Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (10 page)

Obligatory labor or simple slavery, it was a rare government in the pre-industrial era that was able to harness human muscle-power on a scale approaching that enjoyed by the pharaohs. Only the rulers of hydraulic societies who had a monopoly on food had sufficient leverage over the general population to be able to extract enough energy to undertake a project like building the pyramids. But even the success of the pharaohs in aggrandizing themselves was predicated on weather conditions conducive to inundations.

When bad weather dried up the source of the Nile for many years after 1250 B.C., the ability of the pharaohs to command allegiance (
bak
) dried up as well. Around 1182–1151 B.C., during the reign of Rameses III, low inundations and crop shortfalls led to surging food prices. Craftsmen and workers for the royal tombs near the Valley of the Kings went on strike after their food rations went unissued.
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Governments could not easily extract large amounts of energy from human muscle power when the entire annual energy output of society was limited to about one-twentieth of a horsepower per capita. The margin above subsistence available for capture was simply too meager. Economic historian Richard Steckel points out that even within the context of real GDP growth in a favored environment like the early United States one of the faster-growing economies of that time apart from the UK, that growth from the nineteenth into the twentieth centuries “must have been many times higher than experienced during the colonial period.”
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How does he know? He writes,

This conclusion is justified by considering the implications of extrapolating the level observed in 1820 ($1,257) backward in time at the growth rate measured since 1820 (1.73 percent). Under this supposition, real per capita GDP would have doubled every forty years (halved every forty years going backward in time) and so by the mid 1700s there would have been insufficient income to support life. Because the cheapest diet able to sustain good health would have cost nearly $500 per year, the tentative assumption of modern economic growth contradicts what actually happened. Moreover, historical evidence suggests that important ingredients of modern economic growth, such as technological change and human and physical capital, accumulated relatively slowly during the colonial period.
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The advent of hydrocarbon energy changed that multiplying energy in the U.S. economy by more than 4,000,000 percent from 1850 to 1990. By raising income dramatically above the threshold of subsistence, the surge in available energy in the United States permitted the U.S. government to far surpass even the pharaohs of ancient Egypt in extracting resources from the population. Government spending skyrocketed from 1.8 percent of GDP in 1850 to 36 percent in 1990, further escalating to 41 percent by 2011.
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Based on Steckel's analysis, it would have been impossible for government to engross 35 or 40 percent of income before hydrocarbons lifted the energy quotient in the economy above a margin that was barely sufficient to support life. An expression of the prosperity that resulted from the staggering increase in horsepower per capita was a surge in life expectancy, which doubled in the United States from 36.3 years at birth in 1850 to 75.4 years by 1990.
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This and other aspects of material living standards that reached higher levels in the United States than in Brazil can be seen as flowing from the earlier and more far-reaching adoption of hydrocarbon energy in the United States. In large measure, that was a function of the topographical features of the two countries and their natural endowments. In the first instance, Brazil, like most tropical countries, had little anthracite coal. Secondly, Brazil's oil deposits were more difficult to find and exploit than those in the United States.

As ever more energy was incorporated into the U.S. economy it had far-reaching consequences. Skyrocketing per capita energy use not only dramatically raised U.S. living standards (and life expectancy); it also precipitated a major shift in the nature of money as well.

During the long centuries when living standards grew only erratically, or not at all, it would have been impossible to adopt a monetary system that could only function under conditions of rapid growth. The reason is simple. When money is borrowed into existence as it is today in “modern,” fractional reserve banking systems, the loans must be repaid with interest. If the economy grows, the repayment of principal plus interest is facilitated. Borrowers, if they are lucky and well placed, can make their payments from the growth increment. They need not resort to austerity and curtail their budget in order to service their debt. But if growth falters, the impact of debt-based money changes dramatically. Rather than amplifying growth through the ready availability of credit, the need to repay debt amplifies the contraction of the economy. Fiat money is problematic in a slow-growth or no-growth environment.

Commodity-based money was the option of choice in a preindustrial world without growth. Throughout the globe, there was a strong tendency to base money upon gold and silver, two precious metals with the notable characteristic of being assets that are not someone else's liabilities.

Inevitably, however, the economy is informed by the physical resources that underlie it. When the introduction of hydrocarbon energy dramatically lifted growth rates, it also introduced an almost hydraulic pressure to restructure money. An apparent drawback of commodity-based money in a high-growth environment is the fact that supplies of gold and silver are inelastic. Therefore, credit cannot be expanded as readily as is possible under a fiat regime. Gradually, as growth rates accelerated, authorities in one economy after another moved to replace commodity-based money that incorporated limitations on the contracting of debt (and thus also tended to limit the nominal GDP growth) in favor of a pure fiat money borrowed into existence through fractional reserve banking. It was no drawback that fiat money facilitated the enrichment of governments, enabling them to garner more resources, fight more wars, and create the illusion of democratic consensus through deficit spending, as they could not do when hampered by the restrictions of a gold standard.

The introduction of hydrocarbon energy began a process that changed money and banking. The availability of an elastic supply of credit permitted at least a temporary acceleration of growth. Part of this linkage derives from the fact that fiat money is largely borrowed into existence. A growing economy allows room for interest payments without necessarily constraining other outlays. But the fatal flaw of debtism, sporadically evidenced during cyclical downturns and now chronically in view with peak oil, is that without growth the requirement to pay interest on money borrowed into existence obliges debtors to curtail outlays with the threat of deflationary contraction lying in the shadows of widespread debt default.

Just as fiat money can be created out of thin air through credit expansion, so it can also vanish into thin air through debt default. With fiat money in an environment of rising energy inputs, businesses and consumers could make outlays that spurred growth in the current period without first restraining their budgets to accumulate savings. (And not incidentally, just as economic growth spurred the hypertrophy of predatory government, so it opened an opportunity for bankers to appropriate a hefty increment of the growth.)

