Blowing in the Wind
Richard Heinberg
Economic contraction and social claustrophobia
The social dimensions of the end of growth are coming into
clearer focus with each passing month—from last year’s Occupy uprisings, to the
recent NATO demonstrations in Chicago, to mass demonstrations in Spain, and on
and on. Also clearer is the desperate strategy of the powerful, which consists
primarily of the militarization of the police and the criminalization of
dissent.
Yet what else besides unrest and revolt is to be expected
from soaring youth unemployment rates, falling living standards, and
still-increasing levels of economic inequality?
By now it is also becoming clearer that the social impacts
of contraction serve as a reinforcing feedback to the economy, worsening the
debt crisis. A revealing phrase is being used to describe Europe’s financial
mess: “the street has taken control.” As people express fears about the future
of the euro by taking their money out of banks, the banks weaken and demand
more backstops from governments, which have to run even bigger deficits in
order to provide bailouts. Further, as people lose faith that government can
address economic problems, they stop paying taxes—as is happening in
Greece—thus making government even less effective.
Lack of social cohesion is itself a cost to the economy.
It’s hard to make a formal economy work at top speed if it is being sabotaged,
or if a significant proportion of its output has to go toward keeping people
from deserting it in favor of a growing informal economy of black markets,
subsistence, and barter.
War is a timeworn solution to economic problems. Surplus
young males are kept off the streets; idle manufacturing capacity is engaged;
dissent can be ruthlessly swept aside. But in our current global circumstances
war is itself becoming increasingly costly, and the US (which is typically at the
center of any international conflict du jour) is extremely war-weary. Apart
from threats and counter-threats over Iran’s nuclear program, there are few
signs yet that strategies of desperation are about to be deployed on a broad
scale. But with economic tensions nearing the breaking point geopolitical
rivalries could escalate very quickly.
To most commentators, the current economic dilemma appears to have emerged solely from problems within the global financial system. But, as I argued in The End of Growth, there are deeper and—in the long run—much more important factors at work. The economy requires ever-widening streams of resources in order to grow, and many key resources are becoming more expensive to produce. This is particularly true with regard to energy resources, especially oil.
So are higher oil prices on the way? Not necessarily. As the
economy tanks, that will cut demand for oil and the price will fall below the
new-supply break-even level; when that happens, companies will cancel or delay
new projects (as they did in late 2008 when the per-barrel price fell to $40).
But if, for the moment, the economic news looks good, demand will grow and oil
prices must inevitably return to levels that justify new supply. And those
price levels are just high enough to begin undermining economic growth, as a
spate of recent economic research has shown.
So whether the latest financial news is giddy or dismal,
whether oil prices are up or down, in either case the game of growing the
economy by increasing the production of affordable transport fuel is now
officially over. Previously, we enjoyed both a growing economy and low fuel
prices, with the latter feeding the former; now we see “cheap” oil only when
the economy is in a tailspin of demand destruction.
