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 at which global oil ­production reaches its zenith. Global peak oil “per capita” occurred way back in 1979 at the height of the Second ­Industrial ­Revolution. The petroleum company BP did a landmark study, since confirmed by other studies, concluding that if oil were equally distributed worldwide, peak oil per capita would have been reached in that year. While we’ve found more oil since then, the world population has grown much too quickly for the oil to catch up. If we were to distribute equally all the known oil reserves among the 6.8 billion human beings living on Earth today, less would be available per person.
When China and India’s economies took off at a blistering growth rate in the 1990s and 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 soaring prices, a freefall in consumption and a global economic shutdown.
In 2010, the economy began a tepid recovery, mostly to replenish exhausted inventories. But as soon as growth began, the price of oil started to rise, hitting $90 a barrel by the end of that year, again forcing prices up across the supply chain.
If aggregate economic output throttles up again at the same rate as it did in the first eight years of the 21st century—which is what is happening—the price of oil will quickly rebound to $100 to $150 a barrel, forcing a steep rise in prices for all other goods and services and leading to another plunge in purchasing power and the collapse of the global economy. In other words, each effort to regain the economic momentum of the past decade will stall out at around $150 a barrel. This wild gyration between re-growth and collapse is the endgame. The incontrovertible fact is that for the past several decades we have been consuming three and a half barrels of oil for every barrel we find. This reality is what determines our present condition and future prospects.
How do 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 20th century. The Second Industrial Revolution—the coming together of centralized electricity, the oil era and the automobile— went through two stages of development. A juvenile Second Industrial Revolution infrastructure was laid down between 1900 and the beginning of the 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 help the infrastructure mature to suit the auto age. Establishing an intercontinental highway grid—at the time heralded as the most ambitious and expensive public works project in history—created an unparalleled economic expansion, making the U.S. the most prosperous society on Earth. Similar highway construction projects commenced in Europe shortly thereafter, with a commensurate multiplier effect.
In the 1950s, the interstate highway infrastructure hastened a massive 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 boom peaked in the 1980s, as did the Second Industrial Revolution, when the interstate highways were completed. 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 U.S. able to extricate itself from recession and re-grow its economy in the 1990s?
The U.S. 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. But the money we were ­spending 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 and the Research Triangle in North Carolina promised a high-tech cornucopia—and the media were more than willing to gush over the latest marvels to come out of companies like Microsoft, Apple and America Online.
There is no denying that the communications revolution of the 1990s created new jobs and helped transform the economic and social landscapes. But for all the spin, the IT sector and the Internet did not 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.
The problem was one of timing. The new communications technologies ­differed fundamentally from first-generation ­electrical communications 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 business ­practices that flowed from that energy regime. In contrast, the new second-generation electrical communications is “distributed” in nature and ideally suited to managing ­distributed forms of energy—i.e., renewable energy—and the lateral kinds of business activities that accompany such a 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 21st century, the information and communications technology (ICT) revolution was grafted onto 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 communications 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 communications/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, consumption something akin to a mass potlatch, a Native American ceremony at which belongings are given away to show wealth and advance prestige. It was as if we were unconsciously on a death spiral, speeding down the back side of the Second Industrial Revolution bell curve to our ruin, determined to devour the wealth we had generated over a lifetime.
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 U.S. 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. All of this kept the wheels of globalization churning as millions of people worldwide were put to work to make the goods and provide the services purchased on credit by American consumers—that is, until the housing bubble burst.
The “Great Recession” began, and real unemployment continued to rise month after month, reaching 10 percent of the workforce by the end of 2009. U.S. President Barack Obama’s bailout package saved the banking system, but did little for American families. By 2008, the accumulated household debt in the U.S. was closing in on $14 trillion. Consider that 20 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 coin a new term, “negative income,” to reflect the deep change in the spending and savings patterns of American families. What is clear is that 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 massive suburban construction boom—brought on by building the interstate ­highway system—­peaked, signaling the high-water mark of the auto age and the oil era.