Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (13 page)

Cheap lumber and cheap fuel extracted from these forests made possible America's development from the Revolution to the Civil War into a powerful and prosperous nation. Such growth, though, took a terrible toll on the woodlands. By 1877, one observer reported in
The Popular Science Monthly
that “the states of Ohio and Indiana . . . so recently a part of the great East-American forest, have even now a greater percentage of treeless area” than portions of Europe settled and cultivated for thousands of years.
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The United States was doubly blessed with a large endowment of readily exploitable coal that became seamlessly available to fuel further and more rapid economic growth when the East-American forests had mostly been chopped to the ground. The smooth transition from wood to coal was another blessing from nature. The United States not only had a large endowment of virgin forest, it also sported large coal deposits that were rapidly exploited. U.S. coal production grew logarithmically at a steady 6.6 percent per year from 1850 to 1910. Then the growth leveled off.

The famous oil geologist M. King Hubbert, originator of the peak oil hypothesis, actually formulated his oil forecast by studying coal output in the United States. Believing that no finite resource could support long-term exponential growth, he projected that the production rate plotted versus time would result in a bell-shaped curve that would drop as sharply as it had risen. Production would eventually have to peak, and then decline, until the resource had been exhausted. Hubbert based this peak oil prediction on his observations of U.S. coal production. More on that later.

Before oil production could peak, it first had to begin.

The third phase of the extraordinary natural blessing the United States enjoyed where energy is concerned began in 1859 when Colonel Edwin Drake discovered light sweet crude oil in a small northwestern Pennsylvania lumber town, Titusville. There were 16 lumber mills operating in Titusville when Colonel Drake arrived. They were soon eclipsed as the stars of the Titusville economy.

Drake's first well pumped only 45 barrels a day, but it was the beginning of the petroleum industry in the world. Titusville experienced a tremendous surge of prosperity as its population multiplied 40 times over. More oil was soon discovered. Within a few years, Titusville boasted the greatest density of millionaires per capita of any incorporated town on earth.

From that day in the summer of 1859 when Colonel Drake's first well began to pump until 1971, U.S. production of light sweet crude continued to increase. So did U.S. prosperity. As the first nation to exploit petroleum, the United States soon became the leader of the world economy. Great Britain, the country that had led the Industrial Revolution lost its leading role in the carnage of World War I that began just one year after British coal production peaked in 1913.

Of course, if you recall your high school history, you may suppose that the proximate cause of World War I was the assassination of the Archduke Franz Ferdinand in Sarajevo by Gavrilo Princip on June 28, 1914. Dig more closely into history's footnotes, and you will find references to the role played by Serbian Military Intelligence, particularly Dragutin Dimitrijević. The assassination was undoubtedly an aggressive act of state terrorism, as the Austrian authorities suspected.

Still, I have a hard time crediting the thesis that a war that practically destroyed European civilization and killed 16 million people while wounding 21 million others was really fought over nothing other than the murder of one prominent man. I believe something deeper was involved in setting the conditions for a conflagration.

The advent of peak coal in Great Britain, along with the ensuing desperate scramble for oil fields between Britain and Germany, was a more fundamental cause of World War I than the assassination of the Archduke Ferdinand. Political assassinations have occurred at other times and places without triggering global war. But rarely do dominant global powers find themselves in a major transition of energy sources.

The transition by the Royal Navy from coal to oil, instituted by First Lord of the Admiralty Winston Churchill and Admiral Sir John (Jacky) Fisher, was informed primarily by technical rather than geopolitical considerations. There were practical, military advantages of powering ships of the Royal Navy with oil that mirrored its advantages in the civilian realm. As Churchill put it, “The ordeal of coaling [a] ship exhausted the whole ship's company. In wartime it robbed them of their brief period of rest; it subjected everyone to extreme discomfort.”

Admiral Fisher was an early, vocal advocate of converting the British navy to oil power. Consider this from 1902: “It is a gospel fact . . . that a fleet with oil fuel will have an overwhelming strategic advantage over a coal fleet.”
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Fisher saw the advantages of oil's energy density, which drove the conversion from coal to oil. Even if the technology had been available, there would have been no question of covering super-dreadnaughts with photovoltaic cells, or harnessing thousands of watts of wind power by deploying sails to propel the Royal Navy.), Upon seeing a new Russian ship that only burned oil, Fisher exclaimed, “at one stroke, oil fuel settles half our manning difficulties! We should require 50 percent less stokers.”
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This not only meant lighter ships, but also critical personnel savings, as oil-powered ships could operate with fewer trained sailors. As naval warfare analyst Erik J. Dahl wrote:

Oil offered many benefits. It had double the thermal content of coal so that boilers could be smaller and ships could travel twice as far. . . . Oil burned with less smoke, so the fleet would not reveal its presence as quickly. Oil could be stored in tanks anywhere allowing more efficient design of ships, and it could be transferred through pipes without reliance on stokers, reducing manning. Refueling at sea was feasible, which provided greater flexibility.
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A pound of bunker oil contained 23,000 BTUs as compared to 12,000 BTUs in a pound of anthracite coal. Because the fuel aboard weighed less, greater speed was possible. Again, quoting Dahl,

In 1912, Fisher wrote to Churchill, “What you do want is the super-swift—all oil—and don't fiddle about armour; it really is so very silly! There is only one defence and that is speed!”

