It was 5 a.m. and I was running on my treadmill, only half listening to the early news on cable TV when I heard a reporter talking excitedly about a new political movement calling itself the “Tea Party.” I stepped off the machine, not sure if I had heard correctly. The screen was full of angry middle-aged Americans hoisting yellow “Don’t Tread on Me” flags, complete with the coiled snake insignia. Others were thrusting signs at the camera declaring “No taxation without representation,” “Close the borders,” and “Climate change is a hoax.” The reporter, barely audible above the chants, was saying something about a spontaneous grassroots movement that was spreading like wildfire across the heartland, protesting big government in Washington, DC, and liberal career politicians who cared only about enriching themselves at the expense of their constituents. I couldn’t believe what I was seeing and hearing. It was like witnessing a perverse inversion of something I had organized nearly forty years ago. Was this some kind of cruel cosmic joke?
December 16, 1973. Snow began falling just after sunrise. I felt a chilling wind against my face as I approached Faneuil Hall in downtown Boston, once the meeting place where firebrands and radicals like Sam Adams and Joseph Warren railed against the colonial policies of King George III and his corporate emissaries—the most notorious and hated being the British East India Company.
The city had been bunkered down for weeks. Traffic, which is generally heavy and often gridlocked in town, had been sparse for several days, largely because many gas stations had run out of fuel. At the few stations still pumping gas, motorists lined up for blocks, waiting an hour or more to fill up their tanks. Those lucky enough to find fuel were shocked at the prices being charged at the pump. Gas prices had doubled in just a few weeks, creating near hysteria in a country that, up to that time, was the largest oil producer in the world.
The public reaction was understandable given that it was America’s abundant oil reserves and its wily ability to mass-produce affordable cars for a restless, nomadic people that catapulted the United States to commanding heights, making it the world’s leading superpower in the twentieth century.
The jolt to our national pride came without warning. Just two months earlier, the Organization of Petroleum Exporting Countries (OPEC) slapped an oil embargo against the United States in retaliation to Washington’s decision to resupply the Israeli government with military equipment during the Yom Kippur War. The “oil shock” reverberated quickly across the world. By December, the price of oil on the world market had shot up from $3 per barrel to $11.65.1 Panic ensued on Wall Street and on Main Street.
The first and most obvious sign of the new reality was at neighborhood gas stations. Many Americans believed that the giant oil companies were taking advantage of the situation by arbitrarily spiking prices to secure windfall profits. The mood among motorists in Boston and around the country quickly turned sour. This was the backdrop for the tumultuous event that would unfold on the Boston wharf on December 16, 1973.
The day marked the two hundredth anniversary of the famed Boston Tea Party, the seminal event that galvanized popular sentiment against the British crown. Angered over a new tax imposed on tea and other products being exported to the American colonies by the mother country, Sam Adams spurred on a band of discontents, some of whom dumped tea cargo in the Boston Harbor. “No taxation without representation” quickly became the banner cry of the radicals. This first act of open defiance of British rule set off a series of reactions and counterreactions by the monarchy and its upstart thirteen colonies that would end in the Declaration of Independence in 1776 and the Revolutionary War.
In the weeks leading up to the anniversary, a groundswell of anger was building up against the giant oil companies. Many Americans were furious over what they considered to be unjustified price gouging by callous global companies threatening to undermine what Americans had come to regard as a basic right as revered as free speech, free press, and free assembly—the right to cheap oil and auto mobility.
I was twenty-eight years old at the time—a young activist weaned on the anti–Vietnam War and civil rights movement of the 1960s. A year earlier, I had launched a national organization, the People’s Bicentennial Commission, which I hoped would serve as a radical alternative to the official American Bicentennial Commission established by the Nixon administration to commemorate the various historical events leading up to the two hundredth anniversary of the signing of the Declaration of Independence in 1776.
I conceived of the idea of an alternative celebration in part because of my growing alienation from my colleagues in the New Left movement. Having grown up in a working-class neighborhood on the deep south side of Chicago—a community of tradesmen and mechanics, policemen and firemen, and families who worked in the Chicago stockyards, rail yards, and nearby steel plants—patriotism was in my blood. On any given day, a visitor could not help noticing the flutter of American flags on front porches scattered across my neighborhood. Every day was Flag Day.
I was raised on the American dream and developed a deep appreciation for the radical sentiments of our founding fathers—Thomas Jefferson, Benjamin Franklin, Thomas Paine, George Washington—the small group of revolutionary thinkers who put their lives on the line in pursuit of the inalienable human rights to life, liberty, and the pursuit of happiness.
Many of my friends in the New Left hailed from a more privileged background, having grown up in America’s elite suburban enclaves. Although deeply committed to the pursuit of social justice, equality, and peace, they increasingly drew their inspiration from other revolutionary struggles abroad, especially the anticolonial struggles of the post–World War II era. I recall countless political gatherings in which the thoughts of Mao, Ho Chi Minh, and Che Guevara were called forth to provide guidance and spur selfless action. All of this was strange to me, having been raised to believe that our homegrown American revolutionaries were the inspiration for all other anticolonial struggles over the past two centuries.
The American Bicentennial Celebration offered a unique opportunity for a younger generation to reconnect with America’s radical promise—especially when the official White House observance, overseen by President Nixon and a legion of commercial boosters, appeared to be more rooted in the monarchical trappings of aristocratic privilege than in a sense of economic and social justice more befitting those early American heroes we were supposed to be celebrating.
