Perhaps people will have to walk and bike more, the way Japanese already do. It does not seem to hurt them.

You may have heard the phrase “peak oil” recently. This simply means that the world’s production of oil has reached its peak, or highest level. It does NOT mean that suddenly one morning we will wake up and there is no oil left. Quite the opposite, in a manner of speaking: Because peak oil means that oil has become more expensive, it now is commercially viable to extract oil in places that were not worth the trouble before. America has increased its production quite a bit over the last five years or so thanks to this. (And added hundreds of thousands of American jobs in the process. So it is good for something!)

So what we are facing is not a sudden end to oil, but a gradual increase in prices as the difference between demand and supply grow wider and wider. When something is very rare but useful, like gold or diamonds, the price is very high. Oil is gradually moving in that direction. It will not forever be plentiful enough to just burn for heating. It will be reserved for production of chemicals, plastics etc.

But it is not only oil that may have peaked. There are also several metals that are starting to become expensive. Again, this is not because we have mined all the ore in the world for that particular metal. It is just that the reserves are deep in the ground, or under the bottom of the sea, or in other places that are hard to get to. Not even all of the reserves are in such places, but the ones that are easy to get are no longer enough.

It does not help the prices that demand is going up. The world population is still growing, but more importantly, many developing countries are now actually developing. And they need many of the same things we need:  Metal, glass, rubber, oil. After all, now that they are getting a bit of money, they want the kind of things we have, more or less.

Actually the newly developed countries won’t need as much resources as we did at the same level of development. For instance, we needed lots of copper for phone cables, but developing countries are largely skipping landlines and jumping straight to mobile phones. With these, and increasingly also smart phones and the Internet, the need for transport is also less than it was. Rather than having to travel to the next town to check whether there is cheap rice for sale, you can just call or check on the Net, and stay home if there isn’t. So a lot of time is saved, and transport of people is less necessary when everyone is connected.

Overall, though, more money means more activity of all kinds and needs more resources.

Some resources are almost endless, by the way. Glass is made mostly from sand, and we won’t run out of that until Sahara becomes Communist, as the joke goes. There is a huge reserve of high-quality sand, so we should be seeing plenty of affordable glass for the foreseeable future.  (In so far as the future is ever foreseeable – we may be hit by an asteroid or fall into a black hole etc, but you know what I mean.) Likewise there is unlikely to be peak salt as long as the sea tastes like tears. Arguably we are also pretty far from peak sun, but there are a few problems there.

There are two basic ways of getting electricity from sunshine. One is to collect the heat of the sun with big mirrors and boil water to run a steam engine. This should continue to be feasible for a very long time. The other approach is solar panels, directly converting the sunlight into electricity. This is the cool approach, and these solar cells can be placed anywhere there is enough sunshine, even on your own property.  This is particularly nifty if you live in warm areas where you need to use air conditioning to maintain a healthy temperature indoors. When the sun is baking, that is when you need electricity the most. With solar cells, you can get it right then and there, from the same sunshine that makes it too hot in the first place.

Unfortunately, solar cells need some rare earth elements. These are found naturally in small amounts in various ores, but the only large deposits in the world are all in China. That’s certainly nice for China. It looks like new technology may be able to replace some of those rare elements, but for now, local solar power depends on Chinese goodwill. (Or at least enlightened self-interest.)

When gas prices hit $10 per gallon (should not be so far off) you may want to be able to drive en electric car. These have become pretty good. They may not be able to run as far and as fast as gas cars, but they can break the speed limit and get you to daycare and work and back with no problem. And they are pretty cheap in use. They are becoming cheaper to make as well. But this may change. You see, the batteries again need some elements that are not plentiful. When you make a few thousand cars, this is not a concern. If you plan to make tens of millions of cars, or even hundreds of millions, and replace the batteries every couple years (even the best batteries are unable to hold a full charge after that long), you have a problem.

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So, what does “peak everything” mean for you? Basically it means that a lot of things will become more expensive. This is not really inflation as we are used to thinking of it. The old type of inflation came from too fast growth and too much money sloshing around. The new price growth comes from a limited supply. This is not the same thing. Curing the old inflation was a matter of making sure there was less free money, for instance by raising interest rates. This will not miraculously cause more oil or copper or lithium to manifest on Earth.

There is a risk that central banks will just follow the old script and try to fight the New Inflation by raising interest rates and issuing less money, thus making the problem worse. So far the Federal Reserve at least has excluded energy prices from their inflation measure, and the Central Bank here in Norway does the same. But what will they do about products that need oil either to create (like plastics) or to grow (mechanized agriculture) or to transport (almost everything that is not made next door)? And what will they do about products that contain copper, silver, tin, antimony, bismuth or neodymium? When the cheap gas-powered cars become fairly useless and you have to buy a more expensive electric car, is it inflation?

It is hard to say whether governments and central banks will actually make things worse. Governments probably, if it is within their power, since governments represent the common people. You probably know a number of common people, so your wariness is quite natural.

