Do I really want to make new year's predictions?

No! I really don't. But...

In a private e-mail a regular reader thought this would be good for some laughs.

So George, what do you think will happen this year? Collapse? High oil prices? You must have some ideas.

One of the surest ways to get into trouble is to play like mainstream economists and make specific predictions or forecasts about what will happen in this new year. Not a trap I want to fall into.

Predictions are tricky business. You may be able to predict a trend, but rarely an event. Too many Black Swans (as is popular in the current vernacular). I prefer to talk about plausible scenarios with varying likelihood of playing out. In point of fact, scenarios are just stories about what might happen under different conditions. You can generate worst-case, most likely-case, and best-case stories to cover your bases (and of course a most-likely-case might just be the worst case!) The stories have to be general enough to cover a large number of contingencies but not so general as to fit into the category of fortune teller stories. Almost anything a fortune teller tells you can be true depending on how you interpret it in your own life.

With that in mind, and given that it is sort of an expected tradition that people who make social commentary are supposed to tell the rest of us where this all is leading, I thought I'd have a go at weaving some scenarios that seem reasonably probable for the next year. Wish me luck.

Population

This one is pretty easy, as long as we don't experience a pandemic flu (or worse) that wipes out substantial parts of the global population. I actually think the likelihood of that kind of Black Swan (BS, but not necessarily BS, if you get my drift) hitting us sometime in the next decade is pretty high, though how severe and impactful would be anybody's guess. But assuming no such event in the next 11½ months, the world's population will top the 7.9 billion mark right on cue. Most of the other problems we will see are directly related to this fact.

Energy

Almost as easy is the situation with energy (see my comments below about the economy as a result of energy declines). As more information is leaking out of places like Saudi Arabia and official energy trackers like the International Energy Agency (IEA) have been spoon feeding us revisions of their formerly rosy forecasts, it is becoming very clear that we are either just past the peak of global oil production or so nearly there that you can't tell the difference. Among other phenomena that was not a priori realized about the energy sector is the role the downturn in the economy would have in destroying demand and thereby slowing the investment in new production (as the older wells continue to decline). The financial system cannot supply the needed capital to invest in new discoveries and new development.

The price of oil has steadily climbed from its crash down to about $34/bbl in 2008 (after spiking at $147 earlier in the year) to now above $80 in the last month. The upward pressure has been building. The problem is that at $80+, that price can act like a brake on economic activity (in the real economy) retarding recovery and hence further investments. The only thing working in favor of supporting oil's price in this range may be the demand from China and some from India. But China is way out on a limb now with respect to its internal debt picture. It has relied on Chinese peoples' savings to fuel growing consumption, but that is running out. So China may find itself unable to finance some of its glorious plans for growth and development, especially if the US defaults on some of its obligations to that country.

The tight feedback between the price of oil, through the economy and affecting financing, should keep oil ranging between $70 and $100 with upward pressure pushing it toward the high end as the trend continues. Oil production will go in fits and starts, but new projects will probably become rarer since these are generally more long-term investments than just punching a new hole in the ground over a proven reserve. We're likely to see far less investment in exploration, development, and refining capacity because the demand side will be flagging. The upward pressure forcing the up trend will primarily be due to continuing attempts by China to still grow its economy because of its tenuous political position. They have promised their people a lot and now they have to deliver. I suspect that the reality will be a bit different as supplies tighten in the middle east and South America. It is really hard to say how the Chinese government will react but in the meantime they will keep the pressure on as best they can.

It is altogether possible that we will see one or more price spikes again in 2010. Futures speculators are still out there looking for a good place to park all that phoney money that banks and Wall Street created out of whole cloth. They are generally an irrational bunch who only care about one thing — making money the easy way. I wouldn't be surprised to see oil spike above $100 on several occasions as the volatility in the oil markets ratchets up. But I wouldn't expect them to be more than power surges due to lightening like events. Such spikes will just add to the confusion. I wish someone would use a low pass filter on the price signals so we could see what the trend is without all the noise. A nice exponential weighted average computation might do the trick.