Our plan was to turn the Tea Party anniversary into a protest against the oil companies. We were unsure whether anyone would come out onto the streets and join us. After all, there had never been a protest against big oil, so there was no way to predict what people might do. My fear of an embarrassingly low turnout grew as the snow began to fall. During the 1960s, we always scheduled antiwar protests in the spring because we were more likely to draw a crowd. In fact, none of the seasoned activists organizing the event could recall a single mass protest ever held in the dead of winter.
As I turned the corner onto Faneuil Hall, I looked in amazement. Thousands of people were lining the streets leading to the building. They were hoisting signs and banners reading “Make the oil companies pay,” “Down with big oil,” and “Long live the American Revolution.” People were packed into the hall chanting, “Impeach Exxon.”
After I delivered a short speech calling on the protestors to remember this day as the beginning of a second American Revolution for “energy independence,” we took to the streets, following the exact route that the “tea partiers” from two hundred years ago took to Griffin’s Wharf. Along the way, thousands more Bostonians joined our ranks—students, blue-collar workers, middle-class professionals, and entire families. By the time we reached the docks where the official Salada Tea Company ship (a recreation of the original ship) was anchored, upwards of twenty thousand protesters lined the waterfront, chanting, “Down with big oil.” The protest overwhelmed the carefully orchestrated ceremony. An armada of local fishing boats from towns as far north as Gloucester broke through the police blockades and headed toward the Salada Tea ship, where federal and local dignitaries awaited the official ceremonies. Fishermen came aboard, seized the ship, climbed the masthead, and began throwing empty oil barrels, rather than tea crates, into the river, to the cheers of thousands of protestors. The next day the New York Times and other newspapers around the county recounted what had happened in Boston, dubbing the event “The Boston Oil Party of 1973.”2
Thirty-five years later in July 2008, the price of oil on the world market peaked at a record $147 per barrel.3 Just seven years earlier, oil was selling at under $24 per barrel.4 In 2001, I suggested that an oil crisis was in the making and that the price of oil might tip over $50 per barrel within a few short years. My comments were greeted with widespread skepticism and even derision. “Not in our lifetime” came the retort from the oil industry, as well as most geologists and economists. Shortly thereafter, the price of oil dramatically rose. When the price went over $70 per barrel in mid-2007, the price of products and services across the entire global supply chain began to rise as well, for the simple reason that virtually every commercial activity in our global economy is dependent on oil and other fossil fuel energies.5 We grow our food in petrochemical fertilizers and pesticides. Most of our construction materials—cement, plastics, and so on—are made of fossil fuels, as are most of our pharmaceutical products. Our clothes, for the most part, are made from petrochemical synthetic fibers. Our transport, power, heat, and light are all reliant on fossil fuels as well. We have built an entire civilization on the exhumed carbon deposits of the Carboniferous Period.
Assuming our species somehow manages to survive, I often wonder how future generations living fifty thousand years from now will regard this particular moment in the human saga. They will likely characterize us as the fossil fuels people and this period as the Carbon Era, just as we have referred to past periods as the Bronze and Iron Ages.
When the price of oil passed the $100-per-barrel mark, something unthinkable just a few years earlier, spontaneous protests and riots broke out in twenty-two countries because of the steep rise in the price of cereal grains—tortilla protests in Mexico and rice riots in Asia.6 The fear of widespread political unrest sparked a global discussion around the oil-food connection.
With 40 percent of the human race living on $2 per day or less, even a marginal shift in the price of staples could mean widespread peril. By 2008, the price of soybeans and barley had doubled, wheat had almost tripled, and rice had quintupled.7 The United Nations Food and Agricultural Organization (FAO) reported that a record one billion human beings were going to bed hungry.
The fear spread as middle-class consumers in the developed countries began to be affected by the steep oil price rise. The price of basic items in the stores shot up. Gasoline and electricity prices soared. So did the price of construction materials, pharmaceutical products, and packaging materials—the list was endless. By late spring, prices were becoming prohibitive and purchasing power began plummeting around the world. In July of 2008, the global economy shut down. That was the great economic earthquake that signaled the beginning of the end of the fossil fuel era. The collapse of the financial market sixty days later was the aftershock.
Most heads of state, business leaders, and economists have yet to fathom the real cause of the economic meltdown that has shaken the world. They continue to believe that the credit bubble and government debt are unrelated to the price of oil, not understanding that they are intimately tied to the waning of the oil age. The longer the conventional wisdom remains mired in the belief that somehow the credit and debt crisis are merely the fault of failing to properly oversee deregulated markets, world leaders will be unable to get to the root of the crisis and fix it. We will revisit this point shortly.
What occurred in July of 2008 is what I call peak globalization. Although much of the world is still unaware, it is clear that we have reached the outer limits of how far we can extend global economic growth within an economic system deeply dependent on oil and other fossil fuels.
I am suggesting that we are currently in the endgame of the Second Industrial Revolution and the oil era upon which it is based. This is a hard reality to accept because it would force the human family to quickly transition to a wholly new energy regime and a new industrial model, or risk the collapse of civilization.
The reason we have hit the wall in terms of globalization is “global peak oil per capita,” which is not to be confused with “global peak oil production.” The latter is a term used among petro-geologists to denote the point when global oil production reaches its zenith on what is called the Hubbert bell curve. Peak oil production occurs when half of the ultimately recoverable oil reserves are used up. The top of the curve represents the midpoint in oil recovery. After that, production drops as fast as it climbed.
