Blue Moon Economics

As the United States sinks into a financial vortex and begins to drag the rest of the world with it, commentators are reaching for every form of hyperbole available. Former chairman of the U. S. Federal Reserve Board Alan Greenspan characterized the current trouble as "the most wrenching since the end of the second world war."

So unexpected and extreme have recent financial trends been that even the man who warned that derivatives are "financial weapons of mass destruction," legendary investor Warren Buffett, has encountered difficulties when his companies waded into the derivatives market.

Concern about a cascade of failures among financial institutions led the Federal Reserve to make loans to the beleaguered investment bank Bear Stearns Cos. by invoking authority it last used in the 1960s.

All of the events of recent weeks including the wild swings in both the stock and commodities markets are signaling the advent a rare full-blown, long-term credit crisis not seen in, well, a blue moon. Some are saying we haven't seen anything like it since the 1930s. As frightening as such pronouncements are, they all imply a rare but cyclical crisis that is understood to be severe, but ultimately of limited duration. Yes, such a crisis only occurs once in a blue moon, but when it does, despite all the damage that results, it eventually comes to an end.

All of this may turn out to be true, but only if the cause of this economic crisis is strictly as advertised, namely, too much credit given to too many people at prices too cheap for too long until many overreached and could not make good on their obligations. The problems appear to extend all the way from the humblest subprime mortgage holder to major financial institutions at the center of Wall Street.

Certainly, the reckless expansion of credit is one important cause for the crisis. But another cause seems to be hidden in plain sight. There is another market on high boil that both Wall Street and the public seem to be ignoring, the commodities market. Grains, energy and gold have been making spectacular new all-time highs. And, even as one trader managed to lose $140 million for his commodities broker employer in the wheat market, eyes remain riveted on Wall Street and the stock market.

There are all the usual explanations for the commodities bull market including that 1) growth in China and India is providing enormous new demand for basic commodities, 2) we are simply going through a normal cyclical upswing in commodity prices, and 3) new investment vehicles such as hedge funds and exchange traded commodity funds have made it easier for more people to speculate in the commodity markets. All of these things may be true.

But there are also other very disturbing causes. What is now being called a once-in-a-thousand-years drought has gripped Australia, one of the world's four remaining grain exporters. (The other major exporters are the United States, Canada and Argentina.) The result last year was an Australian wheat crop that was cut in half. That helped to send grain prices soaring. Is the drought related to global warming? If so, then there is reason to believe that the problem isn't temporary and that it may spread to other grain growing regions around the globe.

Another cause for rising grain prices may be that damage to the soil caused by decades of industrial farming is catching up with us. The rate of increase in global grain production has slowed dramatically. And, even though absolute grain production has continued to rise, yield per capita has been in a gradual decline for more than two decades. Whatever the reason, increases in grain production are not keeping up with population growth.

As for the high price of oil, it may indeed be due to high demand in Asia. But another cause may be slowing rates of discovery that have led many to conclude that a peak in the rate of world oil production may be no more than a decade away. And, as oil prices have risen, there has been a scramble to produce liquid fuel substitutes such as ethanol from sugar and corn and biodiesel from soy. This has led to higher demand and record prices for both corn and soy and to elevated prices for sugar. If the tightness in the oil market is due to an approaching oil peak, then the price trend in these energy crops is unlikely to abate soon.

There is, of course, the central role of oil in the world economy and the financial implications that an oil peak would have. First and foremost, it would mean very high energy prices for as far as the eye can see. It could also mean financial turmoil for importing nations such as the United States, turmoil that may already be manifesting itself in the form of a credit crisis.

Even the prices of crucial industrial metals such as copper, lead, nickel and zinc have risen sharply. Copper, for example, has risen from a low of 60 cents a pound at the beginning of the decade to a recent price of around $3.50. More worrisome are rare metals used in important consumer and business products and processes such as platinum used in catalytic converters in cars, indium used in LCD displays, and rhodium used for critical electrical contacts which have been up as much as 500 percent, 1,000 percent and 2,000 percent, respectively.

All of this is supposed to stimulate supply and bring down commodity prices. But, this is simply not happening in the oil industry where large international oil companies have been unable to replace their oil reserves despite their high levels of exploration and development spending. As this new picture of harder-to-find oil has emerged, these companies have instead begun to focus on buying other oil companies and on buying back stock which, of course, does nothing to increase oil supplies. It is true that substantial oil resources remain underground in OPEC countries. But these countries have little incentive to produce much more oil than they do today. Why not leave reserves in the ground and get higher prices later as the money is needed?

Nowhere is the problem of finding additional supplies of energy clearer than in the North American natural gas market. Natural gas production has been stuck on a plateau of about 27 trillion cubic feet of annual production since 1998. To quote from a previous piece of mine:

But, it's not for lack of trying. From a low in early 1999 of 397 active gas drilling rigs in Canada and the United States combined, the count has vaulted to 1,753 active gas rigs for the week just ended [January 18, 2008]. And, the high rig count is not just a recent phenomenon. Combined gas rig counts first reached 1,000 in the year 2000 and fluctuated between about 700 and 1,300 from then until mid-2005. At that point they broke through the 1,300 level and never looked back. The simple fact is that natural gas in North America is getting harder to find; and when we do find it, it is coming in smaller quantities that flow at slower rates than in the past. That's why we are having to drill so many wells just to run in place.

So much for the idea that high prices will automatically bring on supply. High prices may be able to stimulate drilling, but they cannot alas create natural gas.

For metals, prices have come down, but not to their previous levels. And, as for food, farmers have been shifting what they grow depending on which grain prices are going up. But, there is little room left to add acres unless conservation programs are completely abandoned.

