Seven Billion and Counting

October 31, 2011

Today, demographers estimate, the seven billionth individual will come into the world. There seems to be a growing consensus among ecological footprint analysts that the Earth is incapable of supporting more than two billion people if everyone were to live a lifestyle equivalent to a northern European (using about half of the energy that the average American uses). A few researchers have factored in the already accrued damage to the Earth ecosystems from human overpopulation and over consumption and concluded that we have long passed the point at which the planet has even this level of carrying capacity. We have so damaged the Earth's systems already, and there is high momentum in causing further damage due to the long-term lags in the kinds of impacts we have had, that some estimates for the future carrying capacity of the planet may be in the tens of millions. That is three orders of magnitude below where we are today. I count myself in this latter group. The Earth is on the brink of drastic geophysical chaos as it seeks a new climate and geochemical regimen owing to the rapid release of carbon into the atmosphere and oceans. We are already seeing the beginnings of this chaos in the dramatic weather pattern shifts over the last decade. Every year it seems to get more bizarre. We can expect even more bizarre weather as the climate gets more unstable. And this will have excruciating effects on this population of seven billion.

People all over the world, even in far less developed nations, have come to be dependent on high energy return on energy invested (EROI) fossil fuels to achieve overshoot (see my review of William Catton's book “Bottleneck: Humanity's Impending Impasse”). That is, we have used the high power fuels to accomplish work in a short period of time that would have taken much longer, or might not have been possible at all. We have done work of removing minerals from the crust, concentrating, especially the metals, moving those products all over the globe, and constructing elaborate (read complex) infrastructures needed to support a growing population. We have utilized fossil fuels to supplement food production to such a degree that if those fossil fuels were suddenly no longer available perhaps two thirds of the world's people would starve to death almost immediately. We use the energy to move vast quantities of water from below ground or over long distances to supply populations and food growing where water is otherwise scarce. If the power is gone, those people will die of dehydration in days.

And now we learn that two things are happening simultaneously in our fossil fuel extraction and conversions (to usable fuels like gasoline). First we find that our global extraction rate for oil has plateaued. It was coming to a peak and subsequent decline, but the interplay and feedback from a complex financial system hides that peaking phenomenon. When the supply crunch starts to effect prices, which rise, that causes an economic slowdown that diminishes demand. That, in turn, puts downward pressure on price which then, given our profit motive way of thinking about investments, pushes producers to reduce their extraction rates. Then we go through the cycle again. It is a phenomenon that occurs near and through the technical (geological) peak of production. It stretches out the time from when the extraction rate started to decelerate (perhaps in the 1970s) and the time that the decline rate will be large enough to destroy the financial system itself. But that latter time is not far off.

The current economic crises that the non-Chindia world is facing is really the result of the diminishing rate of oil production. The world cannot react fast enough to convert, for example transportation, to natural gas and coal, so that the unique (and uniquely economical) role of oil can be compensated. High oil prices, and high liquid fuel prices resulting therefrom, are dragging the economies of the world down. Even while this is happening the financial and political powers are trying desperately to keep the economic ruse going. But they will fail, and rather soon I think. The entire financialization house of cards will crumble and all of the worthless money created by it will evaporate into thin air. The entire infrastructure needed to support such a huge population will crumble with it.

And Chindia will not escape this fate either. They are operating on a slim margin now, seeming to grow but only because they are adopting the same kinds of financialization strategies that western governments, in cahoots with the banks, have been using to keep the people from looking behind the curtain to see that the wizard is a charlatan. They will follow the west soon enough and the ferocity of the impact is likely to be even greater since their peoples have been promised so much. Their disappointment will be translated into desired revenge. In some parts of China this is already starting to unfold.

Fuels to run the infrastructure, e.g. diesel for tractors to grow food, will diminish in availability. The marginal operations will fail first. Many of these, in developing countries, for example, are the main sources of food and water for large populations. They will not be able to get replacement supplies because even the better operations (e.g. the US grain belt) will be under increasing stress for power and thus also petro-based agrichemicals and water. Compound that with the effects of climate change and unstable weather events (e.g. the droughts in Russia and Texas) and you will witness the global support structure come down fairly rapidly. In many ways I think it is already starting to show signs of crumbling.

