We’re witnessing the end of the Industrial Age

Jeremy Grantham manages 100 billion dollars of mostly other people’s money. He’s gone full peaker, simply acknowledging what anyone with sense has seen over the last 40 years.  And no one is listening to him, as he freely admits – read the whole piece.

If I am right in this assumption, then when ourfinite resources are on their downward slope,the hydrocarbon-fed population will be left far above its sustainable level; that is, far beyond the Earth’s carrying capacity. How we deal with this unsustainable surge in demand and not just “peak oil,” but “peak everything,” is going to be the greatest challenge facing our species”

(And, great capitalist that he is, Grantham goes on to say, “But whether we rise to the occasion or not, there will be some great fortunes made along the way in finite resources and resource efficiency, and it would be sensible to participate.” Yes, many people could die, but hey, why not make some money?)

“I believe that we are in the midst of one of the giant inflection points in economic history. This is likely the beginning of the end for the heroic growth spurt in population and wealth caused by what I think of as the Hydrocarbon Revolution rather than the Industrial Revolution. The unprecedented broad price rise would seem to confirm this. Three years ago I warned of “chain-linked” crises in commodities, which have come to pass, and all without a fully-fledged oil crisis”

“The bottom line really, though, is that no compound growth can be sustainable. Yet, how far this reality is from the way we live today, with our unrealistic levels of expectations and, above all, the optimistic outcomes that are simply assumed by our leaders.”

Here are Mr. Grantham’s key points:
  • Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population.
  • From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surplus es, a dramatic increase in wealth and scientifi c progress.
  • Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
  • The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our fi nite resources of hydrocarbons and metals, fertilizer, available land, and water.
  • Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get  richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.
  • The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
  • The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
  • But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
  • Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a  Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
  • Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.
  • Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the  possibility that China may stumble.
  • From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing  world and put a severe burden on poor countries.
  • We all need to develop serious resource plans, particularly energy policies. There is little time to waste.

Read the entire thing here – very worthwhile

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2 Comments

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2 responses to “We’re witnessing the end of the Industrial Age

  1. Aaron German

    Looks like some inside the Pentagon are in agreement. Check out the new National Strategic Narrative by Mr. Y. Here’s an excerpt:

    “It is time for America to re-focus our national interests and principles through a long lens on the global environment of tomorrow. It is time to move beyond a strategy of containment to a strategy of sustainment (sustainability); from an emphasis on power and control to an emphasis on strength and influence; from a defensive posture of exclusion, to a proactive posture of engagement. We must recognize that security means more than defense, and sustaining security requires adaptation and evolution, the leverage of converging interests and interdependencies. To grow we must accept that competitors are not necessarily adversaries, and that a winner does not demand a loser. We must regain our credibility as a leader among peers, a beacon of hope, rather than an island fortress.”

    Here’s a link to more on this: http://onpoint.wbur.org/2011/04/26/pentagon-security

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