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What Next?

      Isn’t that a question, though….
      The Peak Oil story
was never about running out of oil. It was about the collapse of
complex systems in a world economy faced by the prospect of no further
oil-fueled growth. It was something of a shock to many that the first
complex system to fail would be banking, but the process is obvious: no more growth means no more ability to pay interest on credit… end of story, as Tony Soprano used to say.
     There was a popular theory among Peak Oilers the last decade that
the world would enter a “bumpy plateau” period when the global economy
would get beaten down by peak oil, would then revive as “demand
destruction” drove down oil prices, and would be beaten down again as
oil prices shot up in response — with serial repetitions of the cycle,
each beat-down taking economies lower — the only imaginable outcome
being some sort of quiet homeostasis. This scenario did not play out as
expected. It was predicated on a mistaken assumption that all systems
would retain some kind of operational resilience while ratcheting down.
Anyway, the banking system was mortally wounded in the first go-round
and the behemoth is dying hard.
     The last desperate act of the banking system in the face of Peak
Oil’s no-more-growth equation was to engineer species of tradable
securities that could produce wealth out of thin air rather than
productive activity. This was the alphabet soup of algorithm-derived
frauds with vague and confounding names such as credit default swaps
(CDSs), collateralized debt obligations (CDOs), structured investment
vehicles (SIVs), and, of course, the basic filler, mortgage backed
securities. The banking system is now choking to death on these
delicacies.
     The trouble is that the EMT squad brought in to rescue the banking
system — that is, governments — can’t remove these obstructions from
the patient’s craw. They don’t want to drown in a mighty upchuck of the
alphabet soup.
     The collapse of complex systems is actually predicated on the idea
that the systems would mutually reinforce each other’s failures. This
is now plain to see as the collapse of banking (that is, of both
lending and debt service), has led to the collapse of commerce and
manufacturing. The next systems to go will probably be farming,
transportation, and the oil markets themselves (which constitute the
system for allocating and distributing world energy resources). As
these things seize up, the final system to go will be governance, at
least at the highest levels.
     If we’re really lucky, human affairs will eventually reorganize at
a lower scale of activity, governance, civility, and economy. Every
week, the failure to recognize the nature of our predicament thrusts us
further into the uncharted territory of hardship. The task of
government right now is not to prop up doomed systems at their current
scales of failure, but to prepare the public to rebuild our systems at
smaller scales.
     The net effect of the failures in banking is that a lot of people
have less money than they expected they would have a year ago. This is
bad enough, given our habits and practices of modern life. But what
happens when farming collapses? The prospect for that is closer than
most of us might realize. The way we produce our food has been
organized at a scale that has ruinous consequences, not least its
addiction to capital. Now that banking is in collapse, capital will be
extremely scarce. Nobody in the cities reads farm news, or listens to
farm reports on the radio. Guess what, though:
we are entering the planting season. It will be interesting to learn
how many farmers “out there” in the Cheez Doodle belt are not able to
secure loans for this year’s crop.
      My guess is that the
disorder in agriculture will be pretty severe this year, especially
since some of the world’s most productive places — California,
northern China, Argentina, the Australian grain belt — are caught in
extremes of drought on top of capital shortages. If the US government
is going to try to make remedial policy for anything, it better start
with agriculture, to promote local, smaller-scaled farming using
methods that are much less dependent on oil byproducts and capital
injections.
      This will, of course, require a re-allocation of lands suitable
for growing food. Our real estate market mechanisms could conceivably
enable this to happen, but not without a coherent consensus that it is
imperative to do so. If agribusiness as currently practiced doesn’t
founder on capital shortages, it will surely collapse on disruptions in
the oil markets. President Obama at least made a start in the right
direction by proposing to eliminate further subsidies to farmers above
the $250,000 level. But the situation is really more acute. Surely the
US Department of Agriculture already knows about it, but the public may
not be interested until the shelves in the Piggly-Wiggly are bare —
and then, of course, they’ll go apeshit.
     The recent huge drop in oil prices has left the public once again
convinced that the world is drowning in oil — if only the scoundrelly
oil companies were forced to deliver it at reasonable prices. The
public has been consistently deluded about this for decades. What’s
missing so far is for the president of the US to lay out the reality of
the situation in a dedicated TV address. I know a lot of you think that
Jimmy Carter already tried this and failed to make an impression (and
ruined his presidency in the process). I guarantee you that Mr. Obama
will have to do this sometime in the next few years whether he likes or
not, and he’d be well-advised to get it done sooner rather than later.
And by this I don’t mean just vague allusions to “energy independence”
or “renewables” in speeches devoted to many other issues. I mean
telling the public the plain truth that we’ll never offset oil
depletion and the intelligent response is to do everything possible to
transition to walkable towns and public transit, not to sustain the
unsustainable.
      The alternatives — i.e. what we’re trying now — is to further
delude ourselves into thinking that we can run WalMart and the suburbs
by some other means than oil. Despite all our investments in these
things, we won’t be able to run them by other means, and the news about
this had better get out before enormous disappointment turns into
titanic rage. If Americans think they’ve been grifted by Goldman Sachs
and Bernie Madoff, wait until they find out what a swindle the
so-called “American Dream” of suburban life turns out to be.
     On this blizzardy Monday in the power centers of America,
attention is fixed on the never-ending fiasco of AIG — a company whose
main product turned out to be credit default swaps, and is now choking
on them. Kibitzers on the sidelines of finance are forecasting a
king-hell bear market suckers’ rally in the stock markets followed by a
belly flop to Dow 4000 or lower. I myself called for Dow 4000 two years
ago — and was obviously a bit off on my timing. All this is surely
trouble enough. But while your attention is focused on Rick Santelli in
the Chicago trader’s pit, or Larry Kudlow desperately seeking “mustard
seeds” of new growth in financials, try to let one eye stray to the
horizon where these other complex systems are working out their next
moves. Farming. The oil markets. These are the coming theaters of alarm
and distress.

____________________________________?
My 2008 novel of the post-oil future, World Made By Hand, is available in paperback  at all booksellers.  

About James Howard Kunstler

View all posts by James Howard Kunstler
James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency and the four-book series of World Made By Hand novels, set in a post economic crash American future. His most recent book is Living in the Long Emergency; Global Crisis, the Failure of the Futurists, and the Early Adapters Who Are Showing Us the Way Forward. Jim lives on a homestead in Washington County, New. York, where he tends his garden and communes with his chickens.

2 Responses to “What Next?” Subscribe

  1. alidaclark October 18, 2020 at 12:11 am #

    This is now clearly seen as the collapse of the bank that led to the collapse of trade and production. skribblio

  2. Lincoln092 March 29, 2021 at 9:30 am #

    It totally depends on your plan and the value that you give to the work. What you want to do next for https://citi.io/2020/11/28/largest-business-empires-in-history-secrets-of-millionaires/ and try not to stay on the other complex system because that may cause a problem for you in the future. I think post covid may increase the prices of the oil.

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