The question then is this: Are we merely experiencing a cyclical, albeit once-in-a-blue-moon event that will resolve itself in lower prices for all the commodities that make our modern society possible...or are we facing a long-term struggle for the declining resources of the globe, a struggle that will potentially endanger our lives and completely transform our society? The answer may be no clearer than the moon when it plays hide and seek on a cloudy night. On other hand, the moon that I can make out on such an evening doesn't seem to be the least bit blue.

Do we have too much energy?

So much talk these days centers around whether we have will have enough energy to power the world economy. The pessimists respond, "Not this world economy at this level of activity." The optimists, on the other hand, say not to worry. We have plenty of fossil fuels for the time being and new, clever technologies will harvest all the energy we need for the future. What is almost never discussed is whether we, in fact, have too much energy and whether that abundance has been our undoing.

Let's take four areas in which the growth of energy supplies has led to severe environmental distress. The most obvious and widely agreed on effect of burning our main energy source, fossil fuels, is global warming. Very little needs to be said about how the abundance of fossil fuel energy has led to the warming of the Earth.

Other problems include the deleterious effects of industrial agriculture, water depletion, and loss of biodiversity. What links all of these problems is population growth. And, that population growth has been made possible in part by vast increases in the productivity of agriculture--which, in turn, have been made possible by the development of petroleum-based insecticides and herbicides and natural gas-based nitrogen fertilizers. Of course, the advent of cheap liquid fuels also made it easy and cheap to mechanize farm operations including the transport of farm goods to market. The so-called "Green Revolution" was, in fact, a "Green and Black Revolution" when the role of fossil fuels is considered. And, that revolution has led directly to rampant soil erosion, a precipitous decline in soil fertility, and the poisoning of our water and food with insecticides and herbicides.

The needs of agriculture and the growing populations they fostered led inevitably to water depletion. Naturally, that depletion was aided and abetted by cheap energy used to pump and purify water for agricultural, industrial and household use. In addition, great dams could never have been built without liquid fuels derived from petroleum used to run heavy machinery. Beyond this, huge amounts of electricity are needed to power water pumps and purification equipment. In California, for example, at least 6.5% of the total electricity consumed is used just to pump and purify water. It is doubtful that the great water projects of that state would have been built were it not for cheap electricity.

Biodiversity is shrinking every hour. Diesel-powered logging machinery can clear in a day what might have taken weeks or months using traditional logging methods. Monoculture farming, an anathema to biodiversity, is now favored partly because it fits so well with the use of farm machinery--machinery which cheap, abundant energy has made inexpensive to build and to run. Urban sprawl, made possible by cheap gasoline for automobiles and cheap energy for the production of construction materials used to build that sprawl, is also no friend to biodiversity. Ironically, urban sprawl often colonizes valuable farmland or forest, both of which are required to feed and house the millions in suburbia.

It may seem as if we have been immensely irresponsible with the bounty of energy that fossil fuels have given us. But in reality we have done what any organism does with a surfeit of energy. We have used that energy to propagate ourselves and to take over increasing areas of the biosphere from other organisms in order to enhance our survivability. We have done what is logical and instinctual for any organism on Earth. That we would eventually get ourselves in a terrible predicament by doing so is only a relatively recent thought.

And, that brings us back to the idea that we may have too much energy. Think for a moment about what kind of world we might have if fossil fuels had never been discovered. No doubt many technical advances might never have occurred. The necessary energy and leisure for research (for tinkering actually) would not have been available. On the other hand, many technical advances have occurred in the past without fossil fuels. Sophisticated pre-petroleum civilizations have thrived producing great buildings, great art and great culture. Many have also produced a world of plenty for their inhabitants.

Even so, while it is true that the use of carbon-free energy sources might have prevented global warming, large supplies of any kind of energy would almost surely have contributed to the other problems detailed above. For example, with regard to industrial agriculture the manufacture of nitrogen fertilizers requires the extraction of hydrogen from some source to combine with abundant nitrogen from the air. Currently, natural gas remains the cheapest source for this hydrogen. But with enough cheap non-fossil fuel energy, we could have made the electricity needed to obtain virtually endless amounts of hydrogen using electrolysis to break water into hydrogen and oxygen.

Much of the transportation system could have been run on electricity produced without fossil fuels. And where liquid fuels were required--for example, to run logging or farm machinery--hydrogen could have been used as fuel.

The point is not to champion possible alternatives to oil, but to show that had such alternatives been our main sources of energy and had they been as cheap as oil to obtain and use, we would likely still be facing many of the environmental challenges we do today.

All that is so much speculation. However, in the future we may get a chance to find out whether we can build such a civilization albeit with the advantage or--depending on how you look at it--the disadvantage of all the knowledge we've gained during the fossil fuel age.

But there is one lesson which that age has not taught us, and we sorely need to learn it. Our biggest challenge is not related to getting enough energy. Our biggest challenge is to understand our relationship with energy and to recast it so that we may live more harmoniously with the world around us.

A work of imagination

Our futures, personal and collective, depend as much on our imagination as the brute facts. The brute facts, unpredictable and unfathomable as they sometimes seem, interact with our imaginations to create the world in which we live.

We can be fooled by imagination, for example, when we blindly follow the literalism of religious dogma; and, we can find transcendence, for example, through the insights of a particularly good novel or from a sudden revelation that solves a problem on which we have been working for months. I think of James Watson's dream of intertwined snakes that helped him to conceptualize the structure of DNA. The imagination never sleeps, but on occasion it seems to work especially well when we do.

Even my cat seems to be able to imagine the future, that is, one without enough food. He is constantly seeking to have his bowl filled when there is already plenty of food in it. And, yet he maintains his trim figure and never eats more than he needs. Does he imagine that I might leave him for too long and that he might run out of food even though that's never actually happened? Surely, many of us have seen dogs and even cats who appear to be dreaming. Muffled barks and howls come out of their mouths as they doze. Are they in some primitive way imagining or reimagining the world?

