance in the U.S., either the financial transactions tax that I would favor or the financial activities tax advocated by the I.M.F.?”

Baker also noted that “much of our capital is tied up in intellectual property” and that reform of patent laws could serve both to limit the value of drug and other patents and simultaneously lower consumer costs.

Lawrence Mishel, the president of the Economic Policy Institute, responded to my email asking for his take on Piketty:

“We’d take the perspective that this phenomenon is related to the suppression of wage growth so that policies which generate broad-based wage growth are an antidote. The political economy is such that the political power to enact those taxes also requires a mobilized citizenry and institutional power, such as a robust labor movement.”

Daron Acemoglu, a more centrist economist at MIT, praised Piketty’s careful acquisition of data, as well as his emphasis on the economic forces and political conflicts over distribution that shape inequality. In an email, Acemoglu went on to say:

“Part of his interpretation I do not share. Piketty argues that there is a natural tendency for high inequality in ‘capitalist’ economies (the term capitalist is not my favorite) and that certain unusual events (world wars, the Great Depression and policy responses thereto) temporarily reduced inequality. Then both earnings inequality and inequality between capital and labor have been reverting back to their ‘normal’ levels. I don’t think that the data allow us to reach this conclusion. All we see is this pattern of fall and rise, but so many other things are going on. It is consistent with what Piketty says, but it is also consistent with certain technological changes and discontinuities (or globalization) having created a surge in inequality which will then stabilize or even reverse in the next several decades. It is also consistent with the dynamics of political power changing and this being a major contributor to the rise in inequality in advanced economies. We may be seeing parts of several different trends underpinned by several different major shocks rather than the mean-reverting dynamics following the shocks that Piketty singles out.”

There is, however, significant liberal applause for Piketty.

Richard Freeman, an economist at Harvard who specializes in inequality, unions and employment patterns, wrote me by email:

“I am in 100 percent agreement with Piketty and would add that much of labor inequality comes because high earners got paid through stock options and capital ownership.”

Freeman and two colleagues, Joseph Blasi and Douglas Kruse, professors at the School of Labor and Management Relations at Rutgers, contend in their 2013 book, “The Citizen’s Share: Putting Ownership Back into Democracy,” that they have an alternative to a global wealth tax. They argue that:

“The way forward is to reform the structure of American business so that workers can supplement their wages with significant capital ownership stakes and meaningful capital income and profit shares.”

In other words, let’s turn everyone into a capitalist.

Piketty does not treat worker ownership as a solution, and he is generally dismissive of small-bore reforms, arguing that they will have only modest effects on economic growth worldwide, which he believes is very likely to be stuck at 1 to 1.5 percent through the rest of this century.

Piketty joins a number of scholars raising significant questions about how the global economic system will deal with such phenomena as robotics, the hollowing out of the job market, outsourcing and global competition.

His prognosis is extremely bleak. Without what he acknowledges is a politically unrealistic global wealth tax, he sees the United States and the developed world on a path toward a degree of inequality that will reach levels likely to cause severe social disruption.

Final judgment on Piketty’s work will come with time – a problem in and of itself, because if he is right, inequality will worsen, making it all the more difficult to take preemptive action.

1332. Limits of the Limits to Growth Perspective: A Discussion of Saral Sarkar's Explanation of the Great Recession

By Kamran Nayeri, February 26, 2014

Source: Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972) (Linda Eckstein)

1. Introduction

In his “Understanding the Present-Day World Economic Crisis—An Eco-Socialist Approach,” Section III, Saral Sarkar aims to provide “The Deeper Causes of the Crisis.”  

The title of the article is somewhat misleading as it is about what has come to be called the Great Recession in the United States that began in December 2007 and by some accounts continues to this day. It is an argument for natural limits to growth as the cause for the Great Recession. 

It is my good fortune to have come to know Saral. Reading his 1999 book Eco-Socialism or Eco-Capitalism: A Critical Analysis of Humanity’s Fundamental Choices was an immensely educational experience for me. He has contributed to Our Place in the World (that I founded and edit), including through sharing his writings. Although we use different frameworks for analyzing and understanding the crisis of our time (for my own view see Economics, Socialism and Ecology: A Critical Outline Part 1 and Part 2 ), I believe we share a common vision of a future that can bring about harmony in society and with the rest of nature. 