A year or so ago I characterized our situation as walking around in a dense fog near the edge of a cliff. A wrong turn and we would find ourselves over the edge and flapping our arms wildly trying to fly. Today I think we have actually found the edge of that cliff and we are teetering over it, waving our arms and attempting to regain our balance. But there is a strong wind bearing down from behind that will do the job of pushing us over the cliff and that will be that. The attempt to gain balance is our efforts to find more energy (drill-baby-drill, renewables from technological salvation). The wind is the climate problem and its impacts on many aspects of life, from growing adequate food, to changing rain patterns, to being tattered by increasingly ferocious storms, to overheating in hot spells to freezing in cold ones. We won't have adequate energy resources to mitigate these impacts.

Likely Scenario

We are past the point of no return. We cannot simply start reducing the population growth rate. We cannot even do much to reduce the population is sufficient time. Our historical moral beliefs prevent us doing anything remotely rational. We are stuck in a deep hole of our own digging and there is no ladder with which we can escape. This is brutal, but it is what I see as reality. I have spent no small number of hours studying the situation and the global-scale phenomena and, for the life of me, I cannot find any other conclusion. We are about to experience the bottleneck event.

Unfortunately for almost all of us our so-called leadership has been either ignorant of or purposefully mute about our situation. Do not look for solutions from them; solutions are not possible in any case if we mean finding some way to keep things going as they are — the business as usual scenario. But don't look for truth from them either. My own position has been that the truth should be promulgated and then let people do with it what they will. The more sapient ones will prepare in ways that are more likely to be successful in riding out the storm.

An argument that the powers that be are indeed ignorant can be made. In order to grasp what is happening takes an ability to observe the whole system, that is the whole world, and its dynamics. The vast majority of people do not possess this ability, and it doesn't matter how smart they are. Whole systems thinking on the scale I'm talking about is extraordinarily rare. So, in all likelihood our leaders do not comprehend what is happening, at least not consciously. Unconsciously, however, I believe they do suspect something massive is about to happen. That is why they do what they do. Without realizing what is coming or when, they are nevertheless preparing in the only way they understand.

This is the sad irony about the Occupy Wall Street movement. In many of the OWS crowds' minds THE PROBLEM is the unfair distribution of wealth instigated by the wealthiest 1%. To them, the Wall St. crowd, over-the-top paid CEOs and all of the politicians in the pockets of K-Street, are the cause of the problems. But they are wrong in attributing causality to the greed of these folk. Rather, they are greedy, and taking the course of action that they are (parting the 99% from their wealth) precisely because they intuit that the end is near and they are just doing what comes naturally to them — getting theirs while the getting is good. Their behavior is a symptom of the problem, not the disease. It is like a fever. A fever is generally good to help fight off an infection. But if it goes out of control the patient can die from the fever itself rather than the infection.

The jobs situation, the financial bubbles that have already burst and the ones about to, the problem with inflation, or rather purchasing power, and all of the other economic problems have their roots in the decline in energy availability to the economy. This, as I have said so many times already, is simple physics. Work requires energy. Reduce the availability of the right amount/kind of energy and the amount of work declines. Work is the source of our material wealth. Reduce the amount of work that is being done and the already-built wealth starts to decay from entropic processes and it will not be replaced with new wealth. Moreover, there will be absolutely no growth in wealth production, which is necessary for the concept of borrowing from the future to bootstrap the present to work. Most of the so-called financial bubbles we have created over the past 20-30 years have been the result of kicking-the-can down the road as our wealth manufacturing capacities have been eroded. We turned to a so-called service economy to compensate. But services do not replace real physical wealth production. They do not create food or shelter or tools of the trades. They simply make it look like people are busy doing something when the fact is they are not contributing one dollar's worth of wealth to the real economy.

