Jeremy Grantham must-read, “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever”

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Summary of the Summary:  The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value.  We all need to adjust our behavior to this new environment. It would help if we did it quickly.

That’s the conclusion of an important analysis by uber-hedge fund manager Jeremy Grantham, a self-described “die hard contrarian.”  He is one of the few leading financial figures who gets both peak oil and global warming

I’m going to repost his entire analysis below, which comprises the entire quarterly newsletter from the former Chairman and now Chief Investment Strategist of GMO Capital, which has more than $100 billion in assets under management.  This is a key piece of supporting analysis for the claim that the global economy is a Ponzi scheme.

In Grantham’s blunt 2Q 2010 letter (see “Grantham: Everything You Need to Know About Global Warming in 5 Minutes“), he wrote “Global warming will be the most important investment issue for the foreseeable future.”  Then in his January 2011 newsletter he wrote about “Things that Really Matter in 2011 and Beyond”: “Global warming causing destabilized weather patterns, adding to agricultural price pressures.”

Now he takes the analysis to the next step.

NOTE:  I am not endorsing any of his investment suggestions — but I didn’t want to cut anything out of this must-read piece.

Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever

Jeremy Grantham

Summary of the Summary
The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value.  We all need to adjust our behavior to this new environment. It would help if we did it quickly.


  • Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and fl owing in population.
  • From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientifi c progress.
  • Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
  • The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our fi nite resources of hydrocarbons and metals, fertilizer, available land, and water.
  • Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.
  • The problems of compounding growth in the face of fi nite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
  • The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
  • But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
  • Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
  • Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.

[JR:  Well, it may get less bad, but not “surely.” This year is pretty extreme already and 2012 could be as bad or worse than 2010, according to Hansen here.]

  • Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.
  • From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.

We all need to develop serious resource plans, particularly energy policies. There is little time to waste.


The purpose of this, my second (and much longer) piece on resource limitations, is to persuade investors with an interest in the long term to change their whole frame of reference: to recognize that we now live in a different, more constrained, world in which prices of raw materials will rise and shortages will be common. (Previously, I had promised to update you when we had new data. Well, after a lot of grinding, this is our first comprehensive look at some of this data.)

Accelerated demand from developing countries, especially China, has caused an unprecedented shift in the price structure of resources: after 100 hundred years or more of price declines, they are now rising, and in the last 8 years have undone, remarkably, the effects of the last 100-year decline! Statistically, also, the level of price rises makes it extremely unlikely that the old trend is still in place. If I am right, we are now entering a period in which, like it or not, we must finally follow President Carter’s advice to develop a thoughtful energy policy and give up our carefree and careless ways with resources. The quicker we do this, the lower the cost will be. Any improvement at all in lifestyle for our grandchildren will take much more thoughtful behavior from political leaders and more restraint from everyone. Rapid growth is not ours by divine right; it is not even mathematically possible over a sustained period. Our goal should be to get everyone out of abject poverty, even if it necessitates some income redistribution. Because we have way overstepped sustainable levels, the greatest challenge will be in redesigning lifestyles to emphasize quality of life while quantitatively reducing our demand levels. A lower population would help. Just to start you off, I offer Exhibit 1: the world’s population growth. X marks the spot where Malthus wrote his defining work. Y marks my entry into the world. What a surge in population has occurred since then! Such compound growth cannot continue with finite resources. Along the way, you are certain to have a paradigm shift. And, increasingly, it looks like this is it!

Malthus and Hydrocarbons

Malthus’ writing in 1798 was accurate in describing the past – the whole multi-million year development of our species. For the past 150,000 years or so, our species has lived, pushed up to the very limits of the available food supply. A good rainy season, and food is plentiful and births are plentiful. A few tough years, and the population shrinks way back. It seems likely, in fact, that our species came close to extinction at least once and perhaps several times. This complete link between population and food supply was noted by Malthus, who also noticed that we have been blessed, or cursed, like most other mammals, with a hugely redundant ability to breed. When bamboo blooms in parts of India every 30 years or so, it produces a huge increase in protein, and the rat population – even more blessed than we in this respect – apparently explodes to many times its normal population; then as the bamboo’s protein bounty is exhausted, the rat population implodes again, but not before exhibiting a great determination to stay alive, reflected in the pillaging of the neighboring villages of everything edible. What hydrocarbons are doing to us is very similar. For a small window of time, about 250 years (starting, ironically, just in time to make Malthus’ predictions based on the past look ridiculously pessimistic), from 1800 to, say, 2050, hydrocarbons partially removed the barriers to rapid population growth, wealth, and scientific progress. World population will have shot up from 1 to at least 8, and possibly 11, billion in this window, and the average per capita income in developed countries has already increased perhaps a hundred-fold (from $400 a year to $40,000). Give or take.