It is in this context that I find Saral’s argument for the causes of the Great Recession unconvincing.  In what follows, I will first outline Saral’s argument. Next, I will offer a criticism of it. Finally, I will note what insight the limits to growth offers and delineate some of its limits in understanding and challenging problems posed by the capitalist civilization. I hope this criticism would be an occasion for an enriching discussion for all those who wish to make a difference in making a better world.

2. Saral’s Reasoning

In essence, Saral’s argument is that existing explanations of the crisis are inadequate or “superficial” because the Great Recession is really caused by natural limits to growth not economic or social ones. Below is a summary of Saral’s reasoning broken into three separate claims. I will add key sentences from Saral’s essay motivating each claim for ease of reference but the reader may wish to review the short section in Saral’s essay:

FIRST CLAIM. A SECULAR, LASTING RISE IN PRIMARY COMMODITY PRICES INITIATED THE CRISIS

In the period leading to the crisis, prices of oil and “the energy resources coal, gas and uranium as well as industrial metals like copper, zinc, iron and steel, tantalum etc.” rose sharply.
The price increases were secular and lasting rather than cyclical. “These price rises must not be mixed up with the usual inflations of the past, which were triggered mainly by excessively high wage demands of the working people (the so-called wage-price spiral).” 
“…[T]he main cause of the said price rises is the rise in the extraction costs of the most important raw materials.” (emphasis in original).
“Also the environmental services provided by nature for us are important resources for any kind of society…The costs of maintaining such resources in an industrial society have also increased along with the costs of extracting important resources like the ones mentioned above.” 

SECOND CLAIM.   HIGH PRIMARY COMMODITY PRICES RESULTED IN DECLINE IN PURCHASING POWER OF MOST PEOPLE

“The rising costs of extracting or conserving these resources mean that less and less of them are available to most people.”

“…[I]f one says that a person’s real income is going down, then it is tantamount to saying that this person is getting less and less resources…” “This exactly is happening today in most of the world.”  

“Moreover, a large and growing number of workers are finding only temporary and part time jobs.” 

THIRD CLAIM: DECLINE IN PURCHASING POWER RESULTED IN MORTGAGE DEFAULT, HOUSING CRISIS, THUS THE GREAT RECESSION 

“It should not, therefore, surprise anyone that in 2007, in the USA, the housing boom came to an end and home-owners began defaulting. It began with the subprime mortgages, but soon also the established working class and then the middle class started losing their ownership homes.” 

“Trade unionists and all kinds of leftists may blame the current misery of the working people on brutal capitalist exploitation, on the weakness of the working class, on speculators without conscience, on greedy bankers, on globalization that has caused relocation of many production units to cheap-wage countries, etc. Of course, at first sight, all these explanations are partly correct. But on closer look one cannot but realize that when, on the whole, there are less and less resources to distribute because it is getting more and more difficult to extract them from nature….then, even in a better capitalist world with a strong working class, at best a fairer distribution could be achieved, not more property for all.” (emphasis in the original).

SARAL’S OWN SUMMARY: Saral summarizes his argument as follows: 

“Workers in the broadest sense produce goods and services by using resources (including energy resources), tools and machines, which are also produced by using resources. If due to diminishing availability of affordable resources a growing number of workers lose their jobs or are forced to work only part-time, then they are producing no goods and services or less of them than before. Now, since most goods and services are, in the ultimate analysis, paid for by (exchanged with) goods and services, it is unavoidable that these workers can get less goods and services from other people.” (emphasis in the original).

3. Criticism

Each of the three claims outlined above is essential for the overall thesis of the essay. However, each claim is problematic as I will discuss below. 

PROBLEMS WITH THE FIRST CLAIM: THERE IS NO EVIDENCE FOR A SECULAR, LASTING RISE FOR PRIMARY COMMODITY PRICES.

Let’s begin with noting that (1) Saral does not offers any time series data to support his claim for a secular rise in primary commodity prices, and, (2) he does not cite any references to the literature that establish such claim.  

Thus, an undue burden is on his reader to verify this claim.  I am not a natural resource economist who studies primary commodity prices. However, I took it upon myself to conduct a “first look” at the literature to help me think through Saral’s reasoning. I came away with the opposite of what he claims. 

For Saral a secular, lasting rise of primary commodity prices is the cause of the Great Recession. However, the literature on primary commodity prices supports (1) that the shape rise in some primary commodity prices in the earlier part of the 2000s was the result of rapid industrialization in China and other “emerging economies,”and, (2) that this was a cyclical phenomenon not a secular and permanent change. In fact, soon after the crisis started primary commodity prices dropped.

