by Loren Cobb
The "Peak Oil" literature is a cornucopia of apocalyptic thinking, roughly the educated/secular version of the kind of thought usually associated with fringe Christian groups who retreat into mountain hideaways to await the Four Horsemen of the Apocalypse.
Peak Oil is the theory that world oil production will hit an all-time maximum within the next few years, if it hasn't already done so. Estimates of the moment when oil production will reach its maximum range from 2005 out to 2025, and beyond. The significance of Peak Oil lies not in its precise timing, but rather in our possibly violent and dysfunctional response to the growing scarcity of inexpensive energy during the decades that follow.
There are many nightmare scenarios, but most commonly we read variations on this theme:
As a fantasy of economic Armageddon, it's hard to beat this scenario. How realistic is it?
Let us begin by agreeing, for the sake of argument, that worldwide oil production will indeed plateau by about 2010 or so the exact date is not important and that it will thereafter follow a downward trend. This part of Peak Oil theory has hard evidence in its favor and a lot of expert support, even from within the petroleum industry.
From there it is an easy step to the conclusion that the price of oil-related products will begin to rise, as the worldwide market in crude oil adjusts to a long-term regime of steadily falling supply and worsening quality of petroleum. The critical question becomes: what then? How will individuals and entire societies respond?
To answer this question, Peak Oil catastrophists like to draw inspiration from a pattern often observed in population biology, exemplified by the explosive growth of a colony of bacteria when first introduced into a petrie dish. When the dish is full and the food supply exhausted, the colony suffers a huge and sudden collapse. The parallel to humanity is clear, but will we suffer the same fate?
The answer is too complex to fit within the bounds of a single essay or even three. Earlier this year, in TQE 145, I analyzed the effect of plug-in hybrid cars on our energy future. In an essay to come we will look at what the theories of resource economics have to say. In this essay, however, I would like to focus specifically on a very different aspect of the situation: the effect of social institutions.
From my perspective, just about every account in the Peak Oil literature of what will happen completely misses a critical point. What happens next depends, more than anything, on human institutions. In pursuing analogies with biological populations, Peak Oil catastrophists either assume that human institutions are weak and fragile, or pretend that they do not exist at all. Let's take a look at this assumption.
Social institutions are patterns of behavior and thought which have become so customary as to have become part of tradition and culture, and even the subject of laws. Institutions such as marriage, family, religion, language, and education, guide the behavior of parents and the raising of children, from infancy all the way to adulthood. Institutions such as law, government, justice, and democracy regulate and shape the structure of society and put limits on the behavior of everyone.
Science is a comparatively young social institution, first described in 1620 by Francis Bacon but not yet fully accepted by all parts of society. The nation-state is another young institution, first formalized in law only in 1648 and still evolving.
Money is a social institution, as are markets, whether they are organized for barter or exchange at fixed or freely-negotiated prices. The free market, first described in 1776 by Adam Smith, is a social institution defined in part by what it lacks: external control over prices and quantities.
Although a social institution is just an accepted pattern of thought or activity, it can crystalize into a formal organization, with written rules, an enforcement mechanism, a membership, and a governing body. For example, the ancient informal traditions of clan justice revenge and defense of honor evolved gradually into a group of formal organizations that create, maintain, and enforce written legal codes: the legislature, the courts, the prosecutors, and the bar association.
Social institutions and formal organizations pervade all of society, weaving it together in an intricately interlaced fabric of mutual interest and collective action. Large-scale projects, like sending a man to the moon or clearing the skies of industrial pollution, are often the product of the coordinated efforts of large formal organizations, and not the sum of isolated individual decisions.
On the other hand, the theory of classic liberalism holds that when isolated individual economic decisions can be aggregated by a free market, then the results are superior to any economic decision by government. In the words* of Henry David Thoreau, "That government is best which governs the least." In the world today we see two relatively young social institutions competing fiercely for dominance in the domain of economic decision-making: free markets vs. nation-states.
This competition is especially fierce in questions of potential social collapse due to the modern equivalents of the Four Horsemen of the Apocalypse: population growth, resource depletion, climate change, nuclear war, and pandemic disease.
Yet there is something lost in these arguments over which social institution is best, and that is the simple observation that social institutions themselves, of all kinds, have been dramatically improving in ability, strength, and efficiency, over at least the last one hundred years, and perhaps much longer.
Some Recent History
The twentieth century was a time of global institution-building on an unprecedented scale, and in the growth of international civil society. Each new institution arose to address a specific problem, and each has had its bitter opponents and fierce controversy, but the trend is very clear. Here are some highlights, with copious links to external sources:
Given this century-long history of both formal and informal institutions emerging to meet and grapple with serious global problems, I find it easy to suppose that the challenges posed by Peak Oil will bring forth efforts on a similar scale, from government and civil society alike. Bacteria growing in a petrie dish do not have this capability, but we do! What is more, history shows that we are becoming better at it with practice.