Is our ability to imagine the future somehow instinctual and thus a survival mechanism, albeit an imperfect one? If so, the question is, survival for whom and in what way? There are many levels of survival: individual survival; the survival of our family, our friends, our community, or our nation--in other words, our various tribal affiliations; and then there is the survival of the human species. The imagination can work for survival on any of these levels.

When it comes to a sustainable future, the purveyors of techno-optimism, such as Cambridge Energy Research Associates, imagine a future of unlimited prospects. They claim that resources, especially oil, are in much greater supply than the pessimists are saying. What the pessimists can't imagine properly, says CERA, is that humans are so clever that they will be able to extract ever larger amounts of energy from the earth. The energy is out there and we will simply learn to get it. Have faith!

One shouldn't be too quick to dismiss these optimists. A vast army of scientists is working on how to extract the last stores of fossil fuel from the earth, and even on how to make burning them less harmful to the climate. And, they are working on a wide array of alternative energy sources as well.

But one should ask who might benefit from this particular strain of imagination. It is largely the existing winners in the current globalized corporate economy. The techno-optimists conveniently imagine these winners winning more and bigger. Not surprisingly, these winners are often clients or employers. Many of these people will say that they are working for the good of all humankind and perhaps some really are. But can we say that most of them fit into the category of imagination that is in the service of tribal affiliation, in this case one formed around wealth and privilege?

There are also those with a dark apocalyptic imagination who see the limits of the biosphere fast approaching and who note our seeming inability to respond adequately. They predict a world of immense suffering and decline--a collapse, but not necessarily a wipeout for humans, something akin to going back to square one. Often, but not always, such people have deep grievances against the status quo. They find the current system profoundly hurtful or they find that they simply don't fit into the categories generally allowed in the modern world. In one sense, their vision is a method of striking back. In another, it is an attempt to return the world to a rudimentary level that might bring with it the possibility of a more equitable and harmonious society.

Here we have perhaps the inverse of the techno-optimists. But this inverted vision still bears the hallmarks of the tribal imagination since it calls for the radical reordering of one's tribe (that is, community or nation) that would destroy current social relations while opening up new possibilities in the aftermath.

Finally, there are those who imagine a world of smaller communities with localized food production and handicraft powered by sunlight. It would be an intentional world brought about through a methodical transition that avoids outright collapse. It is not necessarily a tech-free world, but one that nevertheless can only afford those technical advancements that require very much less power than we produce today. It is one where political authority is dispersed and therefore localized. It would have the potential but not the certainty of being more democratic.

One could, of course, wish for such an outcome just for one's own community or nation. Perhaps the purest form of this kind of imagination is Jay Hanson's "war socialism." But most who imagine such a future believe that the entire world must be brought into it. It does little good to prepare one's own community for a sustainable future only to have neighboring communities who haven't prepared overrun yours when supplies run short. In this sense this vision transcends tribal boundaries. But is it reasonable to imagine such an outcome? Jay Hanson would say no. We humans are genetically wired to take advantage of others, but especially of those outside our own group in order to get what we need. Our tribal instincts are simply too strong.

William James in his essay "Is Life Worth Living?" (which I've cited before) suggests that even if we cannot beforehand justify our faith in our vision:

It is only by risking our persons from one hour to another that we live at all. And often enough our faith beforehand in an uncertified result is the only thing that makes the result come true. Suppose, for instance, that you are climbing a mountain, and have worked yourself into a position from which the only escape is by a terrible leap. Have faith that you can successfully make it, and your feet are nerved to its accomplishment. But mistrust yourself, and think of all the sweet things you have heard the scientists say of maybes, and you will hesitate so long that, at last, all unstrung and trembling, and launching yourself in a moment of despair, you roll in the abyss. In such a case...the part of wisdom as well as courage is to believe what is in the line of your needs, for only by such belief is the need fulfilled.

Whether they know it not, most of those who imagine a relatively peaceful transition to a world of smaller, sustainable communities have adopted this attitude. And, if there is one thing that imagination makes possible, it is to believe that we are not necessarily limited by our past. We are thereby enabled to imagine a future that is neither merely an extension of present nor a negation of it, but rather an active enterprise in which we can all participate if only we are willing to exercise the imagination to do so.

Soothsayers in suits

People are desperate to know the one thing which they cannot know: the future. Because it is concealed from us, the future often seems menacing. And so, many seek out soothsayers of all types to assuage their fears and sometimes to feed their dreams of success.

This impulse to divine the future accounts for the palm readers, tarot card readers, and astrologers found in every city and minor burg. And, this impulse also drives sales of checkout counter tabloids which often feature amazing predictions around the New Year said to be important to your health and your finances. It is this last category, finances, which brings us to the acceptable face of fortunetelling, the soothsayers in suits.

Any good fortuneteller will gladly discuss your future finances with you. But unlike the soothsayers in suits, she will not give you any details about how she arrived at her conclusions. As for those soothsayers in suits--they go by many titles such as economist, forecaster, director of investment research, and analyst--most offer mountains of so-called evidence that their forecasts are correct. Billions are lost and made on the basis of such predictions, though the billions lost are not so often remembered or storied as the billions made.

For the average person all this so-called evidence adduced to buttress an argument for a knowable future might as well not exist. He or she would be unlikely to understand it even if he or she were to review it. (And, in fact, understanding it might actually make it less believable!) But so desperate is the need to push back the menacing shroud of the future that the average citizen gives about as much scrutiny to the forecast of so-called economic experts as he or she does to the methods of the local fortuneteller.