As I wrote three years ago, this growth process accelerated as time passed. Britain, leading the charge, doubled her wealth in a then unheard of 100 years. Germany, starting later, did it in 80 years, and so on until Japan in the 20th century doubled in 20 years, followed by South Korea in 15. But Japan had only 80 million people and South Korea 20 million back then. Starting quite recently, say, as the Japanese surge ended 21 years ago, China, with nearly 1.3 billion people today, started to double every 10 years, or even less. India was soon to join the charge and now, officially, 2.5 billion people in just these two countries – 2.5 times the planet’s entire population in Malthus’ time – have been growing their GDP at a level last year of over 8%. This, together with a broad-based acceleration of growth in smaller, developing countries has changed the world. In no way is this effect more profound than on the demand for resources. If I am right in this assumption, then when our finite resources are on their downward slope, the hydrocarbon-fed population will be left far above its sustainable level; that is, far beyond the Earth’s carrying capacity. How we deal with this unsustainable surge in demand and not just “peak oil,” but “peak everything,” is going to be the greatest challenge facing our species. But whether we rise to the occasion or not, there will be some great fortunes made along the way in finite resources and resource efficiency, and it would be sensible to participate.

Finite Resources

Take a minute to reflect on how remarkable these finite resources are! In a sense, hydrocarbons did not have to exist. On a trivially different planet, this incredible, dense store of the sun’s energy and millions of years’ worth of compressed, decayed vegetable and animal matter would not exist. And as for metals, many are scarce throughout the universe and became our inheritance only through the death throes of other large stars. Intergalactic mining does not appear in so many science fiction novels for nothing. These are truly rare elements, ultimately precious, which, with a few exceptions like gold, are used up by us and their remnants scattered more or less uselessly around. Scavenging refuse pits will no doubt be a feature of the next century if we are lucky enough to still be in one piece. And what an irony if we turned this inheritance into a curse by having our use of it alter the way the environment fits together. After millions of years of trial and error, it had found a stable and admirable balance, which we are dramatically disturbing.

To realize how threatening it would be to start to run out of cheap hydrocarbons before we have a renewable replacement technology, we have only to imagine a world without them. In 17th and 18th century Holland and Britain, there were small pockets of considerable wealth, commercial success, and technological progress. Western Europe was just beginning to build canals, a huge step forward in transportation productivity that would last 200 years and leave some canals that are still in use today. With Newton, Leibniz, and many others, science, by past standards, was leaping forward. Before the world came to owe much to hydrocarbons, Florence Nightingale – a great statistician, by the way – convinced the establishment that cleanliness would save lives. Clipper ships were soon models of presteam technology. A great power like Britain could muster the amazing resources to engage in multiple foreign wars around the globe (not quite winning all of them!), and all without hydrocarbons or even steam power. Population worldwide, though, was one-seventh of today’s population, and life expectancy was in the thirties.

But there was a near fatal flaw in that world: a looming lack of wood. It was necessary for producing the charcoal used in making steel, which in turn was critical to improving machinery – a key to progress. (It is now estimated that all of China’s wood production could not even produce 5% of its current steel output!) The wealth of Holland and Britain in particular depended on wooden sailing ships with tall, straight masts to the extent that access to suitable wood was a major item in foreign policy and foreign wars. Even more important, wood was also pretty much the sole producer of energy in Western Europe. Not surprisingly, a growing population and growing wealth put intolerable strains on the natural forests, which were quickly disappearing in Western Europe, especially in England, and had already been decimated in North Africa and the Near East. Wood availability was probably the most limiting factor on economic growth in the world and, in a hydrocarbonless world, the planet would have hurtled to a nearly treeless state. Science, which depended on the wealth and the surpluses that hydrocarbons permitted, would have proceeded at a much slower speed, perhaps as little as a third of its actual progress. Thus, from 1800 until today science might have advanced to only 1870 levels, and, even then, advances in medicine might have exceeded our ability to feed the growing population. And one thing is nearly certain: in such a world, we would either have developed the discipline to stay within our ability to grow and protect our tree supply, or we would eventually have pulled an Easter Island, cutting down the last trees and then watching, first, our quality of life decline and then, eventually, our population implode. Given our current inability to show discipline in the use of scarce resources, I would not have held my breath waiting for a good outcome in that alternative universe.

But in the real world, we do have hydrocarbons and other finite resources, and most of our current welfare, technology, and population size depends on that fact. Slowly running out of these resources will be painful enough. Running out abruptly and being ill-prepared would be disastrous.

The Great Paradigm Shift: from Declining Prices”¦

The history of pricing for commodities has been an incredibly helpful one for the economic progress of our species: in general, prices have declined steadily for all of the last century. We have created an equal-weighted index of the most important 33 commodities. This is not designed to show their importance to the economy, but simply to show the average price trend of important commodities as a class. The index shown in Exhibit 2 starts 110 years ago and trends steadily downward, in apparent defiance of the ultimately limited nature of these resources. The average price falls by 1.2% a year after inflation adjustment to its low point in 2002. Just imagine what this 102-year decline of 1.2% compounded has done to our increased wealth and well-being. Despite digging deeper holes to mine lower grade ores, and despite using the best land first, and the best of everything else for that matter, the prices fell by an average of over 70% in real terms. The undeniable law of diminishing returns was overcome by technological progress – a real testimonial to human inventiveness and ingenuity.