Let’s take a look at some evidence from the literature on primary commodity prices. The investment bank and wealth manager Credit Suisse’s report (July 27, 2011) entitled “Long Run Commodity Prices: Where Do We Stand” (July 27, 2011) offers a detailed account. Exhibit 2 of this report shows a sharp rise of 210% in the Credit Suisse Commodities Benchmark since 2000.  However, in the bank’s opinion this was a cyclical rise in the index due to rapid and large demand. 

“In our 13 January 2011 report, A Macroeconomic Proxy for Basic Materials Demand, we argue that much of the increase in commodity prices has been due to very strong commodity demand. As a complement to that analysis, this note assess prices against very long-run patterns, in an effort to establish where current prices are relative to the historical experience.

“While many economists and commentators have suggested that despite short-run volatility, over time commodity prices tend to fall, our analysis suggests that other than for agricultural products, most commodities do not have a clear long-run trend (up or down) with most effectively moving around a relatively consistent average over the past 110 years. Given the differences, to understand how recent movements fit within longer-run dynamics it is necessary to analyze each of the individual commodities.” (my emphases)

The rest of the report examines individual primary commodity prices. While some primary commodity prices, this report cites oil, iron ore and gold, were at their highest level in the past 110 years, others, like like grain prices are lower than historical average going back to 1850. Copper prices that Saral cites showed a sharp rise before the onset of the crisis in 2008 but they have dived down since and historical data shows a stable secular price (Appendix 1, Martin Stuermer, November 2013) . Prices of other metals, like Aluminum, have actually fallen during this entire period. For other studies that confirm the same the reader can consult Hirochi Yamada, March 2013, Steven McCorriston, June 2012. 

Based on this evidence, I must conclude that (1) there is no secular and permanent rise in prices of the primary commodity prices taken as a group leading to the Great Recession, and (2) that the cyclical rise in the overall index was by driven mostly by oil and some metals as the consequences of increasingly industrialization demand from China and other “emerging economies,” and (3) that this cyclical rise in some primary commodity price was not a significant causal factor in the Great Recession. In fact, I know of no study study that makes such a claim.

How about the supposed rise in the costs of environmental/ecological “services” that Saral claims? Saral offers no data or references to back up this claim. In a subsequent section given to a discussion of the GDP, Saral raises the problems of “defensive and compensatory costs” but there is no attempt to document them and link them empirically to the Great Recession.  

While I entirely agree with the proposition that overtime production of some primary commodities will entail greater harm to nature and society, I feel unease with the notion of linking this phenomenon with the bourgeois economic doctrine as “defensive and compensatory costs.” The basic idea is that stock of physical, human and natural capital has to be replenished.  To view humans and nature as “stock of capital” is an exercise in bourgeois alienation.  In my view, such approach takes the discussion into the dominant economics (bourgeois) paradigm and undermines an alternative ecological socialist paradigm. The radical societal change will come only with a break with the economic (bourgeois) paradigm not in continuity with it. I will return to this in the last part of this commentary. 

Since there was no secular rise in primary commodity prices and there is no evidence that a similar rise is the costs of environmental/ecological “services” hit the working masses purchasing power then these cannot be the cause of the massive mortgage default and the housing crisis in the U.S. as Saral claims.  I have no choice but to conclude that Saral’s case for a “limits to growth” explanation of the Great Recession fails to get off the ground.

PROBLEMS WITH THE SECOND AND THIRD CLAIMS:  WHY PURCHASING POWER OF THE WORKING PEOLLE FELL IN THE UNITED STATES?

But perhaps the rise in the cyclical prices of some commodity prices such as oil, iron ore and gold (that Credit Suisse report cites) or energy and metals as Saral claims squeezed the budget of working people and caused the housing crisis? 

As I noted earlier, I know of no such a claim that is empirically supported. Still, it is an interesting hypothesis. However, even if one can show that a cyclical rise in price of some primary commodities contributed to the onset of the Great Recession it would not support a natural limits to growth argument.  For that, one needs to establish a secular, long-term rise of primary commodities that form a significant portion of costs of mass production and consumption. 

Further, how can any analysis ignore the economic and financial context of the mortgage default and the housing crisis, financial crisis when a firm like Lehman Brothers failed, AIG and the three giant automakers had to be rescued, and trillions of dollars were given to the biggest U.S. banks to remain solvent?