The war college was asked how much speed a fast division would need to outmaneuver the German fleet. The answer was 25 knots, or at least four knots faster than possible at the time. Churchill concluded, “We could not get the power required to drive these ships at 25 knots except by the use of oil fuel.” This was enough for him.

Queen Elizabeth-class Super Dreadnought battleships were built to burn oil only. Once this decision was made, Churchill wrote, “it followed that the rest of the Royal Navy would turn to oil.”
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In other words, the decision to convert to oil propulsion had a sound technological and military rationale, especially when oil was cheap. There was just one fateful drawback. Even after peak coal production was reached, Great Britain still had ample coal supplies, but on the eve of World War I, virtually no domestic oil was known in the UK. BP did not discover the first commercial quantities of oil in Britain until 1939 at Eakring, Nottinghamshire.

A crucial reason why Britain faded as a world power is that it lacked oil. When the evolution of technology created unequivocal military advantages in shifting to a more energy-dense fuel, the UK could ante up the money for oil-powered capital ships. But unlike the United States in the early twentieth century, Britain had no oil of its own. Britain then was dependent on foreign oil, as the United States is today. The lack of ready access to cheap oil in the United Kingdom inevitably informed geopolitical maneuvering to secure oil fields elsewhere. Hence, World War I.

The British deficit in oil also retarded economic growth. As World War I was ruinously expensive, it cost Great Britain the greater part of its gold reserves and its overseas foreign assets. Thereafter, the British economy operated within the straitjacket of its export earnings. Unlike the recent situation in which the United States has borrowed trillions to fund imports of foreign oil, there was no group of creditors standing by to fund a yawning British deficit in petroleum trade. Consequently, the British economy employed oil more sparingly than did the United States.

In particular, the UK failed to share in the rapid development of suburbs that resulted from motorization. The early adoption of automobiles and trucks powered the U.S. economy to an average annual growth of 4.2 percent in the 1920s.
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Greater use of automobiles in the United States was also linked to the adoption of assembly lines and higher incomes for blue-collar workers, as well as to greater vitality of ancillary industries like home appliances and furniture, where sales were stimulated by the growth of the new housing in the suburbs and satellite communities. Suburban building booms, of course, were second-order effects of the growth of auto traffic over paved roads.

Notwithstanding the steep plunge in U.S. economic activity during the Great Depression, auto ownership was more than 400 percent higher in the United States in 1939 than in the UK. Almost 23 percent of Americans owned cars while only 5.4 percent of the British population drove.

A graph of rising U.S. per capita income directly traces the graph of rising U.S. domestic oil output. By 1950, petroleum had become the primary source of energy consumed in the United States. At that time, the United States accounted for 52 percent of world oil production. But the first shadows appeared on the energy-dense prosperity of the United States in 1956. In that year, M. King Hubbert, then working for Shell Oil, interpolated a frightening conclusion from coal production data. Hubbert accurately predicted that U.S. oil production would peak about 15 years later.

This logistics model now known as the Hubbert Theory described with fair accuracy the progression to the peak and then decline of production from individual oil wells, oil fields, regions, and countries (and now, the entire planet). Hubbert foresaw the inflexion and tailing off of cheap domestic oil in the early 1970s. He was right.

It is no coincidence that 1971, the year of peak domestic U.S. oil production was also the year when the United States started its descent into the thrall of debtism. In 1971, the old America went broke. Richard Nixon repudiated the gold reserve system, and put the United States on the road to becoming the greatest debtor nation in the history of the world.

Capitalism in the United States, as defined by the accumulation of capital in an economy based upon savings, came to an end when cheap domestic oil production tailed off. Our current debtist system is one that substitutes debt for capital at the center of its economy. The current depression is a direct consequence of the failed attempt to substitute global debt for cheap domestic BTUs as a recipe for sustaining prosperity. Put simply, it didn't work. Governments can print money. But no one can print BTUs.

The United States did manage to continue increasing its aggregate consumption of energy-dense oil, as population increased, with total domestic demand peaking at 21 million barrels a day—at the time the subprime housing boom peaked. But strangely enough, the per capita consumption of BTUs in the United States stabilized at 1970s levels, and has remained remarkably consistent since then, even as real per capita income has stagnated.

As long as light sweet crude was available somewhere for purchase with easily manufactured dollars, we could forestall a collapse in energy density and continue to pretend that the United States was prospering. Note, however, that the money we created out of thin air was not just cranked off a printing press; it was borrowed into existence through a fractional reserve banking system that created liabilities to be repaid, along with the credits on the ledger. The accumulated bills for years of living beyond our means in energy terms are still to be paid.

In his groundbreaking study,
The Collapse of Complex Societies
, Joseph A. Tainter argues that

The best key to continued socioeconomic growth, and to avoiding or circumventing (or at least financing) declines in marginal productivity, is to obtain a new energy subsidy when it becomes apparent that marginal productivity is beginning to drop.
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Europeans reacted to the stress of falling, passive solar energy during the Little Ice Age to obtain new sources of energy in two ways: