S-curves and other paths

Also published at Resilience.org.

Oxford University economist Kate Raworth is getting a lot of good press for her recently released book Doughnut Economics: 7 Ways to Think Like a 21st Century Economist.

The book’s strengths are many, starting with the accessibility of Raworth’s prose. Whether she is discussing the changing faces of economic orthodoxy, the caricature that is homo economicus, or the importance of according non-monetized activities their proper recognition, Raworth keeps things admirably clear.

Doughnut Economics makes a great crash course in promising new approaches to economics. In Raworth’s own words, her work “draws on diverse schools of thought, such as complexity, ecological, feminist, institutional and behavioural economics.” Yet the integration of ecological economics into her framework is incomplete, leading to a frustratingly unimaginative concluding chapter on economic growth.

Laying the groundwork for that discussion of economic growth has resulted in an article about three times as long as most of my posts, so here is the ‘tl;dr’ version:

Continued exponential economic growth is impossible, but the S-curve of slowing growth followed by a steady state is not the only other alternative. If the goal is maintaining GDP at the highest possible level, then the S-curve is the best case scenario, but in today’s world that isn’t necessarily desirable or even possible.

The central metaphor

Full disclosure: for as long as I can remember, the doughnut has been my least favourite among refined-sugar-white-flour-and-grease confections. So try as I might to be unbiased, I was no doubt predisposed to react critically to Raworth’s title metaphor.

What is the Doughnut? As Raworth explains, the Doughnut is the picture that emerged when she sketched a “safe space” between the Social Foundation necessary for prosperity, and the Ecological Ceiling beyond which we should not go.

Source: Doughnut Economics, page 38

There are many good things to be said about this picture. It affords a prominent place to both the social factors and the ecological factors which are essential to prosperity, but which are omitted from many orthodox economic models. The picture also restores ethics, and the choosing of goals, to central roles in economics.

Particularly given Raworth’s extensive background in development economics, it is easy to understand the appeal of this diagram.

But I agree with Ugo Bardi (here and here) that there is no particular reason the diagram should be circular – Shortfall, Social Foundation, Safe and Just Space, Ecological Ceiling and Overshoot would have the same meaning if arranged in horizontal layers rather than in concentric circles.

From the standpoint of economic analysis, I find it unhelpful to include a range of quite dissimilar factors all at the same level in the centre of the diagram. A society could have adequate energy, water and food without having good housing and health care – but you couldn’t have good housing and health care without energy, water and food. So some of these factors are clearly preconditions for others.

Likewise, some of the factors in the centre of the diagram are clearly and directly related to “overshoot” in the outer ring, while others are not. Excessive consumption of energy, water, or food often leads to ecological overshoot, but you can’t say the same about “excessive” gender equality, political voice, or peace and justice.

Beyond these quibbles with the Doughnut diagram, I further agree with Bardi that a failure to incorporate biophysical economics is the major weakness of Doughnut Economics. In spite of her acknowledgment of the pioneering work of Herman Daly, and a brief but lucid discussion of the work of Robert Ayres and Benjamin Warr showing that fossil fuels have been critical for the past century’s GDP growth, Raworth does not include energy supply as a basic determining factor in economic development.

Economists as spin doctors

Raworth makes clear that key doctrines of economic orthodoxy often obscure rather than illuminate economic reality. Thus economists in rich countries extoll the virtues of free trade, though their own countries relied on protectionism to nurture their industrial base.

Likewise standard economic modeling starts with a reductionist “homo economicus” whose decisions are always based on rational pursuit of self-interest – even though behavioral science shows that real people are not consistently rational, and are motivated by co-operation as much as by self-interest. Various studies indicate, however, that economics students and professors show a greater-than-average degree of self-interest. And for those who are already wealthy but striving to become wealthier still, it is comforting to believe that everyone is similarly self-interested, and that their self-interest works to the good of all.

When considering a principle of mainstream economics, then, it makes sense to ask: what truths does this principle hide, and for whose benefit?

Unfortunately, when it comes to GDP growth as the accepted measure of a healthy economy, Raworth leaves out an important part of the story.

The concept of Gross Domestic Product has its roots in the 1930s, when statisticians were looking for ways to quantify economic activity, making temporal trends easier to discern. Simon Kuznets developed a way to calculate Gross National Product – the total of all income generated worldwide by US residents.

As Raworth stresses, Kuznets himself was clear that his national income tally was a very limited way of measuring an economy.

Emphasising that national income captured only the market value of goods and services produced in an economy, he pointed out that it therefore excluded the enormous value of goods and services produced by and for households, and by society in the course of daily life. … And since national income is a flow measure (recording only the amount of income generated each year), Kuznets saw that it needed to be complemented by a stock measure, accounting for the wealth from which it was generated ….” (Doughnut Economics, page 34; emphasis mine)

The distinction between flows and stocks is crucial. Imagine a simple agrarian nation which uses destructive farming methods to work its rich land. For a number of years it may earn increasingly high income – the flow – though its wealth-giving topsoil – the stock – is rapidly eroding. Is this country getting richer or poorer? Measured by GDP alone, this economy is healthy as long as current income grows; no matter that the topsoil, and future prospects, are blowing away in the wind.

In the years immediately preceding and following World War II, GDP became the primary measure of economic health, and it became political and economic orthodoxy that GDP should grow every year. (To date no western leader has ever campaigned by promising “In my first year I will increase GDP by 3%, in my second year by 2%, in my third year it will grow by 1%, and by my fourth year I will have tamed GDP growth to 0!”)

What truth does this reliance on GDP hide, and for whose benefit? The answers are fairly obvious, in my humble opinion: a myopic focus on GDP obscured the inevitability of resource depletion, for the benefit of the fossil fuel and automative interests who dominated the US economy in the mid-twentieth century.

For context, in 1955 the top ten US corporations by number of employees included: General Motors, Chrysler, Standard Oil of New Jersey, Amoco, Goodyear and Firestone. (Source: 24/7 Wall St)

In 1960, the top ten largest US companies by revenue included General Motors, Exxon, Ford, Mobil, Gulf Oil, Texaco, and Chrysler. (Fortune 500)

These companies, plus the steel companies that made sheet metal for cars and the construction interests building the rapidly-growing network of roads, were clear beneficiaries of a new way of life that consumed ever-greater quantities of fossil fuels.

In the decades after World War II, the US industrial complex threw its efforts into rapid exploitation of energy reserves, along with mass production of machines that would burn that energy as fast as it could be pulled out of the ground. This transformation was not a simple result of “the invisible hand of the free market”; it relied on the enthusiastic collaboration of every level of government, from local zoning boards, to metropolitan transit authorities, to state and federal transportation planners.

But way back then, was it politically necessary to distract people from the inevitability of resource depletion?

The Peak Oil movement in the 1930s

From the very beginnings of the petroleum age, there were prominent voices who saw clearly that exponential growth in use of a finite commodity could not go on indefinitely.

One such voice was William Jevons, now known particularly for the “Jevons Paradox”. In 1865 he argued that since coal provided vastly more usable energy than industry had previously been able to harness, and since this new-found power was the very foundation of modern industrial civilization, it was particularly important to a nation to prudently manage supplies:

Describing the novel social experience that coal and steam power had created, the experience that today we would call ‘exponential growth’, in which practically infinite values are reached in finite time, Jevons showed how quickly even very large stores of coal might be depleted.” (Timothy Mitchell, Carbon Democracy, pg 129)

In the 1920s petroleum was the new miracle energy source, but thoughtful geologists and economists alike realized that as a finite commodity, petroleum could not fuel infinite growth.

Marion King Hubbert was a student in 1926, but more than sixty years later he still recalled the eye-opening lesson he received when a professor asked pupils to consider the implications of ongoing rapid increases in the consumption of coal and oil resources.

As Mason Inman relates in his excellent biography of Hubbert,

When a quantity grows by a constant percentage each year, its history forms a straight line on a semilogarithmic graph. Hubbert plotted the points for coal, year after year, and found a fairly straight line that persisted for several decades: a continual growth rate of around 6 percent a year. At that rate, the production doubled about every dozen years. When he looked at this graph, it was obvious to him that such rapid growth could persist for decades – his graph showed that had already happened – but couldn’t continue forever.” (The Oracle of Oil, 2016, pg 19)

Hubbert soon learned that there were many others who shared his concerns. This thinking coalesced in the 1930s in a very popular movement known as Technocracy. They argued that wealth depended primarily not on the circulation of money, but on the flow of energy.

The leaders of Technocracy, including Hubbert, were soon speaking to packed houses and were featured in cover stories in leading magazines. Hubbert was also tasked with producing a study guide that interested people could work through at home.