But even in a best case scenario, barring divine or extraterrestrial intervention, we will see a period where a wide range of things become more scarce and expensive. If you are going on a long vacation this summer, enjoy it with all your might: There won’t be many more. From now on, we are on a course of gentle decline in the areas of transport and mass consumption.

On the bright side, electronic communication will probably continue to be cheap. So watch this space, or other spaces like it. There is a lot more to life than vacation in exotic places. In fact, some of us even LIVE in exotic places. And there are many sources of happiness that don’t depend on having lots of oil and copper.

Better get used to those bread dinners. (Illustration picture from my “Micropolis” story, made with The Sims 2, set in a near future of economic hardship, and written before it happened.)

It is hard to say whether people are deluded or just ignorant. They refer to the bursting of the Great Property Bubble as “recession”, and technically this is true enough: When economic output shrinks for two consecutive quarters, you have a recession according to the most common definition. When there is a quarter of growth, the recession is over. Technically, this too came to pass in the USA, and the government congratulated itself on a job well done and continued with something else that it had not been elected for. (Regardless of whether this was a good thing or not.) Unfortunately for them, most people don’t live on Wall Street and have a rather different idea of when the recession is over: When there are new jobs again.

So, when will there be new jobs again? Not anytime soon, is my guess. More important, they will likely not be in the same parts of the economy. Or we should hope not. For a long time, America has been on a spending spree, driven by borrowing and consumption. As any responsible adult knows, you cannot do that forever. You have to start earning your own money. In the case of a country, this means export. That won’t be easy, since you have to compete with established trade routes. You have to either export cheaper goods, better quality or something new that the competition does not have yet. America has a natural advantage only in the third part, as a country of boundless creativity. And it will be a race just to stay in place, as others will copy them as soon as they can. Still, it is possible to get a foothold in the market, as Microsoft showed with its Windows operating system. While there is widespread piracy, there has been no legitimate competition worth writing home about. Sometimes, an initial success can land you decades of leadership. America needs a lot of this to pay its bills.

Unfortunately, as I said, this probably won’t help most of those who got laid off when the property bubble burst. Actual construction workers will likely go back to work eventually, as continued population growth will make it necessary to build new (and cheaper) housing, but they will have a rough time until that happens. It is hard to see many of them going into building intellectual property.

For Joe Plumber to get his job back, as opposed to the occasional stray job, the new growth has to be strong enough to spread throughout society. And there has to be enough of it to replace the imaginary money – fairy money as I once called it – from the bubble economy.

Of course, it is more tempting to create another bubble. In fact, I already call the current economy a “government bubble” (a phrase I believe I picked from conservative economic publisher Forbes). In reality, government cannot inject money into the economy, as government does not have its own money, only yours. So the money it has injected into the economy has to be paid off in the future, either by higher taxes or reduced services. You don’t need to be right-wing to realize this, you just have to not be an idiot. (I won’t get into details on whether all leftists really are idiots, but if they think governments can create wealth directly they are certainly superstitious. The role of the government is to create the conditions for making money, not the money itself.)

There is another problem ahead: Oil prices. You may remember that during the last months of the boom, oil prices were unnaturally high. They then crashed to a fairly low level, about $40 a barrel instead of $140. But soon they bounced back up to about $80, which is quite a lot for the greatest recession since the Great Depression. To compare, during the recession a generation ago, oil prices were close to $10. The reason is of course that the global economy involves many more countries and many more people now. China and India are now industrialized, not populated mainly by farmers planting rice by hand. Even much of Africa has started to build roads, at least those nations not in a state of war or civil war. At the same time, the world may have reached “peak oil”, the point where production cannot easily be increased and will eventually begin to shrink.

There are horror fantasies being peddled about Peak Oil: Civilization will collapse, the rich will drive horse buggies and the commoners will walk on foot, as we cannot even operate the factories to make bicycles. This is pure bull. The decline of available oil is gradual, and will take the form of gradually higher prices. There is also enough coal left for some decades after that, and while coal is not suited for car engines, it works quite well for smelting ore and even creating electricity, if you are willing to live with the risk of global climate change. Or you could use the remaining fossil fuel to build windmills, water turbines, solar power stations etc, as Obama and friends have proposed. Even if Americans are likely to reject this since they no longer are in love with Obama, Europe has been doing it for a while already. Norway is mostly powered by hydropower and Denmark has a substantial part of its electricity made from windpower. In Germany, there are subsidies for private buyers of solar panels.

With mass production, renewable energy is steadily becoming cheaper. However, this is a process that cannot be hurried beyond a certain pace. It can be slowed, but depends on innovation, so a higher pace cannot be dictated, only encouraged. That is difference between the old and the new economy. You can crack a whip over people picking cotton and shout: “Pick faster!” But you cannot crack a whip over inventors and shout “Invent faster!” – Well, you can, but it slows invention.