Part of the Solution?
Ironically, the very associations which have emerged to discuss and develop theories of Peak Oil and which have generated so much hysteria along the way are a vital part of this process. Every major global challenge that the world has had to face was first recognized by a small group of horrified individuals, who then broadcast their apocalyptic visions with little or no perspective on how real societies behave. Much as I loathe such fear-mongering, I also recognize that this is often how social awareness begins.
In my opinion, too much of the debate about our energy future swirls around the mind-numbing technical details of this or that energy source or system. The narrow debate over free-market vs. government action also misses the point, in my view. I may be in a minority of one, but it seems clear to me that finding a path to a solution depends far more on having strong, flexible, and creative social institutions of all types than it does on any one particular technology or institutional framework.
Not coincidentally, this is where Quaker traditions and institutions of peaceful consensus building may be able to make their finest contribution but only if we can somehow learn to avoid being drawn into every apocalyptic vision that comes along. This, then, is my query for every one of us, myself included:
Sincerely your Friend,
Please send comments on this or any TQE, at any time. Selected comments will be appended to the appropriate letter as they are received. Please indicate in the subject line the number of the Letter to which you refer!
I like your description of social institutions, though I wouldn't include the free market as a social institution. What is less convincing to me is the necessity of big institutions to weave it all together. I doubt strongly the necessity of big institutions, and moreover I question their efficiency. Most institutions are indeed created with the best of intentions, but they seldom reach their goals as planned; on the contrary, they deteriorate pretty quickly.
Until this very day we have little empirical evidence that supra-national organizations will prove themselves to be valuable coordinating, credible, professional and efficient social institutions, capable of coping with major international issues. The globalization of trade and the entanglement of corporate interests, terrorism, the rise of new economic powers, avian influenza, and global warming have surely given a new élan to these large institutions. The respect they get from a few successes together with a growing confidence from nations could drive them towards more energetic policies.
In the near future your optimism will probably be proven right. The need for cooperation is still out there and international social institutions could get a boost from it. In general a positive movement strengthens itself.
But in the long run, I am not so sure...
(Name withheld by request), Belgium.
You raise questions and issues that I have been pondering for awhile. I have, myself, been known to write apocalyptic comments about possible futures we face. Amongst Quakers (in Friends Journal, for example) I express such sentiments primarily to try to get people off their soapboxes and into some form of action.
"Peak Oil" proponents may not realize that one thing that fueled the dire predictions of early environmentalists in the 1950s was a serious underestimation of the power of science to affect what then seemed to be "inevitable". Thus we are not, for example, facing a "Silent Spring" as a result of DDT use...
Loren, I really appreciate the variety of questions you are raising in The Quaker Economist. I think its good for people to experience economics as a part of every aspect of life rather than as the gloomy product of "the dismal science".
Janet Minshall, Anneewakee Creek Friends Worship Group, Georgia.
You are right to point to social institutions (and other forms of social capital), but having read Collapse by Jared Diamond, I cannot share your optimism... Social institutions depend for their effectiveness on problem recognition and leadership. If we had a Kennedy, Roosevelt (or even a Gore) in the White House I might share your optimism, but with the present "leadership" and an electorate of whom a significant percentage would apparently vote for the Apocalypse, I am less than optimistic.
I would respond to your query with this one: Given you have made a calm and careful search for an honest and accurate perspective on what is happening around us, are you satisfied that we are not in the presence of a genuine emergency?
Wilfred Candler, Annapolis (MD) Friends Meeting.
I am delighted with your query! I often find myself somehow alone in a group of Friends, with my vision of a bright future where humans devote more and more time to our journey in the Light of the Spirit of God, while all around me are despairing of the hopeless condition of our planet.
The apocalyptic visions seem to generally follow Malthus' approach, to look at existing trends and assume that those are the only factors to be accounted for. So, a trend to hit peak crude oil production and then a long decline becomes the basis of the end of the earth! I wonder if similar arguments were made regarding peak equine operations two hundred years ago. One could easily have projected from 1790 that, based on expanding populations and rising standards of living, demand for horses would hit a peak. (Remember at the time this was close to the only kind of "horse-power", thus the word.) Then declining hay production and the earth's inability to absorb any further horse manure would have resulted in projections for the complete demise of civilization.
Crude oil is not a sole solution for energy. Rising prices provide the signals in a free market to determine when and how alternatives become preferrable. If the externalities of environmental degradation and human health costs were today factored into oil prices, the alternatives would already be widespread. The bigger the differential in efficiency, as denoted by higher prices, the sooner carbon-based fuel energy will be replaced.
And then we will get to worry about some other apocalyptic vision! Space aliens, anyone?
Christopher Viavant, Salt Lake Monthly Meeting.