Natural gas is more problematic. Recently there has been a lot of hype about the volume of NG in shale deposits and new horizontal drilling and 'fracking' techniques for loosening the gas and extracting it. The early wells proved to show early high rates of flow which is what contributed to the hype. But subsequently we've seen more dramatic fall off rates than are desirable. For some wells that have been scrutinized it looks like the ultimate recovered volume of gas may end up being far less than from conventional wells. If this is the case the much ballyhooed NG salvation is just a pipe dream and will not save our energy hungry butts. If you've noticed T. Boone Pickens has been rather silent of late.

As we are now seeing this winter, the climate will have a lot to do with demand and prices. Supplies are likely to stay flat for all fossil fuels so the price will trend with the demand. Since people have to stay warm, I suspect initially demand will persist (hope for an early warm spring).

As for so-called renewables they are still a nearly insignificant fraction of the total energy flow as far as the US is concerned. There can be no immediate growth in hydroelectric or nuclear power since the infrastructure for these takes years to build (and would require substantial energy subsidies from increasingly scarce fossil fuels). Solar electric (PV and thermal) and wind investments suffer from the same phenomenon that stifles new investment in oil and gas. The prices for conventional fossil fuel energy has to go really high to make these alternatives attractive. And, as I've projected, that just won't happen as a permanent feature of the fossil fuels markets.

The energy front looks particularly bleak. Unless some bright light comes up with practical nuclear fusion that can be built in six months I don't see any way that we can beat the rapidly declining energy flows that it takes to run our consumer based economy. See below for the consequences.

Food

According to this Wikipedia article:

It is becoming increasingly difficult to maintain food security in a world beset by a confluence of "peak" phenomena, namely peak oil, peak water, peak phosphorus, peak grain and peak fish. More than half of the planet's population, numbering approximately 3.3 billion people, live in urban areas as of November 2007. Any disruption to farm supplies may precipitate a uniquely urban food crisis in a relatively short time.

Now more than ever people of the world literally eat fossil fuels. In ancient times people ate the products of primary production, photosynthesis, that occurred in real time. That is, they consumed current solar energy flows unsupplemented by any other energy source. Today, for Americans, for every calorie produced by photosynthesis you actually consume ten calories of fossil fuels. As things stand right now, with massive dependence on regional growing areas, transportation systems, and local groceries for distribution, the average American has to rely on this system to provide basic sustenance. While there is a growing movement to 'eat locally' (grown foods), much of the higher latitudes cannot actually provide a year-round diet equivalent to what people in those latitudes need to survive (let alone grow obese). You may get a thrill, as I do, going to the farmer's market in the summer to get your zucchinis, but try to get a full protein complement (all of the essential amino acids) in mid winter when only some root vegetables are available. What is needed in land to raise, say chickens, all year round for meat and eggs, is pretty substantial. It is not at all clear that there are as many arable hectares left in these latitudes to cover every man, woman, and child there.

I am expecting to see two basic trends in 2010 that will start to rangle nerves. The first is a growing list of shortages on the grocery shelves of items you currently take for granted. It will probably start with produce shipped from subtropical or southern latitude countries. At first you won't notice that the mangoes seem scarce. But that will be followed by ordinary stuff like green beans and zucchinis. I'm betting the fish varieties start to tail off too. I'm already seeing a narrowing of fresh fish offerings that come from exotic locations. I asked my local fish monger the other day about Mahi Mahi (one of my favorites from my days stationed in Hawaii) and was told they hadn't seen any in several months. Portending the beginning of the end??? We'll see.

The other trend is for food prices in general to push upward. At some point suppliers are going to have to try to recoup costs, especially from shipping, but also growing. As fertilizer costs are pushed upward due to constrictions of natural gas and oil, expect to see these costs passed through to consumers. We saw it clearly in 2008 as oil prices zoomed up (and we didn't see a lot of relief when those prices crashed did we!). We'll see it again.