As much as I might sympathize with OWS and the general anger being felt by citizens everywhere (esp. in the Middle East) the fact is they have the narrative wrong. The leaders and despots are just responding to the same forces that all of us face. That doesn't excuse them however. If there are massive revolts against the financial system, the governments that enable the unfairness of the income distribution, the corporations that turn us all into automata if not zombies, I will be in the front row applauding (were I a bit younger I might be in the front lines!). I do believe it will come to revolutions all over the world. The pressure is palpable. The rhetoric is already turning dark, even while the pacifists in OWS plead for non-violence.

What to Do?

Wall Street should be brought down and quickly. There is a growing movement to withdraw savings and checking accounts from the big banks and transfer the money to local banks and credit unions. That would be a marvelous start. The first order of business should be to pull these too-big-to-fail banks and brokerages down. Indeed the entire stock market system needs to be abandoned. It would be nice to see unions reformed and start massive strikes against multinational corporations. People should build local economies, even barter if necessary, to subvert the corporate capitalism that is now robbing them of any way to make a reasonable living. Of course, people also have to realize that what constitutes a decent living today is not what the American dream led them to believe it should be. There will be sacrifice all around, that cannot be avoided. But that sacrifice should be shared around according to one's ability to help others.

The real irony for the bankers, et al, is that their hoarding of money is not going to help them at all. Their assets may look good on paper, but when that paper is turned worthless what are they going to eat? They will be just as destitute as everyone else. But they will also be singled out for their attempt to take from others at everyone elses' expense. I can't imagine how popular they are going to be when they can't pay their body guards any more because the money is worthless.

Even as these kinds of actions might bring a certain satisfaction from a sense of justice, they will not really fix anything. Back to the population problem. There will be no avoidance of the central issue. There are too many of us, we haven't really stopped growing, and the resources for support are on the verge of collapse. Just to see how desperate the situation is, in all of my systems dynamics modeling of population there emerged only one potential way to mitigate the worst effects — not eliminate them, but minimize them. Consider this as a Gedanken experiment; a “what would happen if” question? And that “way” involves the immediate sterilization of over 98% of the population and instigating a near zero growth rate based on a breeding population of fewer than 140 million people. The total population would immediately start to decline, especially noticeable in populations with a large “boomer” bubble. Within thirty years it could be down to half (3.5 billion) or fewer. And in one hundred years it would be down to a potentially sustainable level, depending on how the ecosystems respond to climate. Even a rapidly declining population would still put huge pressures on the Earth's resources, but they would be less than letting things work themselves out naturally.

This is a dramatic result and shows just how much trouble we are in as a species. I am not suggesting that this should be done. In fact, such a dramatically reducing population would create a new set of problems with respect to the comfort and well being of those still living. I offer this to show just how much we are in a double bind. Even if it were technically possible, we would need to ask which of the two evils is the worst (see: The Hardest Moral Dilemma of All). I can't claim to know an answer.

Believe it or not there are many people in the world who will be celebrating the birth of number 7B. Old beliefs about human superiority die very hard. These people argue that more people means greater probability of some of those being smart enough to figure out solutions and save us all. They see each new mouth to feed as a wonderful new resource, not a sinkhole for resources. But then, these same people don't really take a hard look at the reality on the ground. For them it is an ideological belief and nothing like reality is going to get in their way of believing. Of course those same people are often the ones who see these new resources as being good for the labor value they can extract from them. One more brick in the wall.

So as we pass this milestone think about what it means. I have no idea about the timing. I used to think I would be long dead before climate change would start to be felt. I thought I would be long retired before the economic crunch of peak oil and declining EROI would start to erode my retirement fund. I have been surprised to see these things already underway. If the OWS crowd gets as rowdy as the Libyans then all bets are off. Think it couldn't happen here? I'll bet the Greeks thought that about themselves ten years ago too.

Comments

[Bruce]

George, allow me to add parenthetically that there is a non-trivial risk to local and smaller regional banks from a flood of deposits.

With charge-offs elevated, the yield curve flattening at very low or negative real spreads and banks' net margins falling, and weak economic conditions discouraging bank lending, a surge of deposits to small banks would require them to significantly increase reserves against liabilities, forcing them to sell assets to raise cash or engage more frequently in inter-bank borrowing to satisfy their higher reserve requirements.

Thus, this might be one of those instances when we must be careful what we wish for.

Moreover, WRT "going Greek" (after having already turned Japanese since '00), examining the fiscal and demographic conditions in the US, we are much closer to the "PIIGS" situation than most realize, or those who know what us to know.

Consider that the US economy is nearing tipping into another recession along with the EU. Myriad conditions that have coincided over the past 40-60 to 80 years currently suggest a virtual certainty that a new recession will commence (or perhaps has already begun de facto) in the next 3-4 months.

Historically, contractions have lasted on average 11-18 months; the U rate has risen 40-100%; corporate profits fall 35-50%; stock market indices decline on average 32% (35-40% during secular bear markets, as we have today); and we could see fiscal deficits for '12-'14 of 70-100% of receipts.

Now imagine a US fiscal deficit at or near $2 trillion, a U rate of 13-14% to 18% (and U-6 at 25-30%); S&P 500 back to the 600s-800s (or lower); house prices falling another 15-20%; foreclosures accelerating again; Social Security and Medicare receipts plunging; the Fed printing still more fiat digital debt-money to flood the insolvent banking system; and China-Asia rolling over into regional contraction.

The financial media pundits and Wall St. shills will not warn us. Academic eCONomists will never forewarn us. Corporate CEOs will not tell us until the pink slips are flying. Politicians are paid to lie to us. Firms' advertisers will sell you your last breath before expiring and then send your heirs the bill. The clergy are selling "truth" but justice and salvation only after we're dead.

As for timing, the US gov't has borrowed and spent an equivalent of 50% of private GDP and near 100% of private wages since fiscal '09 just to keep GDP from contracting another 7-10%. Two or more years of fiscal deficits of 70%+ of receipts will have us borrowing and spending 100% of private GDP by '14-'15, increasing the federal debt held by the public by 50-60% and increasing net interest to receipts from 10-12% to 15-17% by '15-'16 and 20-25% before the decade is out.

Net interest to receipts of 20-25% has historically been the tipping point for insolvency for states, implying that the US is on course for virtual certainty of insolvency, and the only question is when and how it plays out.

Mathematically, what we can discern with confidence is that the cumulative differential rates of growth gov't spending and deficits to private GDP will reach an order of exponential magnitude by no later than '16-'18, which constitutes a "Jubilee" threshold at which further growth of gov't debt is impossible without overt hyper-inflationary central bank monetization of US gov't debt at whatever quantity and interest rate is necessary to fund interest on the outstanding debt, irrespective of the necessary cuts to gov't spending.

Again, given the Jubilee threshold and implications, gov't spending will have to be cut by at least 30% nominal and as much as 50% in real terms per capita over the next 10-20 years.

And this will occur with now half of US households receiving gov't transfer payments in one form or another, not counting the direct and indirect effects of gov't spending for services, subsidies, and other private business transfers and the results for employment, incomes, and benefits.

Needless to say, no one in authority is preparing us for this eventuality, and thus the overwhelming majority of Americans have yet to even consider how such likely outcomes will affect their material standard of consumption and well-being.

[Tom]

George: absolutely great essay on the predicament - you speak the truth no one wants to hear, but Mother Nature is a stern task-master.
Bruce: exceptional analysis.

What we have here can be modelled by some sort of differential equation with variables of climate change, financial change, population change and resource change being the big ones (many others, like disease, war, and intangibles like earthquakes and volcanic eruptions also in the mix).

So in "global" terms (ie. without real #'s and eqns.) lets just go with positives and negatives.

As resources become more negative (scarce) financial stability also goes negative (insolvency), effecting populations in a negative way (increased unemployment, homelessness etc.). Throw in accelerating climate change (causing havoc to food production and property damage that will overwhelm insurance companies) and we have the perfect storm brewing on our planet.

The time-line is the thing:
i expect this to begin within the year (to 3 at the most) and continuing until humanity and many other species are extinct.
i expect things to ramp up rather than settle down, since most humans are exceptionally irrational, and for our model to be influenced by war (possibly nuclear), profound civil unrest in every country (against governments, the police or security apparatus, or each other), and the breakdown of civilization - meaning hospitals will cease to exist (so disease will skyrocket), governments will lose control of their citizens, and utter chaos will ensue almost everywhere until some significant thinning of the herd at which point binding together small communities for survival will be the norm.

Perhaps at that time barter may become the means of exchange, but with all the guns around, it'll still be brutal and desperate for most of humanity.

[porge]

"With charge-offs elevated, the yield curve flattening at very low or negative real spreads and banks' net margins falling, and weak economic conditions discouraging bank lending, a surge of deposits to small banks would require them to significantly increase reserves against liabilities, forcing them to sell assets to raise cash or engage more frequently in inter-bank borrowing to satisfy their higher reserve requirements."

Posted by: Bruce | October 31, 2011 at 11:12 AM

Quite the opposite........
An influx of deposits(cash) increases the reserves and the reserve ratio above the minimum and hence forces the bank to either write loans (not in this economy) or invest in instruments that throw off yield(That would be BUY assets....not much out there)......or pay little to nothing on deposits (which is what is actually happening).
Cash is an asset to the bank..........

[Bruce]

http://www.federalreserve.gov/monetarypolicy/reservereq.htm

Reserves against liabilities are cash that is separate from the deposits. An increase in reservable deposits requires the bank to set aside a portion of the bank's net cash (3-10%, depending upon the amount of the bank's reservable deposits) as reserves against the reservable deposits.

An increase in deposits does not itself increase bank reserves.

http://www.federalreserve.gov/releases/h41/current/h41.htm

http://www.federalreserve.gov/releases/h8/current/

http://research.stlouisfed.org/fred2/series/WRESBAL?cid=123

Since the onset of the financial meltdown and banking system insolvency in '08, the Fed has increased its balance sheet by $1.8 trillion, and banks increased their cash assets from under $300 billion to nearly $2 trillion recently and reserves at Fed banks from less than $10 billion to $1.6 trillion.

Banks' reserves went from virtually nothing against reservable deposits in '08 to a deposit-reserve ratio of 4.5:1 (~22%) today.

In the meantime, loans have fallen 5% from the peak; however, the historical precedent for a debt-deflationary regime is for at least a 30% decline in bank loans and as much as 40-45%, as in the case of Japan since '98 and the US in the 1930s and 1890s,

Moreover, the monetary base will likely converge with the level of bank loans (100% Fed reserves against loans) before the debt-deflationary regime resolves later in the decade or in the early '20s, implying that bank loans will fall another 25-35% and the Fed will further expand reserves by another $2 trillion (primarily via purchases of MBS, no doubt).

The overwhelming majority of Americans are woefully uninformed or misinformed (not an accident) about how the US banking system works, i.e., our system of fiat digital book-entry debt-money.

Were even a significant plurality of us to understand how the system actually works, I suspect that we would be enraged and overthrow the rentier criminal bankster syndicate and their co-opted politicos and start from scratch.

[Tony]

To control population we need to control rich-poor gap. Also not forget the life span, invest more in education and less in sick care (by percentage). Health education (prevention) is more effective than medicine (cure).

[Bruce]

Tony, I don't dispute your reasoning, but who is "we"? And how do "we control" the rich-poor gap?

Public and private sick care spending is now an equivalent of nearly 50% of private wages and approaching an astounding 30% of private GDP. At the current differential rate of sick care spending growth and private GDP since '00, sick care spending will reach 50% of private GDP by '23-'24 and 100% before mid-century; obviously this won't happen, and growth of sick care spending must cease and contract thereafter.