In the years prior to the Great Depression, people had become accustomed to economic growth of about 5% per year. Hubbert wanted people to realize it made no sense to take that kind of growth for granted.

“It has come to be naively expected by our business men and their apologists, the economists, that such a rate of growth was somehow inherent in the industrial processes,” Hubbert wrote. But since Earth and its physical resources are finite, he said, infinite growth is an impossibility.

In short, Technocracy pointed out that the fossil fuel age was likely to be a flash in the pan, historically speaking – unless the nation’s fuel reserves were managed carefully by engineers who understood energy efficiency and depletion.

Without sensible accounting and allocation of the true sources of a nation’s wealth – its energy reserves – private corporations would rake in massive profits for a few decades and two or three generations of Americans might prosper, but in the longer term the nation would be “burning its capital”.

Full speed ahead

After the convulsions of the Depression and World War II, the US emerged with the same leading corporations in an even more dominant position. Now the US had control, or at least major influence, not only over rich domestic fossil fuel reserves, but also the much greater reserves in the Middle East. And as the world’s greatest military and financial power, they were in a position to set the terms of trade.

For fossil fuel corporations the major problem was that oil was temporarily too cheap. It came flowing out of wells so easily and in such quantity that it was often difficult to keep the price up. It was in their interests that economies consume oil at a faster rate than ever before, and that the rate of consumption would speed up each year.

Fortunately for these interests, a new theory of economics had emerged just in time.

In this new theory, economists should not worry about measuring the exhaustion of resources. In Timothy Mitchell’s words, “Economics became instead a science of money.”

The great thing about money supply was that, unlike water or land or oil, the quantity of money could grow exponentially forever. And as long as one didn’t look too far backwards or forwards, it was easy to imagine that energy resources would prove no barrier. After all, for several decades, the price of oil had been dropping.

So although increasing quantities of energy were consumed, the cost of energy did not appear to represent a limit to economic growth. … Oil could be treated as something inexhaustible. Its cost included no calculation for the exhaustion of reserves. The growth of the economy, measured in terms of GNP, had no need to account for the depletion of energy resources.” (Carbon Democracy, pg 140)

GDP was thus installed as the supreme measure of an economy, with continuous GDP growth the unquestionable political goal.

A few voices dissented, of course. Hubbert warned in the mid-1950s that the US would hit the peak of its conventional fossil fuel production by the early 1970s, a prediction that proved correct. But large quantities of cheap oil remained in the Middle East. Additional new finds in Alaska and the North Sea helped to buy another couple of decades for the oil economy (though these fields are also now in decline).

Thanks to the persistent work of a small number of researchers who called themselves “ecological economists”, a movement grew to account for stocks of resources, in addition to tallying income flows in the GDP. By the early 1990s, the US Bureau of Economic Analysis gave its blessing to this effort.

In April 1994 the Bureau published a first set of tables called Integrated Environmental-Economic System of Accounts (IEESA).

The official effort was short-lived indeed. As described in Beyond GDP,

progress toward integrated environmental-economic accounting in the US came to a screeching halt immediately after the first IEESA tables were published. The US Congress responded swiftly and negatively. The House report that accompanied the next appropriations bill explicitly forbade the BEA from spending any additional resources to develop or extend the integrated environmental and economic accounting methodology ….” (Beyond GDP, by Heun, Carbajales-Dale, Haney and Roselius, 2016)

All the way through Fiscal Year 2002, appropriations bills made sure this outbreak of ecological economics was nipped in the bud. The bills stated,

The Committee continues the prohibition on use of funds under this appropriation, or under the Census Bureau appropriation accounts, to carry out the Integrated Environmental-Economic Accounting or ‘Green GDP’ initiative.” (quoted in Beyond GDP)

One can only guess that, when it came to contributing to Congressional campaign funds, the struggling fossil fuel interests had somehow managed to outspend the deep-pocketed biophysical economists lobby.

S-curves and other paths

With that lengthy detour complete, we are ready to rejoin Raworth and Doughnut Economics.

The final chapter is entitled “Be Agnostic About Growth: from growth addicted to growth agnostic”.

This sounds like a significant improvement over current economic orthodoxy – but I found this section weak in several ways.

First, it is unclear just what it is that we are to be agnostic about. While Raworth has made clear earlier in the book why GDP is an incomplete and misleading measure of an economy, in the final chapter GDP growth is nevertheless used as the only significant measure of economic growth. Are we to be agnostic about “GDP growth”, which might well be meaningless anyway? Or should we be agnostic about “economic growth”, which might be something quite different and quite a bit more essential – especially to the hundreds of millions of people still living without basic necessities?

Second, Raworth may be agnostic about growth, but she is not agnostic about degrowth. (She has discussed elsewhere why she can’t bring herself to use the word “degrowth”.) True, she remarks at one point that “I mean agnostic in the sense of designing an economy that promotes human prosperity whether GDP is going up, down, or holding steady.” Yet in the pictures she draws and in the ensuing discussion, there is no clear recognition either that degrowth might be desirable, or that degrowth might be forced on us by biophysical realities.

She includes two graphs for possible paths of economic growth –  with growth measured here simply by GDP.

Source: Doughnut Economics, page 210 and page 214

As she notes, the first graph shows GDP increasing at steady annual percentage. While the politicians would like us to believe this is possible and desirable, the graph showing what quickly becomes a near-vertical climb is seldom presented in economics textbooks, as it is clearly unrealistic.

The second graph shows GDP growing slowly at first, then picking up speed, and then leveling off into a high but steady state with no further growth. This path for growth is commonly seen and recognized in ecology. The S-curve was also recognized by pre-20th-century economists, including Adam Smith and John Stuart Mill, as the ideal for a healthy economy.

I would concur that an S-curve which lands smoothly on a high plateau is an ideal outcome. But can we take for granted that this outcome is still possible? And do these two paths – continued exponential growth or an S-curve – really exhaust the conceptual possibilities that we should consider?

On the contrary, we can look back 80 years to the Technocracy Study Course for an illustration of varied and contrasting paths of economic growth and degrowth.

Source: The Oracle of Oil, page 58

M. King Hubbert produced this set of graphs to illustrate what can be expected with various key commodities on which a modern industrial economy depends – and by extension, what might happen with the economy as a whole.

While pure exponential growth is impossible, the S-curve may work for a dependably renewable resource, or a renewable-resource based economy. However, the next possibility – with a rise, peak, decline, and then a leveling off – is also a common scenario. For example, a society may harvest increasing amounts of wood until the regenerating power of the forests are exceeded; the harvest must then drop before any production plateau can be established.

The bell curve which starts at zero, climbs to a high peak, and drops back to zero, could characterize an economy which is purely based on a non-renewable resource such as fossils fuels. Hopefully this “decline to zero” will remain a theoretical conception, since no society to date has run 100% on a non-renewable resource. Nevertheless our fossil-fuel-based industrial society will face a severe decline unless we can build a new energy system on a global scale, in very short order.

This range of economic decline scenarios is not really represented in Doughnut Economics. That may have something to do with the design of the title metaphor.

While ecological overshoot, on the outside of the doughnut, represents things we should not do, the diagram doesn’t have a way of representing the things we can not do.

We should not continue to burn large quantities of fossil fuel because that will destabilize the climate that our children and grandchildren inherit. But once our cheaply accessible fossil fuels are used up, then we can not consume energy at the same frenetic pace that today’s wealthy populations take for granted.

The same principle applies to many essential economic resources. As long as there is significant fertility left in farmland, we can choose to farm the land with methods that produce a high annual return even though they gradually strip away the topsoil. But once the topsoil is badly depleted, then we no longer have a choice to continue production at the same level – we simply need to take the time to let the land recover.

In other words, these biophysical realities are more fundamental than any choices we can make – they set hard limits on which choices remain open to us.

The S-curve economy may be the best-case scenario, an outcome which could in principle provide global prosperity with a minimum of system disruption. But with each passing year during which our economy is based overwhelmingly on rapidly depleting non-renewable resources, the smooth S-curve becomes a less likely outcome.

If some degree of economic decline is unavoidable, then clear-sighted planning for that decline can help us make the transition a just and peaceful one.

If we really want to think like 21st century economists, don’t we need to openly face the possibility of economic decline?

 

Top photo: North Dakota State Highway 22, June 2014. (click here for larger view)

Guns, energy, and the coin of the realm

Also published at Resilience.org.

While US debt climbs to incomprehensible heights, US banking authorities continue to pump new money into the economy. How can they do it? David Graeber sees a  simple explanation:

There’s a reason why the wizard has such a strange capacity to create money out of nothing. Behind him, there’s a man with a gun.” (Debt: The First 5,000 Years, Melville House, 2013, pg 364)

In part one of this series, we looked at the extent of violence in the “American Century” – the period since World War II in which the US has been the number one superpower, and in which US garrisons have ringed the world. In part two we looked at the role of energy supplies in propelling the US to power, the rapid drawdown of energy supplies in the US post-WWII, and the more recent explosion of US debt.