The people who will suffer the most, as always, are the poor everywhere. I'm betting you will see many more appeals from international and US food agencies and food banks for help in the coming months. The number of people at risk for starvation will increase dramatically and there is nothing the UN or any NGOs will be able to do about it.

Couple the effects of constricted energy flows to agriculture with severe weather anomalies from climate change and the depletion of water resources (next on the list) and you have a truly dismal picture for food security in the world. I fully expect these to become far more prevalent and visible in 2010. And we won't like what we see and experience first hand.

Water

This may actually be the most imminent threat yet. In a vain attempt to sake the thirst of 6.8 billion people as well as irrigate the crops to feed said numbers, we are rapidly depleting our aquifers and rivers. The Colorado River no longer reaches the Gulf of California, which is an absolutely amazing fact that people who don't think humans have had a major impact on the natural world would do well to consider. It is only one of many such stories. China is suffering the same fate with its Yellow River. Humans are extracting fossil water and river water (real-time runoff) at unprecedented rates for agriculture (and golf courses).

Look for signs of the heating up of riparian (water) wars such as between Northern and Southern California in 2010.

Climate

A big unknown!

The record freezing weather in the US and many other places in the northern hemisphere this winter has many people scratching their heads. Can this really be global warming?

But the thing about global warming is that it is predicted to cause greater variability in weather. Try to picture one of those old tin tubs that kids used to be bathed in (I have pictures of me and my cousin sitting in such a tub) or we bob for apples in at Halloween. Put that tub, full of water, on a platform that is swayed by an electric motor to cause the water to slosh around. Now increase the speed of the motor by adding more juice (more heat in the case of the atmosphere). The water will splash from side to side more violently as the swaying increases. That is what is going on in the atmosphere now. The incursions of the polar air into lower latitudes is akin to the increased sloshing. The Arctic Oscillations that are wildly pouring cold air into the lower 48 states (gladly not actually hitting the Pacific Northwest at the moment!) are just this kind of sloshing extreme that results from adding excess energy to a system sensitive to forcing. Who knows what we can expect from a climate that is being so excited?

The impact of climate is a really hard thing to consider. However, we can speculate that colder and hotter extremes will require much more energy supplied to our buildings to compensate. We will need more heating oil in the winter and quite possibly more air conditioning in the summer. If this sloshing idea is operating on seasonal time scales we could see record heat waves in various regions this coming summer (look at Australia now for a preview of what might happen in the Northern Hemisphere!). Just when the energy supplies are starting to cave in!

Economy

I've saved the best for last. Please note that what I have covered so far in no way represents the breadth of all that could go wrong! I've only addressed what I think will be the most obvious calamities that will start to be severely felt in 2010. As far as the economy goes, the changes that we are going to experience are far more subtle than, say, climate or the other issues. The economy is insidious. It will get you when and where you least expect it to.

Jobs

The most predominant feature of the energy flow constriction will be felt in the jobs sector. Your job ultimately depends on there being a flow of energy that you modulate in some fashion to create what we have thought of as value added. You have, for the most part, been a modulator of the flow of energy, like an amplifier or even a traffic cop. You have, by your actions, decided how energy will be directed to do useful work. As the energy flow subsides what effect will you have on work? Without the energy flow your actions and decisions are useless. Sorry to break it to you harshly. But the fact is that you are just a cog in a machine; a brick in a wall. Everything you do has an impact of directing an energy flow, whether you cook hamburgers or design automobile engines. No matter what you do for a living, whatever your job might be, you direct the flow of energy toward some work process that creates something some other human being thinks is valuable. What happens when the energy flow subsides? What effect will your efforts have on the economy.

The sad truth is that jobs are disappearing at an alarming rate because there is nothing that can be accomplished without cheap energy flow. Without it there is nothing for you to control. We, as a species, are incredibly stupid when it comes to recognizing what our work entails. We think it is just a matter of knowledge and skills. But it is more than that. It is also using that knowledge and skills to direct the flows of energy to accomplish useful work. Take the energy away and you have no viability for knowledge and skills.