As the above figure from the McKinsey Global Institute shows, household debt, corporate debt and financial debt grew unsustainably from early 1980s to 2008. household debt was a staggering $12.68 trillion (100% of GDP), corporate debt about 85% of GDP and financial debt about %60 of GDP. The government debt fell through the Clinton years in part due to the fast growing economy (tax revenues increases) and in part due to austerity measure such as his signature “welfare reform” (cut in spendings). Given these data, it was not a question whether there will be a deep crisis but when and how it would break out.

Could anyone suggest that this long term exponential growth in debt was because of natural limits to growth? Or should we look elsewhere? 

This commentary is not a place to discuss the causes of the Great Recession (there is never a single cause for a crisis of this proportion and there are many studies to cite and discuss). But we need to consider the financial conditions of the U.S. working class because of how Saral singles them out in his argument.  The key fact to recall is the much studied and well understood phenomenon of declining real wage of workers and rising income inequality since the 1970s (for a journalist review of this see, for example, this 2012 Washington Post article) and this 2014 New York Times article).

Why have real wages fallen and income inequality risen? Because of a concentrated attack on the working class by the employers and their state. Why? To restore capitalist profitability. 

As a number of Marxist economists established in a series of published academic articles in the 1980s and early 1990s (see various issues of Review for Radical Political Economics; also see references below for the explanation of the Great Recession that cover this period as well), the average rate of profit in the U.S. did decline from the end of World War II to the mid-1970s (marked by the world recession of 1973-75). A stagnation ensued. Keynesian policies added high inflation resulting in stagflation. 

The capitalist class went of a neoliberal offensive marked by Thatcher and Reagan anti-labor offensive that targeted the miners union in Britain and the air traffic controllers union in the U.S. respectively. The assault also targeted the social wage resulting in Clinton’s “welfare reform” but has continued to targeting social security (retirement insurance), medicare (old age medical insurance) and medicaid (health insure for the very poor), food stamps, child nutrition program, etc. The assault has been comprehensive, targeting all earlier social gains from women’s right to safe abortion to environmental regulations to citizens’ right. And it has been internationalized.

Saral slights unionists, socialists and others for pointing out this frontal assault that has lasted now for well over three decades as “superficial” explanation for the crisis.  However, with almost all productivity gains going to the top 1% of the population and continued use of fiscal and monetary policies to support various asset inflation schemes to combat stagnation of the U.S. economy (see, Laurence Summers's December 15, 2013 article), it is hard no to believe that bursting of the housing bubble had a non-economic, nonsocial cause.  Seven years later, despite of lower primary commodity prices, historically low interest rate brought about by massive monetary policy intervention (basically a gift to the employer class), with corporations awash in cash, the U.S. economy is still dormant, Europe is toying with deflation, and China and the “emerging economies” facing a crisis.  The key feature of the capitalist world economy in the past 40 years had been the dominance of financial capital; that is, those who Lenin called the coupon clippers. 

Given all these facts, why not take a look at what the Marxists economists can provide as explanation for the Great Recession? Interested readers may consult Anwar Shaikh's, “The First Depression of the 21st Century” 2010; Fred Moseley’s, “The U.S. Economic Crisis” 2011; Duménil's and Levy’s The Crisis of Neoliberalism 2011; and Robert Brenner's “Reasons for the Great Recession” for a sample of such views. 

So, why does Saral call Marx’s theory of the tendency of the rate of profit “unsatisfactory” and Marxist explanations of the Great Recession “superficial?” What alternative theory of the capitalist system would Saral propose or endorse? After all, anyone who wants to analyze any aspect of the functioning of the capitalist system should begin with some theory of the beast and how it lives. 

In fact, Saral’s own essay reveal this necessity.  For example, he attribute the “usual inflations of the past” to mainly “high wage demands of the working people (the so-called wage-price spiral).”  But what does constitute “high wage demand by the working people?” High by whose standard? Further if real wages have been falling for 40 years what accounts for the stagflation in the U.S.  in the 1970s? It could not have been high wage demands, or could it? Is not “wage-price spiral” argument part of the mainstream (bourgeois) macroeconomic theory that blames workers for capitalist inflation (the other is “demand spiral,” commodity demand)? Why should an ecological socialist subscribe to such an anti-labor “theory”? What is wrong, for example, with Marx’s argument in Wage, Price and Profit (1865)? 