In this concluding installment we’ll look at the links between military power and financial power.

A new set of financial institutions arose at the end of World War II, and for obvious reasons the US was ‘first among equals’ in setting the rules. Not only was the US in military occupation of Germany and Japan, but the US also had the financial capital to help shattered countries –whether on the war’s winning or losing sides – in reconstructing their infrastructures and restarting their economies.

The US was also able to offer military protection to many countries including previous mortal enemies. This meant that these countries could avoid large military outlays – but also that their elites were in no position to challenge US supremacy.

That being said, there were challenges both large and small in dozens of nations, particularly from the grass roots. The US exercised political power, both soft and hard, in attempts to influence the directions of scores of countries around the world. Planting of media reports, surreptitious aid to favoured electoral candidates, dirty tricks to discredit candidates seen as threatening, military aid and training to dictatorships and police forces who could put down movements for social justice, planning and helping to implement coups, and full-fledged military invasion – this range of intervention techniques resulted in hundreds of thousands, if not millions, of deaths. Cataloguing the bloody side of US “leadership of the free world” is the task taken on so ably by John Dower in The Violent American Century.

Dollars for oil

One of the rules of the game grew in importance with each passing decade. In Timothy Mitchell’s words,

Under the arrangements that governed the international oil trade, the commodity was sold in the currency not of the country where it was produced, nor of the place where it was consumed, but of the international companies that controlled production. ‘Sterling oil’, as it was known (principally oil from Iran), was traded in British pounds, but the bulk of global sales were in ‘dollar oil’.” (Carbon Democracy, Verso, 2013, pg 111)

As David Graeber’s Debt explains in detail, the ability to force people to acquire and use the ruler’s currency has, throughout history, been a key mechanism for extracting tribute from subject populations.

In today’s global economy, that is why the pricing of oil in dollars has been so important for the US. Again in Timothy Mitchell’s words:

Europe and other regions had to accumulate dollars, hold them and then return them to the United States in payment for oil. Inflation in the United States slowly eroded the value of the dollar, so that when these countries purchased oil, the dollars they used were worth less than their value when they acquired them. These seigniorage privileges, as they are called, enabled Washington to extract a tax from every other country in the world …. (Carbon Democracy, pg 120)

As Greg Grandin explains, the oil-US dollar relationship grew in importance even as OPEC countries were able to force big price increases:

With every rise in the price of oil, oil-importing countries had to borrow more to meet their energy needs. With every petrodollar placed in New York banks, the value of the US currency increased, and with it the value of the dollar-denominated debt that poor countries owed to those banks.” (“Down From The Mountain”, London Review of Books, June 19, 2017)

But the process did take on another important twist after US domestic oil production peaked and imports from Saudi Arabia soared in the 1970s. Although the oil trade continued to support the value of the US dollar, the US was now sending a lot more of those dollars to oil exporting countries. The Saudis, in particular, accumulated US dollars so fast there wasn’t a productive way for them to circulate these dollars back into the US by purchasing US-made goods. The burgeoning US exports of munitions provided a solution. Mitchell explains:

As the producer states gradually forced the major oil companies to share with them more of the profits from oil, increasing quantities of sterling and dollars flowed to the Middle East. To maintain the balance of payments and the viability of the international financial system, Britain and the United States needed a mechanism for these currency flows to be returned. … Arms were particularly suited to this task of financial recycling, for their acquisition was not limited by their usefulness. The dovetailing of the production of petroleum and the manufacture of arms made oil and militarism increasingly interdependent.” (Carbon Democracy, pg 155-156)

He adds, “The real value of US arms exports more than doubled between 1967 and 1975, with most of the new market in the Middle East.”

An F-15 Eagle aircraft of the Royal Saudi Air Force takes off during Operation Desert Shield, 1991. (Source: Wikimedia Commons)

Fast forward to today. Imported oil is a critical factor in the US economy, in spite of a supply blip from fracking. US industry leads the world in the export of weapons; the top three buyers, and five of the top ten buyers, are in the Middle East. (Source: CNN, May 25, 2016) Yet US arms sales are dwarfed by US military expenditures, which are roughly double in real terms what they were in the 1960s. (Source: Time, July 16, 2013)

Finally, US national debt, in 1983 dollars, is about 10 times as high as it was from 1950 to 1980. In other words the US government, along with its banking and military complexes, has been living far beyond its means (making bankruptcy king Donald Trump a fitting figurehead). (Source: Stephen Bloch, Adelphi University)

Yet the game goes on. As David Graeber sees it,

American imperial power is based on a debt that will never – can never – be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.

