Peak Oil 3

“What’s likely to happen to the economy?”
The US economy is particularly vulnerable to the coming oil shocks as we consume a greater proportion of the world’s oil than any other nation. The unparalleled prosperity experienced in this country during the last 100 years was built entirely on cheap oil. Oil was discovered in 1859 but did not become a truly important industrial fuel until Henry Ford began mass producing automobiles in the early 1900s. The mass production of automobiles became a cornerstone of the US economy while allowing people to move out of the cities and into the suburbs.

The expansion of the suburbs fueled the real estate and housing booms of the 20th century, which in turn fueled the US steel, copper, construction, etc industries. A system of finance sprung up that facilitated these booms while simultaneously becoming dependent on them.

These trends are still driving the US economy here in the 21st century:

Fact #1. According to the American Automobile Manufacturers Association, one out of every seven jobs in the US is dependent on automobile manufacturing. Source

Fact #2. According to an August 2005 report by Merrill Lynch, half of the new jobs created in the US since 2001 are dependent on (suburban) housing construction.

Most of the automobile and home purchases in this country are made with interest-bearing loans which, absent a hyperinflationary monetary policy, can only be paid back in the aggregate if the economy grows. The US economy, at least in its current incarnation, can only grow if people can afford to drive more. As researcher Stuart Staniford has shown in a series of graphs originally published on The Oil Drum, a strong causal (if not virtually direct) relationship exists between miles driven and economic growth:

In short, the US has built it’s entire infrastructure and way of life under the assumption oil would always be cheap and plentiful. The U.S. is no more prepared for Peak Oil in 2007 than New Orleans was prepared for Hurricane Katrina in 2005.

As far as what the specific economic effects will be, consider the conclusions a group of top officials came to when they gathered in Washington D.C. to conduct “Oil Shockwave”, a simulation exercise aimed at examining how the US economy would be effected by a small (3.5 mbd) disruption in the global oil supply. Professor Michael Klare, author of Resource Wars: The New Landscape for Global Conflict summarizes their conclusions as follows:

A 3.5 mbd reduction in supply would cause:

#1. Global oil prices exceeding $150 per barrel.

#2. Gasoline prices of $5.00 or more per gallon.

#3. A spike in the consumer price index of more than 12%.

#4. A decline of over 25% in the Standard & Poor’s stock index.

#5. A crisis with China over Taiwan.

#6. Increased friction with Saudi Arabia over US policy toward Israel.

Remember, the simulation involved the removal of only 3.5 million barrels per day of oil from the global market. For a global economy that consumes 83 million barrels per day, this is a reduction in supply of only 4.2%. What’s going to happen when the supply is reduced by that much or more every year?

Given that any large scale plan to mitigate these problems would need to have been initiated on a global scale at least 20 years ago, it is hard to envision the economy not collapsing as a result of these trends.

How are people likely to react to this?

As the US economy disintegrates, one is hard pressed to imagine a scenario when violence bordering on chaos does not become widespread. The anticipation of massive unrest resulting from declining oil production may be the real reason why the Department of Homeland Security recently contracted with a subsidiary of Halliburton to build massive new domestic detention camps.

In 1985, the authors of Beyond Oil: The Threat to Fuel and Food in the Coming Decades, warned us of such possibilities:

A stagnant or shrinking economy will have a major effect on society’s expectations. With few exceptions, each generation in the United States has become materially better off than the preceding one. This pattern of increasing wealth has become an indelible part of the American Dream; a higher standard of living than our parents is practically a birthright. These expectations are the standard against which actual performance is judged. During times of failed expectations, a society is especially vulnerable to a person or philosophy promising to restore it to its former glory. The fall of the Weimar Germany is probably the best example. Source

In 2004, commentator Robert Freeman explained how a decline in oil production will affect the global economy:

. . . civilization will be stupendously different. The onset of rapid depletion will trigger convulsions on a global scale, including, likely, global pandemics and die-offs of significant portions of the world’s human population. The “have” countries will face the necessity kicking the “have-nots” out of the global lifeboat in order to assure their own survival. Source

In 2006, geologist Jeremy Leggett explained how newly-empowered fascists are likely to use varous tools of repression to wage this battle for survival:

By 2010 democracy will be on the run . . . economic hardship will bring out the worst in people. Fascists will rise, feeding on the anger of the newly poor and whipping up support. These new rulers will find the tools of repression — emergency laws, prison camps, a relaxed attitude toward torture — already in place, courtesy of the war on terror. Source

In 2007 John Robb, a former U.S. Special Forces mission commander, explained how this battle for survival is likely to play out in North America, neighborhood by neighborhood:

Wealthy individuals and multinational corporations will be the first to bail out of our collective system, opting instead to hire private military companies, such as Blackwater and Triple Canopy, to protect their homes and facilities and establish a protective perimeter around daily life.

Members of the middle class will follow, taking matters into their own hands by forming suburban collectives to share the costs of security–as they do now with education–and shore up delivery of critical services. These “armored suburbs” will deploy and maintain backup generators and communications links; they will be patrolled by civilian police auxiliaries . . .

As for those without the means to build their own defense, they will have to make do with the remains of the national system. They will gravitate to America’s cities, where they will be subject to ubiquitous surveillance and marginal or nonexistent services. For the poor, there will be no other refuge. Source
For more information, see:

Members of U.S. Congress warned of impending econmic collapse in April 2008

British military preparing to control citizen “flash mobs” as economy collapses

Britain’s year 2000 fuel riots offer a chilling preview of America’s future

Energy-fascism will effect nearly every person on the planet

Pentagon says climate change could produce global anarchy

“Is there any reason to remain hopeful?”
As far as the fate of the globalized economy in anything resembling its current figurration, the most honest answer is “no.” Our political processes are entirely controlled by massive corporations in the petroleum, defense, automotive, agribusiness, construction, and media industries. Most of the responses to this situation that would be favorable to you and me (such as mass transit or large scale urban gardens) would be at odds with the interests of these corporations. Thus, there is little realistic hope they will ever be aggressively pursued until it is too late. The end result is likely to be a large scale societal collapse not completely unlike what happened to the Roman, Viking, Mayan, and Easter Island societies.

For more information, see:

Collapse: How Societies Choose to Succeed or Fail

The Collapse of Complex Societies

As far as the fate of you and your family, that is a different story. Assuming you are willing to stay flexible, work hard, and encounter some good luck along the way, yes there is still hope you can carve a satisfactory existence out of some very unfavorable circumstances.

“What can I do to prepare? What do I do now?”
Attempting to prepare for a catastrophe of this magnitude is daunting to say the least. What you can or will do to prepare for this situation will depend on your age, health, marital status, geographic location, financial situation and other factors too numerous to mention. About the best I can do is point you to some articles and resources you might to be profitable reading in terms of generating your own options and plans. I maintain a continually updated repository of such articles at the LATOC Prepare page.

Best of luck,

Matthew David Savinar, Esq.
California State Bar #228957
Originally published: December 2003; Last revised: September 2008

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