In other words, the spur to growth provided by the oil-powered economy created an almost irresistible inducement to revamp the monetary system. This resulted, almost inevitably, in a debt-ridden economy. Just as no one could have anticipated the impact that dense, portable BTUs from oil would have in goosing economic growth, so there is as yet little general appreciation of the impact that the slowdown in energy growth has had in depressing the progress of advanced economies. As a consequence, they are all overly indebted and increasingly crisis prone.

It is not unlikely that the slowdown in growth coincident with peak oil will eventually precipitate a move away from fiat money and back to a commodity-based system, but those are issues for another book.

Another important consequence of the fact that the United States pioneered the world oil industry, gaining rivers of oil at minimal cost, was to radically alter the spatial configuration of the U.S. economy. As Douglas W. Rae, Richard S. Ely Professor of Management and Professor of Political Science at the Yale School of Management, points out, a century ago,

the United States was organized primarily around what now seem relatively limited powers of movement. . . . One could move with speed between fixed points such as rail stations, but one then entered a world of shoe leather, trolleys, and slow travel within local society. This made for a combination of good long-distance transportation over a fixed-path grid of terminals and weak local transport over variable paths to specific destinations.
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Although Rae's principal focus is on inequality in American life, like Sir Isaac Newton inventing calculus to solve a problem, Rae compiled an important history of energy in the American economy to advance his argument. His
A Short History of American Horsepower
highlights the dramatic surge of energy production in the United States from 8,495,000 hp in 1850 to 34.958 billion hp in 1990. Not only did total energy use expand by more than 4,000,000 percent but the huge increase also precipitated a revolution in the spatial configuration of the U.S. economy. Rae points out that “a very high fraction” (84 .4 percent) of total energy in the U.S. economy of 1850 was provided by totally stationary sources (mines, factories) or slow-moving sources (work animals).

Furthermore all of the “faster-paced power plants—aboard rail and steamship—were designed for fixed-path movement.”
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In other words, they operated only along pre-established routes with infrequent stops. A passenger in 1850 could not board a train or a steamship and expect it to take him wherever he wished to go. By 1890, total available energy had expanded fivefold to more than 44,000,000 hp. But a much greater percentage (47 percent) involved vehicular transport. Almost 17 million horsepower (16,980,000 hp) were devoted to powering railroads while another 1,124,000 hp were powering steamships. For each horsepower of rail service “available in 1850, 29 hp were available 40 years later.” The total fast track rail network jumped from 9,021 miles in 1850 to 166,703 in 1890.
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Between 1890 and 1950, total horsepower in the U.S. economy expanded by more than a hundredfold—from 44,086,002 horsepower to 4,754,038,000. Rae describes this as “almost certainly the greatest run of energy expansion in the history of any society, industrial or otherwise (the full century following 1890 produced a 792:1 change).
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Not only did economic growth in the United States during the century after 1890 consume unprecedented amounts of energy, the power that was generated was increasingly devoted to motion. In 1850, almost 85 percent of all horsepower was stationary. By 1890, power was still mostly stationary although 45 percent was devoted to motion. By 1950, 95.9 percent of horsepower was devoted to vehicular use. And 96.6 percent of vehicular horsepower was automotive. By 1990, vehicles still accounted for about 96 percent of total horsepower, with automobiles comprising 99 percent of that category. By 1993, cars in the United States traveled 1.624 trillion miles annually.

In a little more than a century, cars went from being nonexistent to accounting for 95 percent of the horsepower in the economy. In Rae's words,

still more important is the fact that cars and other motor vehicles provide high-speed, variable-path transportation to every habitable nook and cranny of the 3.5 million miles
2
; of land that constitute the United States. Except for arid wasteland, some mountains, and the most remote corners of our park system, you can go anywhere you like in a private automobile as long as you can afford the operating cost. This is a revolutionary fact, unparalleled in any previous era and unmatched in scale by any other national system. Running on nearly 4,000,000 miles of paved roads, automobile travel offers those who can afford it an utterly unprecedented form of power. . . .
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Compare that to what happened in Brazil. Brazil is 40,000 square miles larger than the 48 contiguous states of the U.S. mainland, and is said to have the world's fourth-largest road system. Brazil has only about 1,250,000 miles of roads, of which a little over 125,000 miles are paved but according to the Alaska Department of Transportation, there are about 4,900 miles of paved roads in Alaska.
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That equates to about 1 mile of paved road per 119.67 square miles in Alaska. For the United States as a whole, including Alaska, there are 1.0759 miles of paved road per square mile of U.S. territory.

By contrast, Brazil has about 1 mile of paved road for every 26.4 square miles of territory. The overall Brazilian road network is only about one twenty-fifth as dense as that in the United States as a whole, while being 4.5 times as dense as that in Alaska. But for the purposes of comparison, allowance needs to be made for the fact that 1,930,510 square miles of Brazil is comprised of the Amazon wilderness, an area that has fewer paved roads per square mile than Alaska. The conclusions to be drawn are that all of the higher density of the U.S. road network is attributable to the built-out of roads in the 48 mainland states, and the density of paved road in the portion of Brazil outside the Amazon is probably no lower than 1 mile per 12.5 miles. Given the comparative density of the road networks, and the larger U.S. population (at this writing, the U.S. population of 312 million is more than 50 percent larger than Brazil's population of 203 million), it is perhaps not surprising that total driving on U.S. roads, which peaked at 3.03 trillion miles in 2007, vastly exceeds miles driven in Brazil. The median Brazilian motorist, as of 2009 drove 12,983 kilometers annually (about 8,000 miles), or roughly half as much as the median driver in the United States.
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