Peak Oil Perspectives
Peak Oil Perspectives

Why can’t we get ourselves out of this sticky mess?

By Roger Diamond

The news is oozing with opinions on the Eurozone crisis, debt defaults, bailouts and why eating baklava is about to be banned. Although there is plenty of merit in getting stuck into the details of easing the pain of recession and finding short term solutions to employment, liquidity and keeping the monetary system alive, I will outline what I think are the ultimate causes of these problems.

For several years now, the world has been stuck at lower levels of economic growth than would be desired. Desired by those in debt (and that’s pretty much all of us – even if YOU aren’t in debt personally, your government is, and they provide you with essential services), who need to grow profits/tax earnings in order to pay off both interest and capital of their debts. Moreover, the low level of economic growth is especially worrying as it is in spite of huge injections of cash (the bailouts to banks) into various national economies. This has made us all even more indebted to the future. Why, despite these bailouts, are we still not able to get economic growth up enough?

Economic growth is measured in currency units, but the movement of currency is merely a reflection of actual economic productivity. Actual productivity requires resources. It does not matter how much money you have in the bank, how much cash is under your bed or how many pieces of paper proclaim your wealth; if you have no resources, that wealth ceases to be relevant, it is unable to be circulated or put into action. Underpinning any economic activity is real activity and real activity requires resources: energy, water, raw or processed goods and their derivatives, such as information and services.

Energy largely comes from fossil fuels and processed sunlight (by plants and animals, who we have made into commodities), water comes from the natural environment, and raw materials and their processed products come from the earth. There are a few complications and exceptions to this such as desalination and renewable energy, but these also require non-sustainable energy inputs for construction, maintenance and replacement. The information and service economy, although apparently lighter on resources than, say, agriculture, is deceptive in that substantial resources are in fact consumed in these sectors – just think of business air travel, consumer electronics and telecomms. They are big users of the basics: energy and minerals particularly.

Conventional oil production globally has been steady for a few years now, hovering just above 80 million barrels per day. Although other energy resources have been on the increase, most notably natural gas (some from shale gas) and tar sands, these resources do not deliver the same returns on investment as plain old oil. This means that although there have been increases in absolute fossil fuel output, the amount of energy needed to produce that fuel is more than if it had been conventional oil. In essence (French pun intended), we work more but get paid less. And that’s why we’re stuck.

We have a huge debt burden hanging over us that requires increased earnings and profits to pay off, yet our ultimate resource for doing work and making economic activity – energy – is dwindling. Optimists will point in the direction of coal, nuclear, and maybe even renewables but these energy sources have the problems of being finite (first two), also dwindling in energy return (dirtier coal and lower grade uranium deposits), and not actually being renewable. Renewables are a whole lot better than fossil fuels, but have their own basket of problems.

In short, relying on increasing economic activity to drive our way out of muddy debts and sticky deserts may not work, given the likelihood that our primary sources of energy are peaking in production. A change in the economic system, including fundamental financial reforms, aimed strongly at banking and the financial industry (investing, trading and playing currency, stock and other markets) is needed to allow nations, corporations and individuals any hope of a debt free future. It might also help to make the world a little fairer. Wouldn’t that be nice?

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