Similarly, in the summary of his argument quoted above Saral argues that due to “diminishing availability of affordable resources a growing number of workers lose their jobs or are forced to work only part-time, then they are producing no goods and services or less of them than before.” Again, the problem of unemployment and falling standards of living, including increasing nutritional deficiency, homelessness, lack of health insurance, and misery of the working people in the United States is blamed not on the capitalist anti-labor policies but on the nature law of diminishing returns.  

4. Limits to the Limits to Growth Perspective

To conclude this commentary, it is necessary to place the limits to growth argument in context. 

A. The Historical Context

Limits to Growth (1972) was the title of the first report commissioned by the international think-tank Club of Rome.  The report has been updated every 10 years since. The 1972 report’s authors, Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, and William W. Behrens III of Massachusetts Institute of Technology, used a computer model they built and named World3 to simulate the consequence of interactions between the Earth's and human systems focusing on the exponential economic and population growth dynamics in the face of finite resources.  

A key finding was that

"If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity.” (Limits to Growth, p. 23, 1972)

The publication of Limits to Growth stirred much interest and debate but also much hostility that eventually derailed the healthy discussion that ensued.  The hostility to Limits to Growth came largely from the free marketeers on the right whose ideology is wedded to the 250 years capitalist growth and industrialization.  

The socialist critique of the Limits to Growth also included an ideological bias for growth perceived as progress (in Marxist ideology growth of “forces of production” is desirable). The bias is most visible in socialist hostility to all criticism of exponential human population growth as “Malthusian,” that is reactionary and anti-working class. However, the socialist critique included a valid point. Limits to Growth model incorporates many assumptions based on mainstream socio-economic theories. That is, Limits to Growth proponents sidelined, if not entirely denied, economic, social and ideological criticism of the capitalist system in favor of arguing for natural limits to growth. It was argued that if these natural limits are not respected the population and the economy will go into a sudden and precipitous decline. Of course, the reality of the present day world includes all such limits, economic, social, and natural, to the capitalist civilization.  

B. Limits to Growth and Green Capitalism

Thus, the authors of the report and Club of Rome have not rule out socially and ecologically “sustainable capitalism” or “sustainable growth” if “appropriate measures” are taken in time.  In 1972, they wrote:

"It is possible to alter these growth trends and to establish a condition of ecological and economic stability that is sustainable far into the future. The state of global equilibrium could be designed so that the basic material needs of each person on earth are satisfied and each person has an equal opportunity to realize his individual human potential.” (Ibid, p. 24)

As a result Limits to Growth has largely served as an intellectual platform for the Green Capitalism ideology.  One of the original authors of the 1972 report, Jørgen Randers, has recently published 2052: A Global Forecast for the Next Forty Years (2012) that scales back some of the earlier more alarmist predications (e.g. in case of energy), avoids making predictions and offers proposals for individual action (not systemic proposals). 

At the fringe are small number of ecological socialists and anarchists who subscribe to the general notion that there are natural limits to growth but retain a critical attitude towards the exiting capitalist order and Green Capitalism. We should value Eco-socialism or Eco-Capitalism (1999) where Saral devotes the bulk of the book to  refute Green Capitalism.  At the same time, he correctly criticizes the productivist vision of socialism. Both these contributions make the book a must read for anyone interested in ecological socialism. 

Thus, to adopt a natural limits to growth perspective it is necessary to link it to a critical social theory that can explain how we have arrived at the current critical juncture  in history and how to overcome the existing globalized capitalist system that has generated and perpetuates the conditions causing the crisis. 

C. Limits to Growth and Externalities

In his essay, Saral devote a section to a criticism of the GDP using K. William Kapp's criticism of the GDP accounting for not addressing “defensive” and “compensatory” costs defined as costs to replenish physical, human and natural capital. Kapp is considered the founder of ecological economics, a discipline dedicated to integrating environmental and ecological aspect of the economy into the mainstream theory. 

“Defensive” and “compensatory” costs are externalities defined as cost or benefit of economic activities to third parties or society at large. The negative externality is pervasive and well known such as industrial pollution.  The positive externalities also exists. A bee keeper’s price of honey does not reflect the gain from pollination in the almond orchard next door. Market failure refers to the failure of the price mechanism to capture such costs or benefits. It should surprise no one that these costs and benefits are not included in the GDP. One could, as Kapp and ecological economists have tried, attempt to do so. However, it is not a prudent approach and that it cannot possibly succeed. How does one go about economic account for all types of ecocide, pain and suffering of farm animals, mass extinction of species, melting of the Earth’s ice caps?  Arguments for amending the GDP to account for various externalities are made within the economics (bourgeois) paradigm regardless of anyone’s intent. Concerns for the species going extinct is made from an ecocentric paradigm even if those who make it don’t realize it. The two paradigms are not reconcilable.  