A good insightful commentary ending with an appropriate query.
I always thought that the scarcity in oil would probably come gradually enough to allow the free market to develop alternatives to oil without economic or societal chaos. I also think that before we subsidize alternative fuels, we should eliminate all subsidies of petroleum.
Joseph Mills, Kalamazoo (MI) Friends Meeting.
Peak Oil seems to be a classic economic question of allocation of scarce resources. The price system will send signals that will impact behaviors. The recent high oil prices have already led to significant changes in consumer and producer behavior. I don't think anyone is claiming that oil production will cease altogether. The world economy, without any interference, can easily absorb 2% 3% annual declines. People are inventive and resilient. Companies have to be, or they go out of business. Entrepreneurs will flourish. To me, this is a purely economic question, and free(er) markets will handle it well. Command and control will lead to corruption, pain, and war. Expecting social institutions to address this will be ineffectual at best and dangerous at worst. It all sounds like Malthusian fear-mongering!
Thanks for all you do.
It is a real pleasure reading an economist who is thinking about institutions. In this context, you contrasted markets with nation states. I agree with you, and disagree with your commenter, that markets are institutions. More accurately, markets are an activity that is conducted within a framework of culture and organizations without which they cannot exist. That framework typically now comes in part from government, but need not, as witness the success of the medieval Law Merchant before it was nationalized by various nation states.
Markets are certainly older than Adam Smith's description of them. There are well documented neolithic trade patterns which essentially established prices of say fish bone spears (made at the coast) in terms of stone axes (made well inland). This particular trade pattern in Australia involved several intervening tribes, and the relative prices of the two commodities shifted at each tribal boundary, but other such exchange patterns involving shells or obsidian or the like are also well documented. You can be certain that tribal organization and culture supported these exchanges or they would not have continued to occur.
Facilitation of exchange by the creation of money also is of fairly ancient origin, and coinage, for the most part has been monopolized by governments.
Some of the most promising approaches to the problems of global warming are based on creating markets that trade new governmentally defined property rights such as carbon credits.
But international institutions don't spring from a vacuum. Momentum for them builds in smaller communities and institutions and percolates up (we call this the marketplace of ideas). If your readers have not seen it, they may be interested in the recent study by the Pew Center on Global Climate Change, Getting Ahead of the Curve: Corporate Strategies that Address Climate Change. This study details how many major corporations are already adopting strategies to limit their contributions to climate change, getting organizational buy-in, and moving to try to affect governmental policy.
Of course there are many non-profit and governmental organizations that are part of this movement. I happen to belong to two committees of the American Bar Association as well as several non-profit organizations (e.g. The American Council on Renewable Energy (ACORE)) that are focused on moving forward financing and trading arrangements and government policies that support renewable energy. This groundswell is only a continuation of the movement that has already led to the UN Convention on Climate Change and organizations such as IETA (the International Emissions Trading Association).
The marketplace of ideas is not abstract. It involves "buying in" to these organizations and movements, that amplify particular cultural directions. It matters where we put our energy. We collectively send policy signals just as we collectively create price signals.
C. Baird Brown.
In the discussion of "Peak Oil", so rarely is the idea of justice mentioned. Oil is exceedingly valuable; by what right can we justify using most of it up in just a few generations? The economic discussions seem to assume that the only reason to decrease our use is when free markets make it too expensive for many uses. Do not we have a responsibility to our children's children?
"Peak Oil" and global warming are very nearly the same problem. Decreasing our use of oil will decrease our contribution to global warming. The problem with depending on free markets to help with this is the externalities. Those who profit most from practices that contribute to global warming and are likely to make the oil decline nasty are not the ones who pay in the short run - so a free market cannot inform their decisions.
Terry Kinzel, Keweenaw Friends Meeting.
Sir, upon reading your piece on Peak Oil, I realized that you did not take into account rapid onset climate change coupled with this energy transition. Given also your paper on very rare events (A Scale for Measuring Very Rare Events), I thought I would ask if you have thought about applying your thinking on very rare events with the amazing world we find ourselves in at this time. That is, can we calculate the odds that civilization might not be able to make it through the energy transition, but will collapse from climate contradictions first?
My interest stems from both many years of science fiction post-nuclear war stories, dystopian science fiction, and the recent ideas put forth by thinkers like Lovelock. There are many groups of people who are quite afraid and who are adopting a "lifeboat" ethic that I consider a form of Neo-Feudalism. Although I feel that muddling through (not without consequence to be sure) is possible, the more I deeply think about climate shifts and post-modern weapons of war and the tendency of big states to wage war, I have to say that my dystopian science fiction of childhood appears more real with each passing day.
Charles Stegiel. [21 Nov 2006]
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Copyright © 2006 by Loren Cobb. All rights reserved. Permission is hereby granted for non-commercial reproduction.