M. King Hubbert was a geophysicist who worked for the Shell Oil Company back in 1956. Hubbert published what has subsequently become a famous paper forecasting the peak of oil production in the lower forty-eight states sometime between 1965 and 1970. His projection was ridiculed by colleagues at the time who noted that America was the leading producer of oil in the world. The very idea that we might lose our preeminence was unthinkable and dismissed. His prediction, however, turned out to be correct. US oil production peaked in 1970 and began its long decline.8
For the past four decades, geologists have been arguing about when global peak oil production will most likely occur. The optimists believed, based on their modeling, that it would probably happen sometime between 2025 and 2035. The pessimists, which included some of the leading geologists in the world, projected global peak oil to occur between 2010 and 2020.
The International Energy Agency (IEA), a Paris-based organization that governments rely on for their energy information and forecasts, may have put the issue of global peak oil production to rest in its 2010 World Energy Outlook report. According to the IEA, global peak production of crude oil probably occurred in 2006 at seventy million barrels per day.9 The admission stunned the international oil community and sent shudders down the spine of global businesses whose life line is crude oil.
According to the IEA, to even keep oil production flat at slightly below seventy million barrels per day—to avoid a precipitous plunge in the global economy—would require a staggering investment of $8 trillion over the next twenty-five years to pump the difficult-to-capture remaining oil from existing fields, to open up less promising fields already discovered, and to search for new fields that are increasingly harder to find.10
But here we’re primarily concerned with global peak oil per capita, which occurred way back in 1979 at the height of the Second Industrial Revolution. BP conducted a study, which has since been confirmed by other studies, concluding that the available oil, if equally distributed, peaked in that year.11 While we’ve found more oil since then, the world population has grown much more quickly. If we were to equally distribute all of the known oil reserves today to the 6.8 billion human beings living on Earth, there would be less available per person.
When China’s and India’s economies took off at a blistering growth rate in the 1990s and the early 2000s—in 2007 India grew at a rate of 9.6 percent and China at 14.2 percent—bringing one-third of the human race into the oil era, the demand pressure on existing oil reserves inevitably pushed the price of oil up, leading to the aforementioned peak of $147 per barrel, soaring prices, a free fall in consumption, and a global economic shutdown.12
In 2010, the economy began a tepid recovery, mostly to replenish exhausted inventories. But as soon as growth began, the price of oil rose concomitantly to $90 a barrel by the end of 2010, again forcing up prices across the entire supply chain.13
In January 2011, Fatih Birol, the chief economist for the International Energy Agency, pointed to the inseparable relationship between increased economic output and the rise in oil prices. He warned that as the economic recovery gains momentum, “oil prices are entering a dangerous zone for the global economy.” In 2010, according to the IEA, oil imports for the mostly rich thirty-four countries in the Organization for Economic Cooperation and Development (OECD), rose from $200 billion at the beginning of the year to $790 billion at year’s end. The European Union’s oil import bill alone rose by $70 billion in 2010. That equals the combined budget deficits of Greece and Portugal. The US oil bill went up by $72 billion. The high cost of oil represents a loss of 0.5 percent of OECD gross domestic product.14
Developing countries were even harder hit in 2010, with oil imports rising by $20 billion, equal to a loss of income of nearly 1 percent of the GDP. The ratio of countries’ oil import bills to GDP is nearing the levels seen in 2008, just before the collapse of the global economy, leading the IEA to publicly worry that “the oil import bills are becoming a threat to the economic recovery.”15
On the same day that the IEA made its 2010 report public, Martin Wolf, the economic columnist for the Financial Times, wrote an essay on the historic convergence taking place in “output per head” in China, India, and the Western powers. According to data published by the US Conference Board, between the 1970s and 2009, the ratio of Chinese output per head to that of the United States rose from 3 percent to 19 percent. In India, the ratio rose from 3 percent to 7 percent.16
Wolf notes that China’s output per head, relative to that of the United States, is approximately the same as Japan’s when it began its economic recovery after World War II. Japan shot up to 70 percent of US levels by the 1970s and 90 percent by 1990. If China followed a similar trajectory, it would approach 70 percent of US output per head by 2030. But here is the difference. By 2030, China’s economy would be nearly three times the size of the US economy, and larger than the United States and Western Europe put together.17
Ben Bernanke, Chairman of the US Federal Reserve Board, pointed out in a November 2010 speech that in the second quarter alone, the aggregate real output in the emerging economies was 41 percent higher than in the beginning of 2005. China’s aggregate output was 70 percent higher and India’s was 55 percent higher.18
What does all this mean? If aggregate economic output throttles up again at the same rate as it did in the first eight years of the twenty-first century—which is exactly what is happening—the price of oil will quickly rebound to $150 per barrel or more, forcing a steep rise in prices for all other goods and services, and will lead to another plunge in purchasing power and the collapse of the global economy. In other words, each new effort to regain the economic momentum of the past decade will stall out at around $150 per barrel. This wild gyration between regrowth and collapse is the endgame.
Naysayers argue that the rise in the price of oil had little to do with demand pressure against supply and more to do with speculators gaming the oil market to make a killing. While speculators may have added fuel to the fire, the incontrovertible fact is for the past several decades we have been consuming three and a half barrels of oil for every new barrel we find.19 This reality is what determines our present condition and future prospects.
Now, the pressure of rising aggregate demand against dwindling reserves of crude oil is compounded by the growing political unrest in the Middle East. Millions of young people across the region—in Tunisia, Egypt, Libya, Iran, Yemen, Jordan, Bahrain, and other countries—took to the streets in early 2011 in opposition to corrupt autocratic regimes that have ruled for decades and, in some cases, for generations. The youth rebellion, which is reminiscent of the youth revolt in the 1960s in the West, represents a generational shift of immense historical significance.
