Before that question can be answered, a very brief history of how human civilization got to this point.

Today the Earth contains nearly 7 billion human inhabitants, most of whom are interconnected via the internet, free trade agreements, and an economic model that requires infinite growth. All of these facts are extremely recent developments on the geological time scale of the planet's history. The industrial revolution that enabled technological innovation in the extraction and use of energy, which, while drastically increasing the health and living standards for a very small portion of the 7 billion - has also brought with it a human population explosion. This population explosion is currently testing the resiliency of the ecosystems on the one planet that we have. While climate change may be a major problem, it simply a symptom of an economic system that cannot stop consuming until it inevitably collapses on itself.

We are now likely living during that major turning point in human history. This post will mainly pertain to the incompatibility of the current dominant economic model and the reality of living on a planet with finite resources. We may not be near the immediate end of economic growth - but we are rapidly heading there. Since my own history begins with the 1980's, that is where this brief history continues.

The Global Dominance of U.S. State Directed Capitalism

Throughout post-agricultural revolution human history, a common theme exists, that between any two nations in conflict, the nation with the most advanced military technology and abundant natural resources will prevail. The post WWII battle for ideological world control between the United States and the Soviet Union was no different.

In the late 80′s/early 90′s, the end of the Cold War signaled the triumph of the U.S. state directed capitalism economic model over the Soviet’s state directed communist model. This triumph was due to many factors, but to greatly oversimplify the issue, it can be primarily attributed to the superior efficiency and the resulting economic advantage of “free” markets versus a top-down state-planned economic model. The efficiency of the “free market” capitalist model, combined with America’s more abundant domestic natural resources was the right recipe for the technological innovations that powered our nation past the Soviets and into a few decades of global economic dominance.

During the Reagan Era of the 1980′s, globalization took off. The financial markets were allowed to run wild, and with the Soviet Union slowly internally crumbling, the U.S. was able to maintain its dominance of world markets with its newly gained unrivaled military power, achieved though the competitive arms race of the Cold War. Armed with the threat, trade, and use of that military power, the U.S. and often the World Bank and the IMF covertly (as well as overtly) continued to spread the ideals of free market efficiency throughout the developing world.  The words “Democracy,” have been attached as a moral underpinning – but an underpinning that has too often served more as a marketing ploy than a reality.

More recently, the unchallenged international power that the U.S. has enjoyed for several decades has begun to wane, triggered by years of large trade deficits, the loss of manufacturing jobs to globalized markets, and two unpaid-for wars.

Development of “Turbo-Capitalism”

Meanwhile, China, with a rapidly urbanizing population, has pursued a slightly different model of state directed capitalism – one without “democracy” attached. This model has allowed the Chinese economy to grow at unprecedented rates. Without the “burdens” of Democracy such as due process, expansive individual rights, and environmental protections; the Chinese turbo-charged economic model has quickly risen past the U.S.. In their newly created “totalitarian capitalism” model, the Chinese have a process even more readily equipped to rapidly exploit natural capital.

However, in this global race for rapid growth to fuel international economic and political dominance, a key piece of the economic puzzle has been discarded. The simple fact that the planet is a finite system; more importantly, one with a finite amount of easy to access, cheap fossil fuels. The previous centuries’ unprecedented growth had been “fueled” mostly by the technical innovation in the exploitation of these natural energy resources. This tremendous economic growth has allowed a significant portion of the 21^st century humans to live with amenities that only royalty of past centuries could have dreamed of.

In the U.S., our “free market” created super-corporations have left our country’s citizens victims of our own market design success. Laissez-faire capitalism has eroded our own Democracy and left our country with wealth and income distribution as unequal as many “developing” countries. This disparity has placed the U.S. political system in the grips of the few dominant economic interests that can continue our sputtering GDP growth, in what is now a diminishing empire. Moreover, in other countries in the world, those who were either late to the “free market” game, or those who had the “free market” imposed on them – the conditions are much worse. For billions of humans, life on this planet today consists of living without access to simple Western luxuries such as clean water or electricity, two of the key ingredients for basic health and education. When the growth engine slows, these are the who are the most vulnerable. In a world whose economic fate is currently intertwined with fossil fuel use, when supply does not meet demand, our fossil fuel dependent agricultural system suffers, people start going hungry and Arab uprisings start happening.


The Imminent Collapse of Economics as We Know It?

As we stand here at the beginning of the 21^st century, the cracks in the success of this economic system have begun to be more readily apparent. When the removal of 2 mb/d of crude from the world oil markets can cause prices to skyrocket; politicians begin pointing fingers about speculation, and bombs get dropped. Eventually, when the world markets cannot react to provide additional supply, strategic oil reserves are tapped, and everyone just tries to move on like everything is just fine.

Except, we have a big problem. Absent a huge leap forward in nuclear power, no amount of technical innovation can solve diminishing return on energy investment. Simply put, the remaining hard to reach energy sources are expensive to extract, both in terms of energy and dollars.

This is not a new story. Starting in 2006, global production of conventional oil peaked and leveled off, as previously discovered oil beds began to steeply decline in production, while new discoveries were unable to replace them. The energy inputs required for extraction, both in terms of physical energy and in terms of  the fiscal markers that represent the energy inputs, began to exponentially increase. However, the markets, population pressure, and therefore the government, demand continued full-steam economic growth. This remains true today, despite the fact that ever-increasing burning of fossil fuels is altering the very atmospheric  conditions on the planet that have allowed for our unprecedented expansion in the first place.

The main problem underlying everything is that the modern world has been built on a false premise of infinite economic growth in a finite system. The economy is only composed of our natural resources, used and altered to be traded amongst ourselves. Yet the powers that be in the world want, even need, to ignore this basic fact. Our debt based market economies require the political push for increased growth to continue; to create new jobs for the ever-increasing population and to simply generate more capital to service these debts. This model, the one that had allowed for  the global economic dominance by the U.S., is one that comes with no “golden parachute.” As the U.S. government debates debt ceilings, regulation, and market bubbles, the underlying reality is that the era of cheap energy is over, and with it the limits to growth are staring us in the face, whether we would like to see them or not.

As a result, the debate has become whether our decades old environmental regulations are too stringent; and thus should resource protection and human health be abandoned to continue our growth structures at any cost. This is where we are today.  How we proceed from here is undetermined, but when resources  can  not meet demand and there is no market substitute (as is the case with oil), when the externalities of coal use and nuclear waste are continually passed on to future generations; when government cannot “fuel” the growth necessary for the capital markets to continue growing – what will take its place?

The answer to that question will be the start of the next chapter in the human story and it is likely that you and I will be living through it.

Sphere: Related Content Labels: Capitalism, China, free markets, growth, peak oil, Soviet Union, U.S.