This is not a new phenomenon, of course. The ancient Romans had their augurs, priests who divined the future through an examination of the flights of birds. The ancient Greeks, of course, had their famous oracles. Neither enabled their respective societies to avoid the kind of folly all humans are subject to. But today we face obstacles that test not just an individual society but our entire interlinked global community. When we try to predict something trivial such as the winner of an athletic contest and even bet money on it, say, in an office pool, it is a largely inconsequential affair, a form of entertainment (unless we are compulsive gamblers). But when the fate of global society hangs in the balance on forecasts of global oil supplies or the trajectory of global warming, we must examine our reliance on such soothsaying much more closely.

A heuristic tool or rule of thumb suggested by Nassim Nicholas Taleb, a self-styled philosopher of uncertainty and author of Fooled by Randomness and The Black Swan, may be useful. He says that he is more inclined to take seriously the predictions of people who don't wear suits than ones who do. His logic is that scientists generally don't wear suits--often not even ties--while economists and Wall Street analysts almost always wear them.

Optimistic pronouncements about world oil supplies come mostly from economists and non-scientific analysts. On the other hand, our predictions about the trajectory of global warming come almost exclusively from scientists. There is great uncertainty in such predictions. But, Taleb's second admonition is not to accept predictions from somebody who cannot or will not tell you his or her error rate. Scientists can generally tell you what it has been and what it is now for their work. Sometimes this error rate goes by the name of "degree of confidence" or "range." Economists and financial analysts almost never talk about such things, especially about their past records (usually out of embarrassment).

Recently, members of the Association for the Study of Peak Oil-USA (ASPO-USA) offered a $100,000 wager to the analysts of Cambridge Energy Research Associates (CERA), perhaps the most well-known of the world's energy consulting firms. CERA has continually reaffirmed its forecast of a peak in world oil production 30 years in the future followed by a long, undulating plateau. On a shorter timespan the firm predicts robust oil supply growth through 2017. There is, of course, the question of how anyone can know much about anything that will happen 9 years hence, let alone 30 years hence. What CERA has not done is release its past error rate (that is, the amount by which its past predictions have been off) nor has the firm assigned even a range to its predictions 9 or 30 years out.

ASPO-USA has released a reconstruction of CERA's past error rate based on the firm's public pronouncements. (It's not a pretty picture.) CERA now predicts that world oil production capacity will reach 112 million barrels per day by 2017 which ASPO-USA says is the equivalent of about 107 million barrels of actual production since capacity is never used to 100 percent for various reasons. The ASPO-USA gamblers don't see how this production level can be reached. They have implicitly offered a fairly wide range in their forecast via their wager, that is, anything less than 107 million barrels of average daily production for 2017.

The ASPO-USA group's purpose is educative. (They plan to give the money to charity if they win.) They want to highlight the risks in such a production forecast and also the possible consequences (which could be severe) if it's wrong. Why? Because virtually every major organization public and private bases its planning on such optimistic projections.

So far, CERA has not responded to the wager. I do not expect them to. Doing so would inaugurate an ongoing discussion of their previous faulty forecasts and of the risks attendant in any forecast. Such a discussion would cast doubt on the wisdom of paying fees to those who make such forecasts, fees that can be very lucrative indeed.

Despite the dangers which lurk ahead due to oil depletion (and myriad other resource issues), the public remains largely ignorant of the risks. Perhaps it is not because the information about those risks is unavailable. Try an internet search using the words "peak oil" and you'll see how much information is there.

But, just as people prefer to hear positive news from fortunetellers, they also find the reassuring pronouncements of the soothsayers in suits much more to their liking. The adult in us ought to see those suits as a warning flag that calls forth our skepticism. But it is the child in us that seems to be prevailing, seeking out soothing bedtime stories that will help us brave the dark night of the future rather than facing up to the uncertainties that ought to guide our efforts in the years ahead.

How many windmills does it take to power the world?

My latest column on Scitizen entitled "How Many Windmills Does It Take to Power the World?" has now been posted. Here is the teaser:

Power densities are a measure of the land required for both energy sources and energy users. The current infrastructure matches the small footprint of energy sources against the large footprint of energy users. With the drive toward renewable energy sources, this relationship is about to be reversed with consequences few people understand.....Read more

The cult of continuity

History would be a very boring read indeed if nothing changed. Imagine reading about the Roman Empire if it had survived intact and more less untouched from Augustus onward. All that might be said is that the Pax Romana has been good for business and that any one day in the life of the empire has pretty much looked like any other for the past 2,000 years.

But, of course, that is not how human history has unfolded. It is chock full of wars, the rise and fall of empires and of whole civilizations, ravaging plagues, breathtaking discoveries, vast migrations, world-changing inventions and cultural evolution. So, it is a puzzle why so much emphasis is now put on the supposed inevitable continuity of modern industrial life. The argument goes that humans are so very clever that they have brilliantly overcome every resource and ecological constraint on their way to becoming the dominant species. And, now with our powerful new technologies we are poised to dominate the globe forever while adding to it the conquest of outer space. Perhaps every empire including the empire of modern man thinks along similar lines.

But a cursory study of history should lead us to conclude no such thing. Humans have squandered opportunities, let their ambition lead them to destruction, run out of natural resources, and despoiled the landscape beyond repair again and again. Human societies do not always triumph. They tend to rise and fall as if they had a natural life cycle.

This may seem all too obvious once you think about it. And yet, at present our modern society seems captive to a cult of continuity even as it touts the great change wrought by technology and predicts great changes ahead from that technology. It never occurs to those caught up in the cult of continuity that great change almost always means great peril! There is barely any mention of the possible vulnerabilities or even fatal side effects resulting from such technology. The Luddites are laughed at today as is Thomas Malthus who predicted starvation for the masses since food supplies were not supposed to keep up with population growth. These men saw peril where their compatriots only saw progress.