For a younger, educated generation that is becoming part of a global community and is as likely to identify with Facebook as with traditional tribal loyalties, the old ways are an anathema. The patriarchal thinking, rigid social norms, and xenophobic behavior of their elders is so utterly alien to the generation that has grown up in social media networks, with an emphasis on transparency, collaborative behavior, and peer-to-peer relations, that it marks a historic divide in consciousness itself.
Tired of being ruled by arbitrary and brutal leaders and living in a society rank with corruption, where patronage rather than merit is the custom and those in power enrich themselves at the expense of the growing poverty of the masses, young people are demanding changes. In just a few weeks, they forced the fall of the governments of Tunisia and Egypt, brought Libya to civil war, and threatened the collapse of regimes from Jordan to Bahrain.
To a great extent, it is oil that has played a pivotal role in the ruin of the region. The black gold has turned out to be more of a dark curse, transforming much of the Middle East into a one-resource society under the control of the ruling oligarchs. The flow of oil made sheikhs into billionaires, while their populations were kept docile with meager public welfare handouts and government employment. The result is that these countries never created the economic conditions for establishing a robust, multifaceted, entrepreneurial economy or a workforce to manage it. Generations of young people have languished, never fully developing their human potential.
Emboldened and empowered, young people are breaking away from the timidity of their elders and standing up to the powers that be with electrifying results that not even they could have imagined. The old order is beginning to waver, and while there is likely to be vacillating progress and wrenching retrenchment, it is unlikely that the old patriarchal rule over society, which has for so long determined the fate of generations of people living in the Arab world, will survive the next decade.
What we are seeing in the Middle East is a great transformation from hierarchical to lateral power. The Internet generation, which began by challenging the centralized media conglomerates in the West with peer sharing of music and information, is now beginning to flex its peer power in the Middle East by challenging the centralized political rule of autocratic governments.
The increasing political instability in the Middle East is going to wreak havoc on the price of oil on the world market for years to come. In early 2011, the political mayhem in Libya shut down oil fields across the country, taking 1.6 million barrels of crude oil a day out of production and forcing oil to spike to $120 a barrel.20 Oil analysts worry that if Saudi Arabia or Iran were to experience similar disruptions in oil production, it could cause a 20–25 percent increase in oil prices overnight, seriously crippling any hope of an even weak global economic recovery.21
No international observer close to the political upheaval unfolding in the Middle East believes that the region will ever go back to business as usual. It is not coincidental that the end of the oil era is also signaling the end of the authoritarian governments that have long ruled atop the most elite and centralized energy regime in history.
While the awakening of the youth of the Middle East is to be applauded and supported, it comes with a realization that the years ahead are going to be fraught with oil crisis after oil crisis brought on by the tug of two related phenomena: the rise of aggregate demand, forcing oil prices up to $150 or even $200 a barrel or more, and disruptions caused by political instability in the oil-rich states of the region, leading to similar price hikes.
How does the credit bubble and financial crisis feed into this Second Industrial Revolution endgame? To understand the relationship between the two, one needs to go back, once again, to the last half of the twentieth century. The Second Industrial Revolution—the coming together of centralized electricity, the oil era, the automobile, and suburban construction—went through two stages of development. A juvenile Second Industrial Revolution infrastructure was laid down between 1900 and the beginning of the Great Depression in 1929. That infantile infrastructure remained in limbo until after World War II. The passage of the Interstate Highway Act of 1956 provided the impetus to mature the infrastructure for the auto age. The establishment of an intercontinental highway grid—which at the time was heralded as the most ambitious and expensive public works project in all of human history—created an unparalleled economic expansion, making the United States the most prosperous society on Earth. Similar highway construction projects commenced in Europe shortly thereafter, with a commensurate multiplier effect.
The interstate highway infrastructure hastened a construction boom as businesses and millions of Americans began to relocate in newly built suburban enclaves off the interstate highway exits. The commercial and residential real estate surge peaked in the 1980s with the completion of the interstate highways, as did the Second Industrial Revolution. Commercial and residential builders overshot demand, leading to a real estate slump in the late 1980s and early 1990s and a dip into a serious recession, which quickly spread to the far corners of the world. But with the Second Industrial Revolution beginning its long decline in the late 1980s, how was the United States able to extricate itself from recession and regrow its economy in the 1990s?
The US economic recovery was built largely on the savings amassed in the halcyon decades of the Second Industrial Revolution, combined with record credit and debt. We became a nation of runaway spenders. It turns out that the money we were spending, however, was not so much new money generated by new income. American wages had been slowly leveling off and declining as the Second Industrial Revolution passed into its mature stage in the 1980s.
There was a great deal of hype about the emerging IT and Internet revolutions. The new innovation corridors springing up in places like Silicon Valley in California, Route 128 in Boston, Interstate 495 in Washington, and the Research Triangle in North Carolina promised a high-tech cornucopia, and the media was more than willing to gush over the latest marvels to come out of companies like Microsoft, Apple, and AOL.
There is no denying that the communication revolution of the 1990s created new jobs and helped transform the economic and social landscapes. But for all the spin, the fact remains that the IT sector and the Internet did not in and of themselves constitute a new industrial revolution. For that to happen, the new communications technologies would have to converge with a new energy regime, as has been the case with every great economic revolution heretofore in history. New communications regimes never stand alone. Rather, as mentioned in the introduction, they are the mechanism that manages the flow of activity made possible by new energy systems. It is the laying down of a communication-energy infrastructure, over a period of decades, that establishes a long-term growth curve for a new economic era.
The problem was one of timing. The new communications technologies differed fundamentally from first-generation electricity communication technology. The telephone, radio, and television were centralized forms of communications designed to manage and market an economy organized around centralized fossil fuel energies and the myriad centralized business practices that flowed from that particular energy regime. The new, second-generation electricity communication, by contrast, is distributed in nature and ideally suited to manage distributed forms of energy—that is, renewable energy—and the lateral kinds of business activity that accompany such an energy regime. The new distributed communications technologies would have to wait another two decades to hook up with distributed energies and create the basis for a new infrastructure and a new economy.
In the 1990s and the first decade of the twenty-first century, the Information and Communication Technology (ICT) revolution was grafted on to the older, centralized Second Industrial Revolution. It was, from the start, an unnatural fit. While ICT enhanced productivity, streamlined practices, and created some new business opportunities and jobs—which probably extended the useful life of an aging industrial model—it could never achieve its full distributed communication potential because of the inherent constraints that come with being attached to a centralized energy regime and commercial infrastructure.
In lieu of a powerful new communication-energy mix, we began to grow the economy by living off the accumulated wealth generated in the four decades following World War II. The easy extension of credit, brought on by the credit card culture, acted like an intoxicant. Buying became addictive and consumption became something akin to a mass collective potlatch. It was as if we were unconsciously on a death spiral, speeding down the backside of the Second Industrial Revolution bell curve to our ruin, determined to devour the vast wealth we had generated over a lifetime.
We succeeded. The average family savings rate in the early 1990s was around 8 percent. By the year 2000, family savings had shrunk to around 1 percent.22 By 2007, many Americans were spending more than they made.
We lifted the global economy on the back of American purchasing power. What we weren’t willing to admit to ourselves, however, was that the whole thing was paid for by depleting the savings of American households.
By the mid-1990s Americans were awash in debt. Bankruptcies were at a record high. In 1994, a whopping 832,829 Americans filed for bankruptcy.23 Incredibly, by 2002, bankruptcies had soared to 1,577,651.24 Yet credit card debt continued to climb.
It was around this time that the mortgage banking industry began to push a second credit instrument—subprime mortgages requiring little or no money down. Millions of Americans took the bait, buying houses they could not afford. The housing construction boom created the biggest bubble in US history. Home values doubled and tripled in some areas of the country in just a few years. Homeowners began to see their houses as lucrative investments. Many used their new investments as cash cows, refinancing mortgages two and three times to secure needed cash to pay down credit card accounts and continue their buying sprees.
The real estate bubble burst in 2007.25 Housing prices plummeted. Millions of Americans, who thought they were rich, now suddenly found themselves unable to pay the interest on mortgages that had been deferred but were now coming due. Foreclosures skyrocketed. Banks and other lending institutions in America—that had willingly bought into what amounted to a sophisticated global Ponzi scheme—went into paralysis. In September 2008 Lehman Brothers went under. Then AIG—a company that held subprime mortgage bonds and loans totaling billions—was threatened with a meltdown; if this had occurred, it would have taken the rest of the American economy and much of the world economy down with it. Banks stopped lending. An economic collapse on the scale of the Great Depression loomed, forcing the United States to come to the rescue, bailing out Wall Street financial institutions to the tune of $700 billion. The rationale for the bailout was that these institutions were simply “too big to fail.”
The so-called Great Recession began and real unemployment continued to rise month after month, reaching 10 percent of the workforce by the end of 2009 (17.6 percent of the workforce if we count the discouraged workers, who gave up looking for work and were no longer counted, and marginally attached workers, who were working only part time, but desired full-time employment). This represents nearly twenty-seven million Americans, the highest percentage of unemployed and underemployed workers in the United States since the Great Depression in the 1930s.26
President Obama’s bailout package saved the banking system but did little for American families. By 2008, the accumulated household debt in the United States was closing in on $14 trillion.27 To get an idea of how deeply in debt American households are, consider that twenty years ago, the average family’s debt equaled about 83 percent of its income. Ten years ago, household debt had risen to 92 percent of family income, and by 2007, household debt had risen to 130 percent of income, leading economists to use a new term, “negative savings,” to reflect the deep change in the spending and savings patterns of American families.28 Unemployed, underemployed, and saddled with debt, a record 2.9 million homeowners received foreclosure notices on their houses in 2010.29
Even more ominous, the ratio of household debt to GDP, which was 65 percent in the mid-1990s, reached 100 percent in 2010, a sure sign that American consumers would no longer be propping up globalization with their purchasing power.30
The credit bubble and the financial crisis did not occur in a vacuum. They grew out of the deceleration of the Second Industrial Revolution. That slowdown began in the late 1980s, when the suburban construction boom—brought on by the laying down of the interstate highway system—peaked, signaling the high-water mark of the auto age and the oil era.
It was the marriage of abundant, cheap oil and the automobile that drove America to the top of the world economy by the 1980s. Unfortunately, we used up that accumulated wealth in less than half the time it took to create it, in an extraordinary buying binge designed to keep the economic engine artificially revved up while the real economy was winding down. When our savings dried up, we borrowed trillions more, living off the myth of our still-unrivaled economic prowess, and continued to spend money we didn’t have—all of which fueled the globalization process. Millions of people all over the world were more than happy to provide the goods and produce the services in return for our dollars.