At the same time, U.S. policy was to insist that those countries relying on U.S. treasury bonds as their reserve currency behaved in exactly the opposite way: observing tight money policies and scrupulously repaying their debts ….” (Debt, pg 367)

We’ll close with two speculations on how the “American century” may come to an end.

US supremacy rests on interrelated dominance in military power, financial power, and influence over fossil fuel energy markets. At present the US financial system can create ever larger sums of money, and the rest of the world may have no immediately preferable options than to continue buying US debt. But just as you can’t eat money, you can’t burn it in an electricity generator, a diesel truck, or a bomber flying sorties to a distant land. So no amount of financial wizardry will sustain the current outsized industrial economy or its military subsection, once prime fossil fuel sources have been tapped out.

On the other hand, suppose low-carbon renewable energy technologies improve so rapidly that they can replace fossil fuels within a few decades. This would be a momentous energy transition, and might also lead to a momentous transition in geopolitics.

In recent years, and especially under the Trump administration, the US is ceding renewable energy technology leadership to other countries, especially China. If many countries free themselves from fossil-fuel dependence, and they no longer need US dollars to purchase their energy needs, a pillar of US supremacy will fall.

Top photo: Commemorative silver dollar sold by the US Mint, 2012.

Shiny Things

This week’s photo post is all about things that catch the eye with a flash of sunlight – even when that light is first reflected by the moon.

Campanula. This bellflower, one of the nearly 500 species of campanula, grows well on the shoreline sand dune. (click images for larger view)

 

Hang on. On a breezy summer afternoon this dragonfly keeps a steady grip.

 

Sequined wings.

 

Red currants.

In our garden the first of the summer fruits are just about ready to eat. Meanwhile out in Bowmanville Marsh the water smartweed (persicaria amphibia), whose seeds are snacks for waterfowl and raccoons, is sending up its flowers.

Water smartweed.

Just down the coast, the channel where Westside Marsh meets Lake Ontario is a favoured fishing spot for local birds. As night falls a Great Blue Heron often waits at water’s edge, and if there is still enough light you may catch a glimpse of a shiny fish before it is swallowed in one gulp.

Your turn.

The full moon rising over the lake is a spellbinding sight all on its own. But if a heron chooses that moment to leap from the gravel bar into flight, and you’re lucky enough to have your camera ready, you may as well press the shutter.

That was now.

 

Top photo: Squirrel-tail grass on sand dune. (click here for larger view)

Fossil fuel empire: a world of vulnerability

Also published at Resilience.org.

“It’s all about the oil,” many commentators said about the US assault on Iraq in 2003.

Attributing a war to a single cause is almost always an oversimplification, but protecting access to the 20th century’s most important energy source has been a priority of US foreign policy since World War II.

In part one of this series we considered the effects of the US military complex which has ringed the world for the past 75 years. This complex has depended on vast amounts of fossil fuel energy to move troops and munitions, and the US became a world power in significant part because of its endowment of oil.

As Daniel Yergin recounts in The Prize: The Epic Quest for Oil, Money & Power

Petroleum was central to the course and outcome of World War II in both the Far East and Europe. The Japanese attacked Pearl Harbor to protect their flank as they grabbed for the petroleum resources of the East Indies. Among Hitler’s most important strategic objectives in the invasion of the Soviet Union was the capture of the oil fields in the Caucasus. But America’s predominance in oil proved decisive, and by the end of the war German and Japanese fuel tanks were empty.” (The Prize, Simon & Schuster, 1990, pg 13)

At the end of World War II the US was not only the world’s preeminent military force, but its industrial capacity was undamaged by war and it was running on seemingly abundant supplies of cheap domestic oil.

Spurred on by oil and car companies who had the most to gain from a high-energy way of life, the US embarked on a building spree of far-flung suburbs, interstate highways, and airports that allowed long-distance flight to become a routine activity.

This hyper-consumption was bolstered by a new economic orthodoxy which saw no need to factor in energy depletion when accounting for national wealth, and which portrayed exponential economic growth as a phenomenon that could and should continue decade after decade.