But history is all about discontinuity. Who would even bother to write the dull history of the untouched Roman Empire imagined above? In fact, reality has spawned myriad volumes of history over the past 20 centuries reflecting in part the great volume of discontinuity experienced by human societies.

Perhaps because much of the discontinuity of our time is far away from modern eyes we are missing the peril part of change. The depletion of the world's fisheries continues apace while few know that catches peaked in the late 1980s. The silent rape of the soil proceeds with barely a notice that billions of tons of topsoil slip away each year due to erosion. The world's vast water treatment facilities should tell us something is happening to the world's potable water; but such plants are rarely in the center of cities where everyone could see them and contemplate their meaning. Vast tracts of forest both in the tropics and in places such as Canada are being felled for fiber. But how many actually see it happening? And, if they did, would they understand its significance?

Those of us in wealthy countries often see only the "progress" end of such change. There are more and more goods available each year at generally lower prices. The trend has been going on for so long it hardly seems possible that it could slow down, much less come to a halt.

Here is why the cult of continuity must really be classified as a cult. The word "cult" in its simplest sense means a system of religious worship. In many cults nothing is more important than the acceptance of certain beliefs without the requirement of evidence. And, because cult members require no evidence (in the scientific meaning of the word) to confirm their beliefs, these members are remarkably immune to evidence that might also challenge their beliefs.

So there you have it. Anyone who has tried to argue a devout friend out of his or her religion knows that appeals to reason rarely succeed. So why should we be so surprised when those who are convinced that human progress always runs in the same direction as time cannot be persuaded by evidence to the contrary?

All of this has implications for how one argues the case for the unsustainability of modern civilization. It is true that people of faith, even devout faith, can lose that faith under extreme distress. The extreme distress is already here for many in poorer countries; and, it is bound to spread elsewhere over time without prompt action to change our course.

Therein lies the conundrum. How can one shake the faith of those devout acolytes of the cult of continuity before the hardships of their own day-to-day existence force them to adapt? Failure to shake that faith means we will be left with only palliatives after the crisis arrives.

The lure of the city

The history of the 19th and 20th centuries could fairly be characterized as the history of urbanization. Today, every culture is rife with stories of the trek from the countryside to the city in search of work, education, sophistication, power and money. To stay behind was to be condemned to a life of parochialism and poverty. Will the history of the 21st century be more of the same?

It's starting out that way. Every year countless millions continue to stream into the metastasizing boundaries of Shanghai, Bangkok, Jakarta, Dhaka, Calcutta, Lahore, Cairo, Lagos, Nairobi, Johannesburg, Rio De Janeiro, Caracas, and Mexico City. Countless millions more are crowding into the ever sprawling urbanized areas surrounding so-called world-class cities such as Tokyo, Singapore, London, Paris, Rome, Toronto, New York, Seattle, Chicago, Los Angeles, Houston and myriad other vibrant modern cities across the globe. The attraction of the city for the young has never been so strong. This migration has become like a howling wind that will blow back anyone who tries to walk in the opposite direction.

Yet the forces which have made all of this migration possible seem like they are coming to an end. The fabulous advances in food production of the last century are slowing. We are having a harder time keeping up with population growth. This is partly the result of a self-reinforcing loop in which more urban growth means more land for housing and infrastructure and the consequent destruction of fertile farmland needed to feed this growing population. The result of this and other factors has been that per capita grain yields which peaked in 1984 have actually declined. Yes, there is overall more food available; but the key figure--as anyone who has gone hungry can tell you--is food per person. Naturally, people eat things other than cereal grains. But for most of the world, cereal grains are the central source of food calories; some 80 percent of all calories eaten are in the form of grain products and the products of livestock fed on grains.

We face a litany of other problems as well: the overuse of underground and surface waters, the collapse of fisheries, climate change, deforestation, loss of biodiversity, toxic pollution, and the depletion of strategic minerals. In addition, the growth in world oil production appears to be stalling out. Yet, against this backdrop, waves of humanity keep washing into the world's cities.

It is like the momentum of the tides which take water further up onto the beach even as the gravitational force which brought that water there is waning. People continue to come into the cities despite all the challenges of doing so because the whole system--even as it frays at the edges--practically forces them to.

Those who are concerned about sustainability talk about making cities more sustainable. But that is an oxymoron. Cities have never been sustainable. They have always needed more from the land than the land under them could give. But the issue is more nuanced than that. On the one hand, living more densely in an energy-constrained world makes sense. It reduces travel for all purposes, economic and social. And, in the past people did live in walkable villages and towns. Some still do. But today, at least in North America, only those living in large cities can really do without a car.

On the other hand, the explosive expansion of urban areas is primarily driven by economic growth and rising population. These two trends will be called into question in the energy-constrained world that is emerging in the 21st century. Without cheap energy it will be difficult to keep food production and economic growth on its current upward path. And, even if the two continue to rise, they may not do so at a rate that satisfies the world's hunger for both food and energy.

But try encouraging people to stay put in their rural landscapes when the hope of a better life is all in the city. Part of the reason is that the rural landscape is being systematically decimated by city residents through soil degradation (due to industrial farming); voracious mineral extraction and its often toxic side effects; and the felling of forests for fiber and to clear land for more agriculture. Add to this the persistent underfunding of public infrastructure and services in rural areas.

The ideal among serious thinkers about sustainability is a more decentralized living arrangement than we currently have--and one that is much lighter on the land and the entire ecosphere, of course. But the continuing crush of people moving toward the world's cities may not stop anytime soon even in the face of declining energy supplies. In part that's because the alternative, the countryside, has been so damaged in many places that it offers no alternative at all for the teeming millions in the cities.