The global buying spree and the dramatic rise in aggregate output that accompanied it pushed up the demand for an ever-dwindling oil supply, resulting in a steep increase in prices on world markets. The sharp acceleration in the price of oil triggered price hikes across the global supply chain for everything from grain to gasoline, finally leading to a worldwide collapse of purchasing power when oil hit a record $147 per barrel in July 2008. Sixty days later, the banking community, awash in unpaid loans, shut off credit; the stock market crashed, and globalization came to a standstill.
The upshot of eighteen years of living off extended credit is that the United States is now a failed economy. The gross liabilities of the US financial sector, which were 21 percent of GDP in 1980, have risen steadily over the past twenty-seven years to an incredible 116 percent of GDP by 2007.31 Because the US, European, and Asian banking and financial communities are intimately intertwined, the credit crisis swept out of America and engulfed the entire global economy. Even more troubling, the International Monetary Fund forecasts that the federal government debt could equal the GDP by 2015, throwing in doubt the future prospects of the United States of America.32
If this weren’t enough to contend with, there is a second debt building up—one far bigger and more difficult to pay back. The entropy bill for the First and Second Industrial Revolutions is coming due. Two hundred years of burning coal, oil, and natural gas to propel an industrial way of life has resulted in the release of massive amounts of carbon dioxide into the Earth’s atmosphere. That spent energy—the entropy bill—blocks the sun’s radiant heat from escaping the planet and threatens a catastrophic shift in the temperature of the Earth, with potentially devastating consequences for the future of life.
In December 2009, government leaders representing 192 nations assembled in Copenhagen to address the greatest challenge to ever face the human race—industrial-induced climate change. A report issued in Paris by the UN Intergovernmental Panel on Climate Change in March 2007 presented a stark account of the scope of the problem. More than 2,500 scientists from more than 100 nations contributed to the findings. This was the fourth in a series of reports that extended over fifteen years, in what is regarded as the largest scientific study ever undertaken.33
The first thing that grabbed my attention upon reading the UN report was that for twenty-seven years I had gotten it wrong. I first wrote about climate change in my 1980 book, Entropy, one of the first books to raise public awareness around the issue. I went on to spend a significant amount of my time during the 1980s building public awareness of the long-term threat posed by global warming.
In 1981, The Congressional Clearinghouse on the Future, a legislative service organization of Congress made up of more than one hundred congressmen and senators, invited me to present two informal, off-the-record, lectures for members of Congress on the thermodynamic consequences of industrially induced CO2 emissions. To my knowledge, these sessions were among the earliest discussions on climate change in the US Congress.
In 1988, my office hosted the first gathering of scientists and environmental NGOs from around the world to discuss ways to work together to create a global movement to address climate change. We founded the Global Greenhouse Network, a coalition of climate researchers, environmental organizations, and economic development experts, and launched a decade-long effort that helped move the climate change debate from academia into the public policy arena.
Although I had long understood the urgency of global warming, like many of my colleagues, I continued to underestimate the speed at which the temperature of the Earth was rising. I didn’t properly appreciate the powerful synergistic effects that could result from unanticipated positive feedback events. For example, when the ice in the Arctic melts from a rise in the Earth’s temperature because of increased CO2 in the atmosphere, it prevents heat from escaping the Earth. The diminished snow cover means a loss of reflective capacity—white reflects heat and black absorbs heat—and less heat escaping the planet. This, in turn, heats up the Earth even more and melts the snow faster in an accelerating positive feedback cycle. Now take this one feedback loop and multiply the possibilities almost endlessly, as other abrupt changes in the Earth’s biosphere trigger their own feedback loops, and the immensity of what we are facing becomes utterly terrifying.
The fourth UN Climate Report was an urgent reminder that the chemistry of the planet is changing. The news is not good. Our scientists tell us to expect at least a three degree Celsius rise in the temperature on Earth by the end of the century.34 It could go significantly higher. While three degrees doesn’t sound all that bad, we need to understand that a temperature rise in this range puts us back to the temperature on Earth three million years ago in the Pliocene epoch. The world was a very different place back then.
A mere 1.5 to 3.5 degrees Celsius shift in temperature, according to our scientists, could lead to a mass extinction of plant and animal life in less than one hundred years. The models indicate an extinction rate of 20 percent on the low end and more than 70 percent on the high end.35 We need to grasp the enormity of what the scientists are saying. The Earth has experienced five waves of biological extinction in the last 450 million years.36 Each time there was a wipeout, it took about ten million years to recover the biodiversity that was lost.37 How does the rise in temperature affect the survival rate or extinction of life?
Let’s look at a simple example. The loss of trees in stressed ecosystems worries scientists. Imagine the Northeast region of the United States having the climate of Miami by the second half of the twenty-first century. While human beings can migrate quickly in response, trees cannot. Tree varieties have adapted to relatively stable temperature zones over thousands of years. Moreover, they are slow to reproduce. Therefore, when the temperature changes radically in just a few decades, the trees cannot migrate quickly enough to catch up to their temperature zone. This has tremendous implications for the viability of the Earth’s creatures. Twenty-five percent of the planet’s land surface is forested and serves as the habitat for many of the remaining species of life.38 A sudden loss of trees would wreak havoc on animal life.
Scientists working in Costa Rica have noticed that as temperatures have risen over the past sixteen years, there has been a steady decline in the growth rate of trees.39 Researchers cite similar recordings all over the world, adding to the growing concern that we may be already in the early stages of a mass extinction event.