It took barely a generation, of course, for the US economy to suck up the bulk of its cheap domestic oil – conventional oil production peaked in the US in 1971. Did Americans then conclude they should change the basis of their economy, and make peace with reduced energy consumption? Far from it. Dependence on imported oil has now been a central feature of the US economy for fifty years.

Gap between US oil consumption and production. Chart by An Outside Chance for the post Alternative Geologies: Trump’s “America First Energy Plan”, from stats on ycharts.com

 

A world of vulnerability

The huge military complex which protects essential oil supply routes is sometimes seen as a sign of US strength, but it can just as accurately be seen as a sign of US weakness.

In a 2009 report entitled “Powering America’s Defense: Energy and the Risks to National Security”, a panel of twelve retired generals and admirals notes that “The U.S. consumes 25 percent of the world’s oil production, yet controls less than 3 percent of an increasingly tight supply.” This voracious appetite for oil, they say, is a dangerous vulnerability:

As we consider America’s current energy posture, we do so from a singular perspective: We gauge our energy choices solely by their impact on America’s national security. Our dependence on foreign oil reduces our international leverage, places our troops in dangerous global regions, funds nations and individuals who wish us harm, and weakens our economy; our dependency and inefficient use of oil also puts our troops at risk.” (Introduction to Powering America’s Defense)

One source of imported oil has outranked all others for the US and its western European allies. The US was already consolidating its “special relationship” with Saudi Arabia in the 1930s, in the first years of that country’s existence. As Timothy Mitchell describes this relationship,

Aramco [Arabian-American Oil Company] paid the oil royalty not to a national government but to a single household, that of Ibn Saud, who now called himself king and renamed the country … the ‘Kingdom of Saudi Arabia’. … This ‘privatisation’ of oil money was locally unpopular, and required outside help to keep it in place. In 1945 the US government established its military base at Dhahran, and later began to train and arm Ibn Saud’s security forces …. The religious establishment, on the other hand, created the moral and legal order of the new state, imposing the strict social regime that maintained discipline in the subject population and suppressed political dissent.” (Timothy Mitchell, Carbon Democracy, Verso, 2013, pg 210-211)

The alliance between a self-styled liberal democracy and an theocratic autocracy has not been a marriage made in heaven. But in spite of many points of tension the relationship has benefited powerful forces in both countries and has endured for most of the age of oil.

The need to protect US access to the world’s largest sources of conventional oil was formally recognized in the Carter Doctrine:

An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” (US President Jimmy Carter in his State of the Union Address, January 1980)

Ironically, this doctrine led the US to begin supporting the mujahideen, Islamic fundamentalists who were fighting the Soviet Union in Afghanistan. And ironically, after the Soviet-Afghan war ended one of the major irritants for the formerly lauded “freedom fighters” was the heavy military presence of the infidel United States in Saudi Arabia. The result has been almost 20 years of continuous warfare between the US and various offshoots of the mujahideen, with no prospect of victory for the US.

The costs of these wars, merely in dollar terms, have been staggering. While US military expenditures have remained high ever since World War II, these costs have recently gone through the roof. An analysis of military spending by Time in 2013 found that inflation-adjusted military spending in the 2000s was approximately twice as high as military spending in the 1960s, during the nuclear face-off with Russia and the massive deployment in Indochina.

In sum, the US has been importing increasing quantities of increasingly expensive oil for decades. During the same years US military spending has soared. Does this sound like a recipe for solvency? You might well wonder if it’s just coincidence that US national debt has soared during these years.

US national debt converted to 1983 dollars and plotted on logarithmic scale – each step up the ladder is 10 times as high as the previous step – by Stephen Bloch of Adelphi University.

 

Recall the curious formulation by John Dower cited in the first installment of this series:

Creating a capacity for violence greater than the world has ever seen is costly – and remunerative.” (The Violent American Century, pg 12, emphasis mine)

How is this world-wide military occupation remunerative? In our next installment we’ll look at the tie-in between the power that grows out of the barrel of a gun, and the power that comes with control of currency.

Part Three of this series

 

Top photo: well head at the Big Hill, Texas site of the US Strategic Petroleum Reserve. The Big Hill facility stores up to 160 million barrels of oil. The four sites of the Strategic Petroleum Reserve were developed in the 1970s, amid fears that a disruption in global supply lines could leave the US dangerously vulnerable. Photo from US Office of Fossil Energy.