What this means is that we will be obliged to figure out how to make our cities, even our megacities, somehow work even as the challenges of climate change and resource depletion begin to hit us full force. At this date that seems an impossible task. Perhaps in the long run we will be able to make living in the countryside and its villages and towns attractive to most people again. For now we will have to do what we can to respond to the growing number whom the lure of the city is bringing within its borders every day.

Dave Cohen's suburban savanna

People have been moving to the suburbs for decades to escape the supposed afflictions of the city: noise, crime, lack of privacy, air pollution, poor schools, high taxes, traffic congestion and a host of other maladies. In suburbia many of them found relief, that is, until enough people moved out with them and created urban problems all over again. This caused some to move even further out to what are now called the outer ring suburbs.

Though gasoline prices are rising, traffic congestion is increasing, commutes are lengthening, and the supposed advantages of suburban life are diminishing, suburbia continues to attract new adherents even as it maintains its powerful hold on those already living there. Can it be that there is something more basic going on than simply a dislike of the city?

Dave Cohen thinks so. Known for his work on The Oil Drum and now for the Association for the Study of Peak Oil & Gas-USA, Cohen believes there is an instinctual basis for our love of suburbia, one that may be hard to break through even as the cheap oil which has made suburbia possible disappears. He plans to do more research and to write about the topic in the future. But, when he mentioned it to me, I couldn't resist asking him a few questions and reporting on his preliminary findings.

We are creatures adapted to moving around, Cohen explains. The anatomically modern humans who appeared 1.7 million years ago on the plains of East Africa were designed for hunting and gathering. In short, they were designed for movement for the purposes of acquiring food and avoiding predators. And, move these early humans did, throughout Africa and much of Asia. They didn't have the technology to live in cold climates or they might have wandered further north as well.

Mobility is a trait so basic to humans "that nobody notices that it's there," he says. "It's totally automatic." Of course, there have been many modes of mobility throughout history, but nothing that could take the average person so far, so fast as the automobile. And, because of modern manufacturing techniques, such as the assembly line, those automobiles became affordable to the masses.

Our instinctive penchant for mobility, according to Cohen, meant that "everybody would drive and everybody did if they could afford it." Long before the arrival of the car, agriculture brought millennia of confinement to small villages, constricted rural landscapes, and urban centers. Then, suddenly, the car made it possible for the great mass of people once again to roam the landscape. As they did, they set about creating what Cohen calls the industrial suburban savanna. So instinctually attractive was this new savanna that "they built it out so the entire culture is structured around the automobile," he said. Only instinct would seem to explain why people would "transform an entire landscape to accommodate personal transportation [such as the car]."

Because this phenomenon is worldwide and not just seen in North America or Europe, Cohen thinks it demands an explanation. "A deep biologically rooted instinct got triggered by the advent of the car," he contends. While he recognizes that there is no way to "prove" his theory and that it therefore falls into the scientific definition of a "just-so story," he thinks the theory is a good point of departure for talking about the love affair the world has had and continues to have with suburbs.

One disadvantage to the automobile version of mobility is that it cuts way down on communication. It's hard to talk with a person in another automobile at 70 miles per hour no matter how close they are to you. At first, we tried to make up for this loss of voices with radios. We have recently tried to make up for it with cellphones. "What you get is the perfectly mindless combination of people driving around and talking on their cellphones," he says. In this case by "mindless" he means "instinctual."

Driving goes beyond simply foraging for food and other necessities. It is now mandatory if one wants to have a social life. We drive to visit people we know and travel sometimes to encounter ones we don't. It is this instinct for sociability that may be one of the keys to challenging the hold that suburbia has on the minds and instincts of so many. For example, many couples who have finished raising their children, so-called empty nesters, are now returning to the city for the enhanced sociability that it offers.

Cohen writes frequently about energy issues and especially about peak oil. He thinks that if the reluctance of people to leave the energy-intensive life of suburbia is instinctually rooted, we will not be able to get them to change their habits or their deployment in the landscape through merely rational appeals. Of course, the survival instinct may come into play if peak oil creates conditions which are desperate enough in suburbia.

But, in the meantime, perhaps the best way to encourage people to settle in more compact communities is to make those communities more richly social. Then, we would be pitting one instinct against another. And, that seems more like a fair fight.

Do high commodity prices speak for themselves?

Stunning new highs in some world commodity prices have catastrophists of all types tapping out SOS in their sleep. There was, of course, the rise of oil which started 2007 at $50 a barrel and rose above $100 on the first trading day of this year, an all-time high. Wheat which began 2007 at around $5 a bushel reached $10, another all-time high, before retreating slightly. Soybeans which started last year around $6.50 a bushel ended the year above $12 and went on to set an all-time high last month just above $13. And, gold, that quintessential barometer of fear, rose from about $640 an ounce to above $900 recently, shattering its old highs.

Not every commodity rose or rose by as much. But the general trend has many of those concerned about peak oil, biofuels, and the effects of climate change saying, "I told you so." There is certainly a lot to be worried about. And, there is a good case to be made that long-term policy choices concerning energy, biofuels and climate change are now colliding with the physical facts on Earth and leading to a vicious cycle of interlocking problems that can't be solve by doing more of the same.

Still, it is the peculiar mission of markets to make fools ultimately of all who predict them and all who interpret them. The soothsayers on Wall Street and the vast majority of commodity forecasters were caught by surprise by the moves mentioned above. Markets are social phenomena and as such, they represent the constantly changing opinions and activities of thousands and sometimes millions of participants--activities and opinions which can never be fully observed or assessed. That is why it is in the nature of markets to surprise. If everyone could have known early last year that the oil market would reach $100 by the first trading day of this year, they would immediately have bid it up to that price. But, price movements in markets are about things which are not known or which lie in the future and therefore cannot be known.

