Economic growth a dream with dwindling oil supply

By Roger Diamond

I hear and read everywhere that what we all “need” is economic growth, but nobody seems to be talking about how this can be done. Let’s make jobs, let’s stimulate industry, and so on, but not much proper thinking into the roots of what comprises economic activity. The simple fact of the matter is that all economic activity relies on energy.

As pointed out in a previous post, most of the energy we use (indirectly) to power our economy is natural — the sunlight that powers the weather, grows plants and gives us light and warmth. However, over the last few hundred years, humans have been tapping into fossil fuels to provide energy for an amazing array of other activities, like smelting ore, transport, lighting and food processing.

The problem with fossil fuels, from an economic perspective, is that they are finite. And the amazing thing is that nobody will refute this. Yet, when you suggest that oil may be peaking in production, then people get nervous and start making grunting sounds, and when you finally suggest that this means our global economy must shrink, the grunting gets louder and they insert random phrases like “alternative technology” and “service economy”.

Regarding alternative technology, sure, there will be electricity from renewables and … well, that’s just it, there are not a lot of alternatives that are sustainable. But moreover, as pointed out in a previous post, nuclear and coal are no substitute for oil in terms of their ease and variety of uses — unless you have a hundred Sasols springing up around the globe, to convert coal to liquid fuels and chemical feedstocks. Regarding the service economy, indeed, not all sectors of the economy are as energy hungry as airlines or mining, but ultimately even an artist or author uses energy in their work and daily lives.

And so it follows that with less energy, there will likely be less economic activity. There are clever ways to minimise this effect, but with the current lack of creative thinking by economists, bankers and politicians, there is little chance to shift our economy into one that supplies higher social benefit (jobs, quality of life, etc) at lower energy consumption. Ways to do this are to localise economies (reverse globalisation), internalise environmental costs (pay for water use, for pollution, for land value), “de-technologise” (use manual labour and methods more), and others.

Ultimately though, in a world of dwindling oil supply, all the stops will have to be pulled out to achieve even a steady state of economic activity, never mind a growing one. So your challenge is to try and change your life to use less energy but still produce equal social benefit for your family and those around you.