The most important impact of a global rise in temperature is on the water cycle. Every increase in temperature of one degree Celsius leads to a 7 percent increase in the moisture-holding capacity of the atmosphere.40 This causes a radical change in the way water is distributed, with more intense precipitation, but a reduction in duration or frequency. The consequence is more floods and longer periods of drought. Ecosystems that have adapted to a specific weather regime over a long period cannot adjust quickly enough to these abrupt changes in precipitation, and instead become unstable and die off.
We are already experiencing the hydrological impacts of a half degree rise in the Earth’s temperature on hurricane intensity.41 A 2005 study published in the journal Science states that the number of 4 and 5 category storms has doubled since the 1970s.42 Katrina, Rita, Gustav, and Ike are a sober reminder of what’s in store for the human race as we move deeper into the current century.
Scientists also project a rise in sea water levels and the loss of coastlines around the world. Small island chains like the Maldives in the Indian Ocean and the Marshall Islands in the Pacific might entirely disappear under the ocean. Snow atop many of the world’s great mountain ranges is melting. Some glaciers are expected to lose over 60 percent of their ice volume by 2050.43 More than one-sixth of the human race lives in mountain valleys and relies on the snow for irrigation, sanitation, and drinking water.44 Relocating nearly a billion people in less than forty years seems unfathomable.
Scientists are particularly worried about the Arctic. New studies forecast 75 percent less summer ice cover by 2050.45 In August 2008, there were open waters stretching around the Arctic. This is the first time this has occurred in at least 125,000 years.46
What most concerns the climatologists are the feedback loops that are difficult to anticipate but have the ability to trigger vast changes in the biosphere and spike the Earth’s temperature to far higher levels than the models now project. For example, consider the permafrost that has cloaked the Siberian subarctic region since the onset of the last ice age. Before that time, this region, which is roughly the size of France and Germany combined, was a lush grassland teaming with wildlife. Permafrost trapped the organic matter underneath the ground in a kind of time capsule. Scientists say there is more organic matter under the permafrost in Siberia than in all of the tropical rainforests in the world.
The UN Intergovernmental Panel on Climate Change mentioned the permafrost problem, in passing, in its fourth assessment report, noting that if the permafrost coat melts, it could trigger a potentially catastrophic release of carbon dioxide into the atmosphere and lead to a dramatic rise in the Earth’s temperature, far above the levels now being projected. But there was no data available to ascertain the situation.
Recent field studies reported in the journal Nature, however, have shaken researchers. The rising temperature on Earth is already beginning to melt the permafrost at an alarming rate. Scientists at the Institute of Arctic Biology at the University of Alaska in Fairbanks warn we may cross a threshold sometime in this century, with a significant loss of ice cover, releasing vast amounts of carbon dioxide and methane into the atmosphere in just a few short decades.47 If this happened, there is nothing our species could do to prevent a wholesale destruction of our ecosystems and catastrophic extinction of life on the planet.
The European Union went to the Copenhagen climate talks with a proposal that the nations of the world limit global carbon dioxide emissions to 450 parts per million by 2050, with the hope that if we were to do so, the increasing temperature on Earth could be held to two degrees Celsius. Although a rise in temperature of two degrees would have a devastating impact on the ecosystems of the planet, we might still be able to survive. Unfortunately, the other nations of the world were unwilling to take even this minimum measure to avert the ravages of climate change.
The Brussels proposal came into question, however, from an unexpected quarter. The US government’s own chief climatologist James Hansen, the head of the NASA Goddard Institute for Space Studies, suggested on the basis of his team’s research that the EU had miscalculated the projection of how much the temperature would rise if carbon emissions were limited to 450 parts per million. Hansen’s team pointed out that preindustrial levels of carbon dioxide in the atmosphere had not exceeded 300 parts per million for the past 650,000 years, as determined by ice core samples. The current industrial levels are already well above that, at 385 parts per million and quickly rising. Based on his team’s findings, human-induced climate change could lead to a staggering six-degree rise in the Earth’s temperature by the end of the century or shortly thereafter, and the literal demise of human civilization. Hansen concluded that
if humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm to at most 350 ppm, but likely less than that.48
Not a single government in the world is suggesting a radical change in the structuring of economic life that would bring us anywhere near the 350 parts per million level that Hansen says is necessary to save human civilization.
Pandemonium broke out at the Copenhagen climate talks. Governments accused each other of playing geopolitics with the future of the planet and of putting short-term economic interest before the survival of the human race. In the final hours, President Obama barged in, unannounced, demanding to sit in on a closed meeting of the Chinese, Indian, Brazilian, and South African heads of state—something unheard of in international diplomatic meetings. In the end, world leaders went home without cutting a deal to limit carbon emissions. All in all, it was a disgraceful performance. Despite the fact that human-induced climate change is the single greatest threat to human survival since our species first appeared on Earth, our leaders were unable to agree on a formula to save the world.
We are sleepwalking. Even with the mounting evidence that the Industrial Age, based on fossil fuels, is dying and that the Earth now faces potentially destabilizing climate change, the human race, by and large, refuses to recognize the reality of the situation. Instead, we continue to pin our hopes on finding a dwindling supply of oil and natural gas to keep the addiction alive, in an effort to ward off the unthinkable proposition of what we would need to do if we are truly in an endgame.