On the other hand, the limit to growth argument offers a powerful argument for a rise in negative externalities and decline of the positive externalities (witness the plight of the honey bee or bats, both are major pollinators). Whereas cost of production of natural resources will increase given enough time due to diminishing returns it is quite possible that prices decline in intermediate terms using new technologies. But negative externalities are likely to increase. Thus, from an ecological point of view, the costs outstrip the benefits while from an economic point of view it is the other way around. Just consider fracking for natural gas, shale oil and mountain top mining for coal.  

Thus, it is more fruitful to use limits to growth perspective as a way to discuss increasing environmental and ecological costs than to try to use it as the exclusive or “deeper” cause for the Great Recession.

D. Limits to Growth as a Paradigm

Saral and others have talked about natural limits to growth as paradigm shift. In a sense it is. Socialist and most other radical traditions have focused on social and economic issues.  The growth paradigm has become part of these traditions as critical as they are of the capitalist system.  Natural limits to growth offers a new way to think about contradictions of class societies.  I say this being fully aware that Saral and other supporters of limits to growth perspective mostly or exclusively focus of industrial societies. But if one accepts the fact of ecological/environmental cause for the decline and disappearance of pre-industrial civilizations then it becomes clear the limits to growth has operated throughout human history and, in some instances, even prehistory.   It’s impact in the earlier times was local or regional. Under industrial globalized capitalist system it’s impact is planetary. 

Therefore, without denying the specificity of natural limits to growth in an industrial global capitalist economy, it is clear that the problem is common to all civilizations since the dawn of agriculture.  At issue is nothing less than our species relation with the rest of nature.  But limits to growth does not provide us with a philosophy of nature or anything about who we are, where we come from and where we are going. Thus, Limits to Growth of the Club of Rome, if taken as a paradigm, may offer a technical approach to nature as provider of “resources" and “services” but not an ethical perspective for a good society.  

For all who argue for a scaled back “sustainable” communal human society, the key question is how scaled back and what such sustainability entails for the lives of other species?  Would that be defined simply by technical requirements to maintain a sustainable stock of other species and some balance in ecosystems to meet our needs for food, shelter, and fun or by adhering to a philosophy of nature that affords similar rights to all species to live their full natural potential?  

In Economics, Socialism and Ecology, Part 2, I have argued that the crisis we face is really a crisis of the anthropocentric civilization that has manifested itself as the crisis of the industrial capitalist system.  Civilization has been built on farming that requires alienation from nature. Our species that has viewed itself an integral part of the nature and practiced ecocentric cultures for millions of years has come to institutionalize an anthropocentric culture that aims to control and dominate nature.  Social alienation, manifested by social segmentation of all kinds, including through class and state formation as well as markets (especially under the capitalist system) have rested on alienation from nature.  All different modes of production and social formations since the Agricultural Revolution have been built towards the goal of controlling and exploiting nature. That, of course, included exploitation of other human beings.  

I submit that ecological socialism and anarchism or any other emancipatory movement should be based not on any natural, social or economic limits to growth but on a positive world movement to reintegrate ourselves with the rest of nature that includes embracing all of humanity in its many creative and enriching potentials. 

Notes:


1. Saral’s essay is dated August 28, 2010 but was sent for publication in Our Place in the World a few weeks ago. The essay contains other issues that need critical discussion. However, I am focusing on the section that argues for a limits to growth cause of the Great Recession.

2. There is a table on page 269 of Saral’s book The Crises of Capitalism (2012) that show these costs rise somewhat in Federal Republic of Germany during the 1970-1988 period. While this is suggestive that the same may have been happening in the U.S. it is necessary to document these and show their causal connection to the Great Recession. 
3. The Club of Rome was founded in 1968 “as an informal association of independent leading personalities from politics, business and science, men and women who are long-term thinkers interested in contributing in a systemic interdisciplinary and holistic manner to a better world. The Club of Rome members share a common concern for the future of humanity and the planet.” (from Club of Rome website)

Related posts:

1311. Understanding the present-day World Economic Crisis: An Ecosocialist Approach

1338. Letter from Saral Sarkar: In Defense of the Limits to Growth Explanation of the Great Recession