The unfortunate fact is that so many (especially service) jobs are disappearing simply because we cannot afford to direct energy flows in those directions any more. So much of the so-called service sector is really just part of the control of energy flows that result in the production or distribution of nice-to-have, but useless stuff.

If you sell real estate or insurance or stocks, better look for some new line of work. If you flip hamburgers start thinking about some new career direction.

Education

The real pity is the stories we've told our youth and the hoops we've had them jump through only to find that the world doesn't work the way we claimed it did. Most of what passes as education today has been directed at preparing young people to take their places in a world that will soon disappear. We are frantically claiming we need more engineers and scientists at a time when the society can no longer support the kind of work these people have done in the past.

But educators are incredibly slow to pick up on what is actually happening in the real world. They are inherently conservative. In the past that has been an asset to their profession. But unfortunately it no longer works to society's advantage. In my role as an educator I find I am in a frantic search for a way to educate as many of our youth as possible in systems thinking. I am developing a systems science curriculum and an accompanying textbook to try and prepare as many students as possible for the need to think in terms of whole systems because that is the only intellectual skill that may actually be valuable in the future. For those who have read my series on sapience you will know that I think that systems thinking is a major aspect of wisdom. To the degree we can instill systems thinking in those who will have to face the truly challenging future we will provide some kind of catalyst for managing the future. I hope.

In other regards I suspect we will see an explosion of educational institutions devoted to areas of knowledge and skills like permaculture. I am currently investigating means for starting an academy of this nature myself. Donations to such an institute are welcome (well after I start a not-for-profit organization to that effect anyway!) People will need very practical knowledge about how to survive in an energy declining world. Primarily that will mean feeding yourselves.

State budgets

Most state revenues depend directly on taxes that, in turn, depend on individual incomes in one way or another. Whether it is a direct income tax or a state sales tax, people in the states have to be earning incomes so that they will be able to contribute to the state services they have become dependent on.

States like mine, Washington, are dependent on sales taxes and something like a business and operations tax (B&O). It is actually a pretty stupid way to run a state in terms of ensuring a stream of state services. But long ago the citizens of the state (farmers, loggers, and fishermen) wanted it that way. And the flood of California immigrants who sought to escape the supposed burden of an income tax have basically thought that was a good idea. Now, under the conditions of incredibly pathetic dependence on a consumer society that is coming apart at the seams, it is starting to become clear that funding of essential services under that model is untenable.

Education, health services, and so many other state functions are starting to fall apart from the deep cuts that have accompanied the falls in state revenues. This will get worse. Much worse. And there is nothing that can change it.

The states will clamor for assistance from the federal government. They already are doing so. But what do you think they will get? All the federal government has to give is promissory notes. They are bankrupt, in fact. If you have a significant position in state issued bonds, kiss your paper goodbye.

Stimulus packages

So what about the federal government (and this actually covers other countries besides the US)? Many economists, like Paul Krugman (New York Times columnist) are screaming for more stimulus from the US government. They rightly note that the stimulus already put into the economy is inadequate to get the economy back into growth mode. Of course they are wrong about that being a worthy goal. But they correctly note that once the current stimulus efforts run their course the economy will still not be able to 'fix' itself (if fixing means returning to growth of a borrow-and-consume mentality).

Look for the US government to come up with new thoughts about stimulating the economy. They tried fixing the financial system under the theory that if banks were healthy they would loan money to enterprises that would create jobs and we'd get back to the way things were. Of course all the banks did was give their top executives lucrative bonuses and kept the money to maintain liquidity. Now the talk is about giving money to the working stiffs (or rather the formerly working stiffs) so they will go out and buy stuff. That will get things going again!

What absurdity. Money no longer represents useful work to be done. It has become just a measure of greed and stupidity. And nothing the government tries is going to salvage a workable civilization.