Spending for war, sick care, and "education" are the only sectors contributing net incremental reported GDP growth since '00-'01, and they are growing in aggregate at TWICE the rate of private GDP during the period.

50% of sick care spending goes to the sickest 5% among us, and a significant share of the rest of the spending is associated with life extension and end-of-life care for chronically and terminally ill elders.

The most recent "health care reform" is hardly more than gov't-guaranteed growth of profits for private insurers, doctors, pharma companies, and hospitals, the criminalization of uninsured Americans, and the creation of catastrophic high-deductible medical "insurance" that pays nothing before the "insured" first pays $10,000+ a year in premia, deductibles, and coinsurance.

And, yes, by definition the sick care and pharma industries emphasize "treatment" over prevention, which, if reversed and successful, would put them out of business. In many other sectors, this kind of behavior would be a blatant conflict of interest, but it is BAU in a growing number of industries in the pick pocket eCONomy of the US over the past 30 years.

Whenever one hears of a new hospital, clinic, or research facility being built or expanded in one's city or region, rather than cheer the development, one ought to cringe and grab for our wallets, as the disproportionate share of the spending and income will flow from workers and taxpayers to execs and shareholders of insurance, pharma, hospital, and "benefits management" companies, and the bills will go to you and me.

[Bruce]

Health sector groups most aggressively lobby the Supercommittee.

Anglo-American imperial military spending.

US student loans surpass $1 trillion ($3,500 per capita equivalent and $8,000 per employed American).

[Tony]

Hi Bruce, by 'rich pay poor for not to give birth' initiative. It will auto-regulate rich-poor gap and population, as well as improving our quality. "We" are all the stakeholders, rich or poor, who want a shared better future (vision).

[George Mobus]

Bruce,

Thanks for the insights. You are right that the majority of people are not prepared, but that really means not prepared for anything. And a lot is about to happen.

This student debt situation is a possible trigger waiting to be pulled. I've talked to a few Occupiers who are students and in debt pretty deeply. They astutely observed that there was little point to continuing their education since no one they knew in their fields (one was a psychology major, another a history major, didn't find out what the other majors represented were, but one talked like a business major!) had gotten a job since graduation. Their thinking was going toward the: "Screw this. Society promised me that if I played by the rules and got an education, I would have a job that would allow me to pay back the loans AND have a decent life." They were seriously talking about defaulting simply because they had no real options. Imagine if a large portion of the $1T debt is defaulted on. Would this be anything like the bursting of the housing bubble?

In your reply to Porge you talk about starting from scratch. Of course that is the scenario that seems most probable to me!

-----------------------------
Tony,

I suspect you greatly underestimate the stupidity of the vast majority of people when it come to such things. Also the tremendous amount of selfishness that they harbor. In the west anyway, we have become a population of mostly greedy, selfish people who fail to see the greater good of the species. Pity.

George

[George Mobus]

Tom,

Hence my thinking about what comes after the crash.

George

[L Pilolla]

Bruce, your insights re: the sick-care/hospital industries are astute. I call them the "watch out or they might kill you" industries. I'm nauseated when hearing of or seeing new mega hospitals, "health" centers, or cancer treatment facilities. I hope others will start to catch on to the ruse.

[William Hunter Duncan]

I want what you want for the future of humanity. However, I'm sure nature will take care of any need for a reduction in numbers of people. I also believe the universe is divine. I presume you would have me eliminated, or at least sterilized? I think any attempt to sterilize 98% of the population will probably result in the 98% killing off most if not all of the 2%. I would resist the belief that anyone has the wisdom to eliminate people. I'm a little dismayed, actually, to find this where I did. It pulls down my estimation of The Oil Drum.

www.offthegridmpls.blogspot.com

[George Mobus]

William,

I suggest you re-read the piece, especially about the 98% sterilization. You should be able to see that I am not promoting such a plan. I am using it to show the extreme requirements that would be needed to solve the population problem with something like a soft landing.

Your comment re: my having you sterilized because you believe the universe is divine is totally unwarranted.

George