Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (15 page)

You can see where this leads. When oil gets to $200 to $300 a barrel, many suburbs and satellite communities will become uneconomic. Housing values that capitalize on low energy prices will plunge. As real estate values are primary collateral to the banking system, you can expect a deeper systemic solvency crisis to come. This deflationary pressure will probably lead to a hyperinflationary response by the authorities. You will want to own physical gold and silver.

Agriculture is highly energy intensive. Oil at $200 will lever up the cost of groceries and make your choice of food simpler and less exciting. Restaurants will find their margins squeezed as food costs in general will jump. With fewer internationally grown vegetables, fruits, meats, and fish on your grocery shelves and in restaurants, the quality of your diet will suffer. You may have to go without fresh fish, avocados, and out-of-season blueberries from halfway around the world.

If you want to get a view of the kind of food you will be eating take a look at an old restaurant menu from the 1940s. Instead of Dover sole or fresh Alaska cod flown in overnight, an exciting meal may once again consist of steak with mashed potatoes and gravy.

As economic closure reduces productive efficiency, and energy density falls, you can expect the economy to retrace aspects of its evolution. In many respects, the future may look like the past. Increasing transportation costs will negate much of the cost advantage of low-wage labor in China, Vietnam, and other remote locales. An increasing share of the products consumed will be produced locally and probably to a lower standard of quality. Most things that you will consume in the future will cost you more. As your standard of living falls, you'll have less spare cash to lavish on services. The prominent, financial services sector will probably be cut down to four percent of GDP or lower.

The tertiary sector (services and the government) will necessarily shrink as a percentage of the economy, as more people are employed in goods making and farming. As the United States grows poorer, our trading partners will have less reason to finance our deficits, so they will stop doing it. Government spending will be forced back within the straitjacket of what a poorer public can actually afford. That means dramatically fewer government services and fewer entitlements, but within the context of higher taxes and more financial repression.

Another important implication: the United States will no longer have the wherewithal to police the world. I expect U.S. military spending to be slashed, but perhaps not until after the United States becomes embroiled in another major war.

For reasons explored previously in this book, I am persuaded that our civic myths exaggerate the role of popular choice in informing the determination of such issues as the size of government, and the nature of money and debt. I see the high government percentage of GDP as having been informed more by the changing calculus of cost and reward rather than through a process of deliberative choice. As we have seen, the introduction of hydrocarbon energy has made the U.S. government large, rich, and powerful—more so than any other government in the history of the world. Government spending as a percentage of the economy surged from 1.8 percent of GDP in 1850 to 41 percent by 2011. But now, with energy growth receding, living standards are falling, and big government has become an unaffordable burden rather than a blessing.

The challenge that this poses during the coming transition crisis as the economy grows slowly or not at all is complicated by the anachronistic views of the public. Many or most Americans of the former middle-class have naturally grown to consider government as an agency for achieving miracles of wish fulfillment. During the past century and a half, politicians have encouraged voters to believe that they, the politicians, could answer the life problems of their constituents and shower them with benefits worth more than they cost. The rapid economic growth that seemed to give substance to this illusion is winding down with consequences that will disappoint millions.

Forthcoming chapters explore the deficits, the debts, and the ultimate insolvency crisis that are epiphenomena of declining energy inputs. Throughout, I argue that the crisis arising from the collapse of growth will probably entail the grand collapse forecast by Joseph Tainter: “Once a complex society enters the stage of declining marginal returns, collapse becomes a mathematical likelihood, requiring little more than sufficient passage of time to make probable an insurmountable calamity.”
23

In contrast to the large array of U.S. sectors evidencing sharply declining marginal returns, Brazil is enjoying rising returns in enough areas to permit it to grow, and even thrive. As the future of the American economy seems to get bleaker by the day, it is tempting to look abroad for business opportunities. Europe, in particular does not provide much hope, but what about somewhere that is both closer to home and sunny year-round?

Brazil is a haven for those looking to make money in a world in turmoil. With just 62 percent of the population of the United States, Brazil added 15,023,633 jobs over the eight years through January 2011, while the United States lost jobs over the same period.

In a world burdened by bankrupt governments and aging populations, Brazil is solvent, with two people of working age to every dependent.

In a world of peak oil, Brazil is energy independent, having increased its oil production since 1980 by 876 percent. With at least 70 billion barrels of oil in reserve, 60 percent of the world's unused arable land, and 25 percent of its fresh water (more freshwater than all of Asia combined), Brazil is a haven of opportunity in a collapsing world.

1
See Kevin Trenberth, “Comparing the Interstate Highway System to
Scientific American's
‘A Path to Sustainable Energy by 2030,' ” ClimateSanity, November 14, 2009,
http://climatesanity.wordpress.com/2009/11/14/comparing-the-interstate-highway-system-to-scientific-americans-a-path-to-sustainable-energy-by-2030/
.

2
Leslie Young, “The Tao of Markets: Sima Qian and the Invisible Hand,”
Pacific Economic Review
1, 137–145.

3
Mohammad Nejatullah Siddiqi,
Muslim Economic Thinking: A Survey of Contemporary Literature
(Leicester: The Islamic Foundation, 1981),

4
Gerald Turnbull, “Canals, Coal and Regional Growth during the Industrial Revolution,”
Economic History Review
, n.s., 40, no. 4 (November 1987): 537–560.

5
John Perlin, “Peak Wood Forges an Industrial Revolution,” Miller-McCune, April 19, 2010,
www.miller-mccune.com/science-environment/peak-wood-forges-an-industrial-revolution-14608/
.