Nowhere is the shortsightedness more apparent than in the public’s reaction to the oil spill in the Gulf of Mexico in April 2010. A BP-leased oil rig blew up in the deep waters, killing eleven workers and rupturing a pipeline a mile below the surface, unleashing nearly five million barrels of oil into one of the world’s most treasured ecosystems.49 A stunned public watched week after week as oil gushed out of the deep crevasse in the ocean floor, spreading a black plume in every direction, killing wildlife, destroying delicate habitats, and threatening to turn the Gulf of Mexico into a dead sea. The environmental disaster became a painful reminder that in our desperation to keep the economic engine running, we are willing to undertake ever more risky ventures to find scarce fossil fuels, even if it means the destruction of our ecosystems.
One would think that the largest oil spill in history and subsequent widespread devastation would turn the national debate to our oil dependency and the impact it’s having on our environment. While it’s true that millions of Americans would like to have just such a discussion, even more Americans, according to opinion polls, have turned their anger to the more narrow question of BP’s culpability and the government’s inability to ensure that appropriate safety procedures were in place to avoid such mishaps. In fact, more Americans than not favor continuing offshore oil drilling in the Gulf of Mexico and elsewhere, having bought the idea that it’s the best way to secure energy independence.50
Former Republican vice presidential candidate Sarah Palin’s now famous exhortation, “Drill, baby, drill,” though ridiculed by environmentalists, is echoed by a majority of Americans. Even President Obama, the so-called green president, called for a lifting of the long-standing moratorium against deep-water offshore oil drilling along the Southeast Atlantic Coast just weeks before the calamity.
Palin and Obama should know better. These potentially dangerous oil drilling expeditions in remote terrains yield an insignificant amount of oil at best. Consider, for example, the hotly contested question of whether the US government should open part of the Alaska National Wildlife Refuge, the East and West Coasts, the eastern Gulf of Mexico, and the Rocky Mountains to oil drilling. According to a 2011 study commissioned by the American Petroleum Institute, which represents all of the leading oil and gas companies, drilling in every possible place in the United States where there are still remaining oil reserves would add only two million barrels per day by 2030, or less than 10 percent of current US consumption—all in all, a marginal increase in production with little appreciable impact on forestalling the end of the oil era.51
Many people have simply not come to grips with the fact that the fossil fuel–driven industrial age is ending. This doesn’t mean that the oil spigot will suddenly run dry tomorrow. Oil will continue to flow but at dwindling rates and higher costs. And because oil is aggregated and priced in a single world market, there is no magic formula by which any particular country can isolate itself under the banner of “energy independence.” As for conventional natural gas, the global production curve roughly shadows that of oil.
What about coal in China, tar sands in Canada, heavy oil in Venezuela, and shale gas in the United States? While still relatively abundant, these energy sources are costly to extract and emit far more carbon dioxide than either crude oil or conventional natural gas. Were we to make a significant shift into these more polluting fuels to stave off the closure of the fossil fuel era, the dramatic rise in global temperatures might inevitably be the final arbiter of our fate.
What about nuclear power? Most of the world stopped building nuclear power plants in the 1980s after the 1979 accident at the Three Mile Island nuclear plant in Pennsylvania and, later, in 1986, with the meltdown at the Chernobyl facility in Russia. Unfortunately, public memory is often short. The nuclear industry has reinvented itself in recent years, riding back in on the coattails of the climate change debate, arguing that it is a “clean” alternative to fossil fuels because it doesn’t emit CO2, and therefore, is part of the solution to addressing global warming.
Nuclear power was never a clean energy source. The radioactive materials and waste have always posed a serious threat to human health, our fellow creatures, and the environment. The partial meltdown of the Fukushima nuclear power plant in the wake of the earthquake and tsunami in Japan in 2011 touched off a political earthquake around the world, resulting in most governments putting on hold all plans to build new nuclear power plants, diminishing the long-term prospects of a resurrection of this twentieth century technology.
To quote a now famous cliché uttered by a former Clinton advisor James Carville, “It’s the economy, stupid.” True. But we continue to believe, erroneously, that our economic woes stem from being overly dependent on oil imports from the Middle East—actually, Canada is the largest supplier of oil to the United States—and from overly restrictive environmental restraints on the economy, which only cripple economic growth.52 In fact, the problem lies much deeper.
Americans sense that something is going terribly wrong in our country, that our economy is eroding and our way of life is being upended. This feeling of foreboding took on a very public face in 2009 with the rise of the Tea Party movement, a grassroots rebellion against big government, pork barrel politics, and exorbitant taxes.
Nearly half a million Tea Partiers cast their votes online for a so-called Contract from America, a list of ten agenda items they considered to be of the highest priority to their movement. Number two on the list, right after measures to protect the United States Constitution, is the rejection of cap and trade legislation to limit carbon dioxide emissions. Also of high priority is authorizing “the exploration of proven energy reserves to reduce our dependence on foreign energy sources from unstable countries . . . .”53
When I first heard of the Tea Party movement and its agenda, it struck me as the dark nemesis of what unfolded on the streets of Boston more than thirty-seven years ago at the Boston Oil Party. Instead of throwing empty oil barrels into the Boston Bay to protest the policies of the oil companies while chanting, “Down with big oil,” the new mantra of “Drill, baby, drill” is growing louder with every passing day.
The Tea Party activists and millions of other Americans are justifiably frightened and angry about what is happening in America. They are not alone. Families all over the world are scared as well. Drilling for more oil, however, won’t get us out of the crisis because oil is the crisis. The reality is that the oil-based Second Industrial Revolution is aging and will never rebound to its former glory. And everywhere people are asking, “What do we do?” If we are to put people back to work, curtail climate change, and save civilization from ruin, we will need a compelling new economic vision for the world and a pragmatic game plan to implement it.