It doesn't matter what the federal government (under the Obama administration's leadership) does anymore. All they can do at this point is hasten the demolition of the US economy such as it is. Toward the end of 2010, we will see the futility of government efforts to stimulate an economic model that makes no sense in a world of declining energy inputs. And then it will be too late to recoup, I suspect.

Taxes

I'm betting that sometime before the year is up there will be a hue and cry across the land to raise taxes on the so-called wealthy. You can see it already taking shape. The group formerly known as the middle class are getting pretty mad at the banksters and stock brokers. But they are the easy targets. They have hugely visible bull's eyes on their bellies now. Less considered for now is the large number of people who actually still have jobs. People like me! At some point I fully expect someone to finally say "hey why not tax those still working more heavily to help pay for those who aren't?" It's a fair question. Look for a lot of turmoil about taxes in the future.

The Republican party has had one pat answer to everything wrong in the world. Lower taxes and everything will be fixed. Now I think the populace will start to question that model.

Unfortunately I suspect that conversation will come too late to help anything. The die is cast. Ultimately we have to deal with the decline of energy flows and there is no magic formula to fix that.

Get ready for a rough ride

2008 was the year of inflection for the growth of assets for human well being, when everything changed. 2009 was the year that we witnessed the change in direction in stark contrast to everything that had preceded it. The world had so clearly changed and a new direction was being taken. 2010 will be the year that demonstrates this new direction beyond any shadow of doubt. It will be painful. It will be rending for believers in free markets. It will hurt everyone who believed that the future would always be better (whatever that might mean) than the past. My children will be among the first generation to have less, in terms of material goods, than their parents had. We will start to see exactly what that means in 2010.

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A note to regular readers: School has started again! I still have a regular job and need to pay attention to it. Plus I've taken on a couple of very intensive projects that will demand more of my time than I've been used to committing in the past. So I fear my productivity in this blog may suffer as a result. I suspect I will not be able to keep up a two to three entries per week that has been my habit in the past. But in one sense I have covered most of what I am thinking in one way or another in past blogs. For those who have found something of value in these rambling writings, if you haven't explored the archives this might be a good opportunity to do so. I will be writing a bit less here, but writing a good deal more in other venues. I hope some of those will have a more direct influence on what the future might bring, especially in terms of promoting sapient behaviors in the future. No particular schedule in mind. If you subscribe to a reader feed, you'll know when I think I have anything worth saying. As always, the worthiness is up to you.

Comments

[billr]

You don't really mean to say the globe will move from 6.8 to 7.9 billion people in one year.... this is a typo surely. :)

[billr]

Michael...

I liked your joint post on the NPR Cosmos and Culture Blog... we can only hope that such thinging continues to seep into NPR. I like what you say here about climate; its a nice analogy. I asked a similar question on the www.climateprogress.org blog about if there is any good measure about the volitility of climate... the amount that the climage swings back and forth and weather that is increasing, and I was directed to the US Climate Extremes Index. This index does seem to suggest that viariability in the climate is growing http://www.ncdc.noaa.gov/extremes/cei.html

[Jason]

"The real pity is the stories we've told our youth and the hoops we've had them jump through only to find that the world doesn't work the way we claimed it did."

Oh man. So true. And we "claimed it did", in retrospect, on so little evidence! This is asapience in action. What it came down to in the end was, we have it all figured out kids... it was pure mythology.

For kids of the last couple of decades, it must have felt like living in two completely different worlds, the real one and the one the adults said existed. And the adult world has the power to enforce itself... man when I think about this I don't feel good.

[George Mobus]

Billr,

Thanks for catching that. I'll edit.

And by now you probably have figured out that Michael Kalton is a colleague of mine at UWT. He and I are both working on several projects together including writing a systems science textbook!

George

[George Mobus]

Buck up Jason. There are still a lot of rebels in the education system. After the crash we can start over and do it right next time!

That is, if mostly the sapient survive the bottleneck.

George