This is why it is dangerous to affix any particular meaning to any particular price, whether high or low. The reasons for the price of any commodity are as multifarious as the people whose activities influence them. Too often we think that news makes markets. But, in reality, most of the time it is markets that make news. Those who get paid to write about markets are expected to come up with some reason each day for the latest price movements of Citigroup, Hewlett Packard, junk bonds, gold or wheat. But how can these writers possibly know the reasons?

In addition, there is the cardinal rule of neoclassical economics: High prices bring on more supply or substitutes or both. The watchword among right-minded economists (that is, cornucopian ones) is that this too shall pass. And, that's where the argument starts. Those who've been preaching that there would come a day when high prices wouldn't pass--a day when resources really would be running out because adequate new supply can't be found or grown at any price and because ready substitutes are not available--those people are now saying that that day is here.

The problem is that these two sides are talking about different things. The economists are talking about markets and the professional worriers are talking about resources. It is possible for something to be relatively cheap, but still not be accessible to everyone who wants it. Ask those who lived through the Great Depression. But the coming difficulties, "the long emergency," as James Howard Kunstler styles it, will be one of shortage not glut. For the market fundamentalist, however, there is no such thing as a shortage; there is only price. Price is what balances supply and demand even if some poor souls will simply have to go without. (There is a shortage of yachts for all who would like them, the market fundamentalist might say, but not for all who can afford them.)

It is all too likely then that the skyrocketing prices predicted for oil, for example, of $300, $500 or even $1,000 a barrel will never materialize. Yes, many people will do without oil, or a least without as much oil as they would like. And, that means that the price of oil will not go up forever. That's because many oil consumers will simply drop out of the bidding with each successive price hike. And, ultimately the dropouts will halt the upward pressure on oil prices perhaps at levels far lower than $300. The economists have a polite term for this. They call it "demand destruction." What they don't want you to think about is that sometimes, perhaps this time, a lot of people will be demolished in the process.

The same process, unfortunately, may be unfolding for cereal grains and perhaps other critical commodities about which we currently do not worry. But no commodity will be a one-way street. There will be swings enough for the market players to stay engaged. And, when prices do come down, these players and their affiliated economists will point to the drop as proof positive that the market is working just fine--which if one is concerned only with markets and not with people will turn out to be true.

There is another consideration for both sides of the debate. In truth, most commodity prices appear to be below their inflation-adjusted highs even if you use the U. S. government's admittedly stingy methods for calculating inflation. The government's current method calculates wheat's all-time inflation-adjusted high as $28.25 a bushel in February 1974 ($6.35 in 1974 dollars). And, if you use the price of $3 a bushel in 1974 dollars--a level which wheat maintained almost all the time from the beginning of 1973 through 1975--the inflation-adjusted price today would still be $13.52. But the government intentionally underestimates the inflation rate to keep pension and social security cost-of-living adjustments down. To get around this John Williams of Shadow Government Statistics (subscription required) designed a calculator based on the old, pre-adjustment government methods for calculating inflation. That calculator puts the wheat price spike at $75.94 in today's dollars and the $3 a bushel floor at $36.34.

Calculations for all four commodities mentioned above are summarized in the table below:

Are Commodity Prices Really That High?

(in U. S. Dollars)

Commodity	Date or Range	Price Type	Price	BLS1 Inflation Adj	SGS2 Inflation Adj	Current Price (2/1/08)
Gold (oz.)	Jan. 1980	Spike	$850	$2,295	$6,165	$908.70
Gold (oz.)	1979-1981	Average	$450	$1,380	$3,720	$908.70
Oil (bbl.)	Dec. 1979	Spike	$38	$104	$280	$88.96
Oil (bbl.)	1979-1981	Arbitrary Floor	$24	$66	$177	$88.96
Soybeans (bu.)	Jun. 1973	Spike	$12.90	$61.29	$164.75	$12.87
Soybeans (bu.)	1973-1975	Approx. Floor	$5.00	$24.65	$66.26	$12.87
Wheat (bu.)	Feb. 1974	Spike	$6.35	$28.25	$75.94	$9.43
Wheat (bu.)	1973-1975	Approx. Floor	$3.00	$13.52	$36.34	$9.43

                               ¹U. S. Bureau of Labor Statistics
                                                    ²Shadow Government Statistics

What all of this suggests is that the catastrophists may, in fact, be a little bit early and that the cornucopian economists may be too optimistic, at least about the near term. While history doesn't ever exactly repeat itself--Mark Twain liked to say that it rhymes--commodity prices look like they have considerable room to run. And, that's even if they never make it to the practically airless heights suggested by figures emitted from the inflation calculator at Shadow Government Statistics.

But perhaps the most important indicator is not how high these commodities will get, but how low they will go once they fall back from whatever new highs they achieve. The real price of commodities has been going down for more than a century. This is because the race between technology and resource exhaustion has been been won decisively by technology. Whether that will continue is now in question.

One indicator will be to see not what new highs are achieved in various commodities in the coming years, but whether a new floor is established that is significantly above previous historical real prices. In other words, higher lows will be more indicative of our situation than higher highs which are usually a very temporary phenomenon.

Exceedingly high prices for commodities, especially for oil, could conceivably tip our fragile economy into a recession or even a depression. That would temporarily lower demand for commodities and thus lower prices. Many commodities would then appear to be in surplus as fewer and fewer companies or people would have the means to buy them. We could again experience what some of our parents and grandparents experienced in the last depression: great want amid seeming plenty.

But if the high prices that cause this (as yet hypothetical) depression are due to the fact that resource depletion is stealing the march on technology, we may not know this for some time. Higher real lows in commodity prices, however, may give us one clue.

