What is truly unique to the 21st century is that we are running out of affordable crude oil, the fuel that propelled staggering economic growth during the previous 100 years. And while the wheeler-dealers in Congress can lift the debt ceiling with the stroke of a pen, all the king’s horses and all the king’s men can’t put oil back in the ground again.
It was the Petroleum Age that ushered in the last and most potent round of the Industrial Revolution. It was the very fuel that powered world growth. And it was ubiquitous.
The tremendous economic growth in the 20th century, which saw the standard of living leap by a bound greater than it had jumped during the previous 1,000 years, can be attributed to a single factor: cheap and plentiful oil.
Some economic models show that labor and capital account for less than 25 percent of the actual growth of the U.S. economy. Three-quarters of the increase is the result of energy and technology, with energy producing the lion’s share of the latter.
Up until the late 20th century, energy was becoming more and more efficient. Each kilowatt produced more work. That is, until 1996. Since then, the 100-year trend has peaked, and we are no longer getting a bigger bang for our barrel.
The graph below shows how significantly oil has contributed to world gross domestic product. It underscores that the good life has come not only from great men or great ideas, but from our economic lifeblood harvested from the ground.
Easy oil meant easy times. One of the periods of great growth was between 1980 and 2000. During that time, daily oil consumption rose from 15 million barrels per day to nearly 20 million barrels per day.
During this orgy, oil prices dropped from $36 per barrel to $20. In real terms the price of oil fell by 60 percent. (See the chart below.) It’s no coincidence that during this same span America’s GDP rose from $2.7 trillion to $9.6 trillion. It was one of the most impressive 20-year growth rates in the history of the United States, and it helped Washington get spending under control.
Right along with the growing economy was a booming stock market. In 1980, the Dow Jones industrial average lingered below 1,000. By 2000, it stood above 10,000.
Over the past decade, the U.S. economic engine slowed and finally stalled with the economic crisis of 2008. Even after a recovery of sorts, the Dow sits just 2,000 points higher than where it stood at the onset of the 21st century. If you factor in an inflation-adjusted Dow, stock prices have actually declined 10 percent from when Bill Clinton was President.
Today, we face the prospect of not only higher oil prices, but a possible oil shock. With record demand and global production stagnant, the interruption of just 5 percent of the world’s oil supplies would likely create a 50 percent price spike. That would put crude oil prices at almost $150 per barrel in scant days and would push gasoline prices above $6 per gallon.
Make no mistake; petroleum is used to produce everything. Building the average car consumes approximately 27 to 42 barrels of oil. Constructing the typical desktop computer requires more than 10 times its weight in fossil fuels.
Cheap oil is essential not only for making things but in growing things as well. From making fertilizer, to powering the tractor and fueling trucks and trains to bring crops to markets, agriculture needs oil. More expensive oil makes everything more expensive.
As our dependence on oil grows, the availability of it is shrinking. The United States is currently producing less oil today than it was in the early 1950s. And you can’t find a single oil man who thinks global oil production will grow.
“Over 1.5 trillion barrels of oil equivalent have been produced since Edwin Drake drilled the world’s first oil well in 1859, reported Angel Research. “The world will need that same amount to meet demand in the next 25 years alone.”
And there is nothing on the horizon to replace petroleum. In fact, every four years, the United States consumes a cubic mile of oil. This has the energy equivalent of:
- Four dams equivalent to the Three Gorges dam, cranking out power for 50 years.
- More than 30,000 wind turbines, cranking for 50 years (at 100 percent capacity).
- 104 coal-fired electric plants, going full capacity for 50 years.
- 52 nuclear electric plants, running full-bore for 50 years.
The Crude Truth About America’s FutureThe disaster building in energy means the arrest of the amazing economic growth enjoyed by the United States and the world over the past century. As oil prices go up, the cost of everything goes up — from the shoes you buy to the food you eat. That leaves less disposable income for luxuries and that means big-time profit slumps for companies of every ilk. It will be especially bad for the airline and automobile sectors, which will be hit not only by rising costs but also tumbling sales.
Of course, Obama doesn’t want America or the world to believe this inevitable truth. He hints that there is some Green Genie tucked away that will solve all of America’s energy needs. This is nonsense.
The last President that was honest about the nation’s energy predicament was Jimmy Carter. That was more than 30 years ago, and it played a role in his failure to be re-elected. Obama is determined not to make that same mistake — at least not until after the election. I expect over the next two years we will hear more baloney about the prospects for electric cars, high-speed rail systems and whatever else appeals to the President’s imagination and that he can still sell to the American people.
Yours in good times and bad,