We are talking about a time horizon of 10-20 years here. By this I mean that we won’t see much of it until after 10 years, but we should see a lot of it within 20. Now, ten years is not much in terms of human history, but it is a very long time to go unemployed, especially in the USA. So I can certainly understand the government’s wish to borrow and spend to keep the economy running until then. But I believe they are still mistaken.

If the recession truly ends, in the sense that we have paid off and put behind us the whole sorry affair and continue as if nothing had happened, the economy will still not be at the boom level it was during the bubble years. That was fantasy money, made on the insane belief that you can keep selling houses to each other for ever higher prices without some way to earn the money to pay them. Without fantasy money, even a smooth and well functioning economy cannot grow at that kind of speed. So expectations should not be set any higher than the kind of growth we had before the bubbles started.

There is another problem. It won’t happen if government puts on the brakes now, but if the public borrowing and spending spree continues, it could happen. When the financial bubble burst, we got a financial crisis; people lost faith in the banks. What will we do if people lose faith in the government? What if American shops start saying “No, you can’t pay with dollars here”? This is basically what happened in Germany between the wars, and just recently in Zimbabwe. When a government cannot find any more creditors, it will start running the money press, printing the money it needs, and in short order make it worthless. That is pretty far off now, but we will want to stay well clear of it. Even if that means we cannot pretend the government can fix all problems.

The most likely future, however, is one in which taxes rise for all except the very poor. Unemployment remains high. Those who are willing to live soberly, without luxury, will gradually be able to retrain to new jobs, unless they are too old or too poor or mentally challenged. An unpleasant time by recent standards, but not the end of the world.

The Norwegian magazine “Innsikt” (which means insight rather than insect, btw) has several well thought out articles about the necessity of zero growth. And this picture which completely unravels the thousand words and perpetuates the common stupidity.

Unless you are an economist or have the wisdom of Solomon, you probably have a horribly wrong mental image of zero economic growth. Accustomed to economic growth through a lifetime, most people in the western world cannot imagine life without it.  The image that comes to mind is economic standstill, a situation where people neither buy nor sell. But that would be zero economic activity, not zero economic growth.

Zero economic growth means simply that you buy roughly the same as last year.  No more, no less.  You can still replace your worn-out shoes, just not with a more exclusive brand (unless you cut down on something else).   You can still trade in your old car for a new, it just has to be in roughly the same price range as the old one was.

Actually, even that is too severe.  Even in a stagnant economy, the average person will increase their income as they advance in their career, acquiring more skills or taking on more responsibilities, or sometimes just outliving their boss.  They just won’t get more money year by year just because they breathe.  In practice, most people in the private sector don’t get that now either. They have to look for better jobs in companies that adapt better.  This will still be so, but the pressure will be harsher on the companies that don’t adapt and innovate, and they will fail more quickly, shedding their workers back into the market.

Another point worth mentioning (again) is that in a stagnant economy, there will still be scientific and technological progress, it will just not be faster and faster for each year. Well, actually it may well be, due to better computers, but there won’t be more and more funding at least.  Anyway, this means that new and better products will gradually seep into the market. For instance, while Japan was in the deep freeze of a decade-long recession, the Japanese more or less completely replaced their cameras with new electronic cameras with ever better resolution and storage capacity.  Even though the economy did not grow, a camera that cost the same as a decade ago was actually a completely new and more versatile instrument. Likewise, computers at the end of the “lost decade” cost less than at the beginning and had vastly more capacity for computation and communication.  Even the cars were better, at no extra cost, thanks to new inventions and refined technology.

Even with no economic growth, then, our actual standard of living will slowly improve. And for the vast majority of people, their income is already so high that they can easily save up money if they want to.  But the expectation of ever growing growth (!) has caused people to borrow against the future, often in the form of credit cards and other unsecured credit. This is a bad move except in extreme situations, for when the money comes, you have to pay a part of it to your creditor. So at the future point where you are richer, you are actually poorer, because so much of your money is spent paying interest.

Economic growth, then, creates its own problems.  It may be a good thing overall (if we can keep it up without destroying the environment, a big if) but it does not automatically improve our lives.  Or rather, not anymore.  In the past, poverty was rampant.  People did not know where their next meal was coming from, and froze in the winter and sweated in the summer. To keep body and soul together, they had to do backbreaking work for most of the daylight hours, six days a week.  At that time, economic growth was a great blessing.  People were able to eat their fill and live in comfortable houses.

But at some point, people no longer grew happier. They had what they needed, and the things they now desired could not be bought for money. But they did not realize this, and clever advertising made them believe that they would get love and respect if they bought various random objects.   Trying to keep up with the Joneses, people bought more and more of what they did not need, hardly even wanted.  And they forgot other, affordable sources of great happiness.  It was not in the interest of the rich and powerful to remind them of those, when the money was in maintaining an illusion: That if you only had more money, you could buy happiness.

If we adjust to a life without economic growth, our expectations will be more realistic. We will not have the same temptation to chase the rainbow, because we know it won’t be any closer this time next year.  Instead, we are free to make the most out of the opportunities we already have.

It is time to find other measures than increased consumption of resources to set goals for our society.