6
Robert E. Lucas Jr.,
Lectures on Economic Growth
(Cambridge, MA: Harvard University Press, 2002), 109–110.

7
John Perlin, “Peak Wood: Nature Does Impose Limits,” Miller-McCune, June 1, 2010,
www.miller-mccune.com/environment/peak-wood-nature-does-impose-limits-16596/
.

8
Perlin, “Peak Wood: Nature Does Impose Limits.”

9
Erik J. Dahl, “Naval Innovation: From Coal to Oil,”
Joint Force Quarterly
(Winter 2000–2001): 50. Available at
www.dtic.mil/doctrine/jel/jfq_pubs/1327.pdf/
.

10
Ibid.

11
Dahl, “Naval Innovation: From Coal to Oil,” 50.

12
Ibid., 50.

13
United States Census,
Historical Statistics of the United States: Colonial Times to 1970
, 1976.

14
Joseph A. Tainter,
The Collapse of Complex Societies
(Cambridge, UK: Cambridge University Press, 1988), 124.

15
Ibid., 214.

16
Leslie A. White,
The Science of Culture
(New York: Farrar, Straus and Giroux, 1949).

17
Tainter,
Collapse of Complex Societies
, 215.

18
Phyllis Cuttino, “Military Going Green to Save Lives, Money,”
CNN.com
, September 22, 2011,
www.cnn.com/2011/09/22/opinion/cuttino-military-green/index.html
.

19
Gail Tverberg, “Peak Oil: Looking for the Wrong Symptoms?” Next Generation O&G, Editor's Blog, February 16, 2010,
www.ngoilgas.com/editors-blog/peak-oil-symptoms
.

20
Gail Tverberg, “Where we are headed: Peak oil and the financial crisis,” The Oil Drum, March 25, 2009,
www.theoildrum.com/node/5230
.

21
“The Future of Oil,” Institute for the Analysis of Global Security, February 25, 2002,
www.iags.org/futureofoil.html
.

22
Richard Cowen, “Chapter 13: OPEC and Crude Oil,”
http://mygeologypage.ucdavis.edu/cowen/~gel115/115ch13oil.html
.

23
Tainter,
Collapse of Complex Societies
, 195.

[A] look at the interaction of climate and history over the past 15,000 years reveals another process at work more or less continuously over that span. In our efforts to cushion ourselves against smaller, more frequent climate stresses, we have consistently made ourselves more vulnerable to rarer but larger catastrophes. The whole course of civilization (while it is many other things, too, of course) may be seen as a process of trading up on the scale of vulnerability.

—Brian Fagan, The Long Summer:
How Climate Changed Civilization
, xv

[F]or 55 out of the last 57 centuries Malthus was right. What I mean is that for almost all of the history of civilization improvements in technology did not lead to sustained increases in living standards; instead, the gains were dissipated by rising population, with pressure on resources eventually driving the condition of the masses back to roughly its previous level. . . . It was Malthus's great misfortune that the power of his theory to explain what happened in most of human history has been obscured by the fact that the only two centuries of that history for which it does not work happen to be the two centuries that followed its publication.

—Paul Krugman, “Seeking the Rule of the Waves”

Classical economists had little or nothing to say about bad weather. In this respect, economics has regressed since the days of the pioneering economist and student of Socrates, Xenophon, who lived four centuries before Christ. In his
Oeconomicus
, Xenophon writes, “It is impossible for men to foresee the results of most agricultural operations, for sometimes hail-storms and frost and droughts, unseasonable rain, and mildew and other things spoil what has been well planned and well done.”
1

In more modern economic textbooks, as in
Brave New World
, there is always fair weather. The main exception is found with the Reverend Thomas Malthus, who devoted rapt attention to the “but too frequent” bouts of bad weather that afflicted China where “millions of people” perished of hunger in “times of famine.”

In the process, it is sometimes imagined that Malthus single-handedly inspired the historian Thomas Carlyle to describe economics as “the dismal science.” Carlyle said, “Not a ‘gay science,' I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science.”
2
In fact, however, Carlyle's insult to economists was not aimed solely at what came to be known as “Malthus' Dismal Theorem.”

Carlyle's taunt first appeared in an 1849 polemic in support of slavery, his “Occasional Discourse on the Negro Question.” It was a purely racist complaint that economists treated all people as equals, a point underscored when Carlyle reissued, his broadside in 1853 as “An Occasional Discourse on the Nigger Question.” In Carlyle's terms, Malthus may have been a bad guy, like Adam Smith and John Stuart Mill, but not because of his “Malthusian” views on diminishing returns. From Carlyle's perspective, Malthus was too liberal and optimistic, too willing to accord all individuals, regardless of race, the same status in his population economics.
3
Yet in spite of the narrow-minded bias of some of his critics, Malthus appeared to have forfeited the love of optimists by advancing what came to be known as “Malthus' Dismal Theorem.”

One does not have to swallow the bitter version of Malthus' Dismal Theorem to appreciate the window it opens on reality. As Paul Krugman notes, “. . . for 55 out of the last 57 centuries Malthus was right.”
4
And he may be again.

In his theories, Malthus points attention away from the economists' conceit of a static world in equilibrium toward a more realistic recognition of a dynamic environment where (among other things) the weather can indeed be bad; and crops can fail, terribly afflicting millions of people.

Even if that does not doom us all, and especially if it does, it is important to understand and bring more carefully into focus the contingencies upon which prosperity rests. One of these most assuredly is the weather.

There has recently been a growing attention to the relationship between economics and the climate, particularly among those concerned about “global warming.” In this respect there has been lavish criticism directed at economists such as Larry Summers, “who spent Clinton's term pushing back against [Carol] Browner on climate policy and who has popped up on green radars thus far mainly as the guy who had a hand in cutting back transit funding in the stimulus package.”
5