Conventional wisdom holds that the existential challenges of the new century will be met almost effortlessly, if only we simply stand back and let the "magic" of the market operate. For example, declining availability of petroleum will lead to higher prices, which creates enhanced incentives to explore for additional oil leading to greater supply. If this enhanced supply is not forthcoming, or is not available at a reasonable price, then the market finds a substitute for it--ethanol perhaps. Certainly given profit incentives, the "invisible hand" of the market will conjure up some kind of cheap "unobtanium" to substitute for petroleum. All that is needed is for government's "heavy hand" to be deregulated out of the otherwise free market and presto, voila, we're saved!
We, citizen-consumers need do nothing, except perhaps join the Tea Party to force government off the back of industry so that all of this can actually happen. Magic "power words", all animated by Adam Smith's "invisible hand" are ritually invoked to explain all of this: "incentive", "substitutability", "deregulation". So relax, vote corporatist, and have another bag of chemical-laden cheese puffs. The future is in good, if invisible, hands--right?
Err...well...no. Actually the relatively near future will be unbelievably awful. It is a future of collapsing ecosystems, evaporating economies, and gyrating weather. Worse, the longer we remain lulled into a false sense of security, the more probable this terrifying future becomes, and the more the possibility of averting it--or at least mitigating it--recedes. Why?
The world economy and population have been expanding for about 500 years--from Columbus to the present era of globalization. Initially this process of expansion placed only local burdens on the Earth's carrying capacity. Now this burden is planetary. It exceeds our biosphere's adaptive capacity. Species are becoming extinct at a rate unseen since the dinosaurs perished 65 million years ago.
Our entire planetary economy is based on one assumption: oil will always be cheap and plentiful. A corollary to this is that if it was not cheap and plentiful, market forces would effortlessly find a substitute for it. Yet this is nonsense. Oil exists in finite quantities, at some point its production must begin to decline inexorably. Its price must concomitantly, rise equally inexorably. Burning coal reserves might provide a brief respite at the cost of tipping the planet into a hothouse equilibrium 10 or more, degrees, Fahrenheit, warmer. Goodbye to coastal cities, reliable climate for agriculture, reliable rainfall for drinking etc. Then coal goes into decline.
As you can see from the above graph, global oil production has flat-lined since 2004. We are now at "peak oil." Even prices near $150.00 per barrel in 2008 could not significantly increase production. Clearly, market forces cannot increase production. They cannot minimize prices except by means of allowing high prices to trigger long term recessions which themselves reduce demand.
No near-term substitutes for oil are on offer. This is because the universal laws of physics do not answer to the human invented "laws" of economics. There is no adequate substitute for petroleum in a gas-powered civilization. Substitutability has its limits. These are defined not by the "laws" of economics, but rather, by the iron laws of physics--the cold, hard equations which govern the physical universe.
It gets worse. Our economy grows by borrowing. Money for growth is ultimately backed up by the belief that more wealth will exist in the future, than exists at present. So long as this is the case, then gimmicks such as fractional reserve banking--wherein much more money is loaned out by financial institution than is actually available on reserve at the institution--can usually work. Sure, the loaned money does not really exist, but it will--in the future. Without future economic growth, this is no longer the case.
Without growth in the energy supply, future economic growth cannot occur. Also, environmental limits such as climate change would constrain future growth because of its impact on the food supply. Infinite material economic growth on a planet of finite resources is simply not possible due to energy constraints, resource constraints, and environmental constraints.
We find ourselves living at that point at which these constraints are reached. Researcher Robert Hirsch in his new book The Impending World Energy Mess calculates that global oil production will begin its inexorable decline from its present plateau in 2-5 years. This estimate is consistent with that of many others. At that point when decline manifests, we can expect mass panic.
Once we drop off of the petroleum-supply plateau, the economy will implode as investment capital--based on the assumption of future growth and wealth--vaporizes. Unfortunately, rather than facing reality squarely, we can also expect instead crash programs to liquefy coal as a gasoline substitute, like Germany did in WWII, simply to buy a few more years of the status quo. Burning more coal will drive global warming into overdrive, creating, among a multitude of intensifying problems, the conditions for crop failure, and leading to mass famine. It will have done nothing whatsoever to address the underlying, fundamental problem of hydrocarbon energy depletion.
Once Americans lose their relative material comfort all hell will break loose. Neo-fascism is likely to emerge rapidly, beginning with a search for scapegoats: Moslems, liberals, unions, gays, feminists, Democrats etc. All of these will be said to have somehow traitorously sabotaged the economy. Next, the national government itself will soon fragment as the chaos accelerates and the lack of available energy reduces the government's ability to maintain its control over large regions.
Internationally, global war is the nearly certain result, as existing great powers seeing their impending doom and use their military assets to preserve their access to oil. Of course, this will further destroy and expend irreplaceable material and energy assets, while wasting the last remaining time available to work constructively for solutions to our multitude of intensifying problems.
Somehow, the much worshipped "invisible hand" will have failed to rouse itself and "save" us. The few rich (those favored by the invisible hand) are rapidly getting ever richer while the rest of us...well you know about this side of the equation don't you? The rest of us get backhanded by the invisible hand.