The impetus under such extreme circumstances will be to try to boost consumption. And, with so much slack in the economy, it may work. But if we have come to the crossover point where depletion is outrunning technology, we may find any recovery short-lived.

All of this amounts to speculation, a sort of thought experiment in an attempt to answer the question which is the title of this piece. My answer to that question is as follows: Commodity prices do not speak for themselves. Their meaning is not self-evident, and therefore many voices take on the task of speaking for them. Of course, I may suffer the fate of so many others who have tried to forecast or explain the markets. But, if my thought experiment proves broadly correct in its outlines, we may be on the front edge of an economic and social storm that will destroy the conceits of market economics and cast us into a dark and difficult struggle to find a new way of thinking about our economic and social lives.

Cornucopians and their magical thinking

We are all subject to bouts of magical thinking. The classic and most widespread form of this is to confuse correlation with causation. One can see it in daily life: Objects such as rabbits' feet, special stones, and certain "lucky" pieces of clothing are presumed to be the cause of whatever good fortune comes to the holder or wearer. One can see it in commentary on financial markets: Presidential election years in the United States are bullish for the stock market as if for some arcane and indecipherable reason, presidential elections cause the stock market to go up. Another form is the belief that the mind can affect the physical world. If we wish for something hard enough (as opposed to taking concrete steps to achieve it), it will happen.

And, so it is with the cornucopian thinker. He (or she) explains that most accepted measures of human well-being have been rising since 1800. But so has population. Ergo, population increases simply cannot result in human misery in the future. The correlation--a rise in living standards while population increased--means that rising populations cause beneficial things to happen to most human beings. (Never mind that fossil fuel usage was increasing exponentially during most of this period. And, never mind that the cornucopian only considers human well-being, especially the ability of humans to extract their needs from nature in the short run. Never is the long-term health of the ecosphere on which all humans depend seriously considered.)

Another bedrock of cornucopian magical thinking is that substitutes will always be available for any resource that becomes scarce. As you will see below, our ability to think is supposed to allow us always to find substitutes. A favorite example is the use of fiber optic cable in place of copper as copper ores have declined in quality. Even now the high price of oil is creating increased demand for coal and renewal energy sources. Substitution has and does occur, but it is hard to see what substitutes there might be for potable water or a climate suitable for human habitation. Perhaps we will desalinate the oceans and geoengineer the climate. But, that would take huge amounts of energy and, when it comes to climate, we would need a precise knowledge about the climate effects of any proposed geoengineering fix so as not to create the wrong kind of climate.

As for energy, even the world's foremost cornucopian thinker, Julian Simon, admitted that energy is the "master resource" upon which the extraction and refining of all other resources depend. For Simon it is the sum total of all the efforts of an increasing population which will bring us solutions to any energy shortages. "Resources come out of people's minds more than out of the ground or air," Simon said in a now-famous Wired magazine interview. He went on to say that "[m]inds matter economically as much as or more than hands or mouths. Human beings create more than they use, on average. It had to be so, or we would be an extinct species."

Now this is not exactly the belief that if you think about something it will happen, but it comes awfully close. It is the passivity that such ideas engender that move this kind of thinking over the line into magical thinking. We are led to believe that all of our environmental and resource problems can be left to technical experts who will surely solve them without much disruption to our lives. What Simon is implying is that if we think hard enough, human ingenuity will always find a way to overcome supposed limits on the human species. (Notice also that he says above that people "create" rather than extract resources which one should put down to just plain confusion about how the natural world works.) And, just so people would get his point, he stated the following in another article:

We have in our hands now--actually, in our libraries--the technology to feed, clothe, and supply energy to an ever-growing population for the next 7 billion years. Most amazing is that most of this specific body of knowledge was developed within just the past two centuries or so, though it rests, of course, on basic knowledge that had accumulated for millennia.

Not only are people capable of great ingenuity when faced with great challenges, but they have already imagined and written down all the solutions to all the challenges to basic survival that we will face as a species for the next 7 billion years. Now, that might be properly classed as wishful thinking, perhaps the greatest piece of wishful thinking of all time. (Again one wonders about the oversight that in the past two centuries fossil fuel consumption has had a lot to do with giving people the time and power to discover and elaborate the basic knowledge to which Simon alludes--even if it now appears that that knowledge will not solve all of our future problems.)

Perhaps just as important as being able to spot cornucopian magical thinking is understanding the motive behind it. Simon elucidated his agenda and that of many other cornucopians in the following sentences from the article just cited above:

The extent to which the political-social-economic system provides personal freedom from government coercion is a crucial element in the economics of resources and population. Skilled persons require an appropriate social and economic framework that provides incentives for working hard and taking risks, enabling their talents to flower and come to fruition. The key elements of such a framework are economic liberty, respect for property, and fair and sensible rules of the market that are enforced equally for all.

What Simon--who was a professor of business administration, not a scientist--most feared was that concerns about the environment and about human population growth would lead to government intervention in the economy and society. That would undermine the free-market capitalism which he so stridently believed is the best form of social organization. (It is no accident that the piece quoted above was written for the free-market, libertarian-minded Cato Institute.)

But perhaps even more basic than this is Simon's admission in the preface to his book, The Ultimate Resource, that he once believed that population and resource problems were worrisome and urgent. His research into the matter, however, reversed his views. And, this research had an important side effect. It helped to lift him out of long depression (which he claims had nothing to do with his previous views on population and resources), a depression that never again returned. He wrote:

And I believe that if others fully recognize the extraordinarily positive trends that have continued until now, and that can reasonably be expected to continue into the future, it may brighten their outlooks, too.

That is the one thing about which Julian Simon is dead on. Magical thinking like his can often lift our spirits and make us think anything is possible, that is, until reality intrudes and leads to painful and sometimes catastrophic results.