But the decline in price was not a natural law. It simply reflected that in this particular period, with our particular balance of supply and demand, the increasing marginal cost of, say, 2.0% a year was overcome by even larger increases in annual productivity of 3.2%. But this was just a historical accident. Marginal rates could have risen faster; productivity could have risen more slowly. In those relationships we have been lucky. Above all, demand could have risen faster, and it is here, recently, that our luck has begun to run out.

“¦ to Rising Prices

Just as we began to see at least the potential for peak oil and a rapid decline in the quality of some of our resources, we had the explosion of demand from China and India and the rest of the developing world. Here, the key differences from the past were, as mentioned, the sheer scale of China and India and the unprecedented growth rates of developing countries in total. This acceleration of growth affected global demand quite suddenly. Prior to 1995, there was (remarkably, seen through today’s eyes) no difference in aggregate growth between the developing world and the developed world. And, for the last several years now, growth has been 3 to 1 in their favor!

The 102 years to 2002 saw almost each individual commodity – both metals and agricultural – hit all-time lows. Only oil had clearly peeled off in 1974, a precursor of things to come. But since 2002, we have the most remarkable price rise, in real terms, ever recorded, and this, I believe, will go down in the history books. Exhibit 2 shows this watershed event. Until 20 years ago, there were no surprises at all in the sense that great unexpected events like World War I, World War II, and the double inflationary oil crises of 1974 and 1979 would cause prices to generally surge; and setbacks like the post-World War I depression and the Great Depression would cause prices to generally collapse.

Much as you might expect, except that it all took place around a downward trend. But in the 1990s, things started to act oddly. First, there was a remarkable decline for the 15 or so years to 2002. What description should be added to our exhibit? “The 1990’s Surge in Resource Productivity” might be one. Perhaps it was encouraged by the fall of the Soviet bloc. It was a very important but rather stealthy move, and certainly not one that was much remarked on in investment circles. It was as if lower prices were our divine right. And more to the point, what description do we put on the surge from 2002 until now? It is far bigger than the one caused by World War II, happily without World War III. My own suggestion would be “The Great Paradigm Shift.”

The primary cause of this change is not just the accelerated size and growth of China, but also its astonishingly high percentage of capital spending, which is over 50% of GDP, a level never before reached by any economy in history, and by a wide margin. Yes, it was aided and abetted by India and most other emerging countries, but still it is remarkable how large a percentage of some commodities China was taking by 2009. Exhibit 3 shows that among important non-agricultural commodities, China takes a relatively small fraction of the world’s oil, using a little over 10%, which is about in line with its share of GDP (adjusted for purchasing parity). The next lowest is nickel at 36%. The other eight, including cement, coal, and iron ore, rise to around an astonishing 50%! In agricultural commodities, the numbers are more varied and generally lower: 17% of the world’s wheat, 25% of the soybeans (thank Heaven for Brazil!) 28% of the rice, and 46% of the pigs. That’s a lot of pigs!

Optimists will answer that the situation that Exhibit 3 describes is at worst temporary, perhaps caused by too many institutions moving into commodities. The Monetary Maniacs may ascribe the entire move to low interest rates. Now, even I know that low rates can have a large effect, at least when combined with moral hazard, on the movement of stocks, but in the short term, there is no real world check on stock prices and they can be, and often are, psychologically flakey. But commodities are made and bought by serious professionals for whom today’s price is life and death. Realistic supply and demand really is the main influence.

Exhibit 4 shows how out of line with their previous declining trends most commodities are. We have stated this in terms of standard deviations, but for most of us, certainly including me, a probabilistic – 1-in-44-year event, etc. – is more comprehensible. GMO’s extended work on asset bubbles now covers 330 completed bubbles, including even quite minor ones. These bubbles have occurred only 30% or so more than would be expected in a perfectly random world. In a world where black swans are becoming very popular, this is quite a surprise.

Exhibit 4 is headed by iron ore. It has a 1 in 2.2 million chance that it is still on its original declining price trend. Now, with odds of over a million to one, I don’t believe the data. Except if it’s our own triple-checked data. Then I don’t believe the trend! The list continues: coal, copper, corn, and silver “¦ a real cross section and all in hyper bubble territory if the old trends were still in force. And look at the whole list: twelve over 3-sigma, eleven others in 2-sigma territory (which we have always used as the definition of a bubble), four more on the cusp at 1.9, two more over 1.0, and three more up. Only four are down, three of which are insignificantly below long-term trend, and the single outlier is not even an economic good – it’s what could be called an economic “bad” – tobacco. This is an amazing picture and it is absolutely not a reflection of general investment euphoria. Global stocks are pricey but well within normal ranges, and housing is mixed. But commodities are collectively worse than equities (S&P 500) were in the U.S. in the tech bubble of 2000! If you believe that commodities are indeed on their old 100-year downward trend, then their current pricing is collectively vastly improbable. It is far more likely that for most commodities the trend has changed, just as it did for oil back in 1974, as we’ll see later.

Aware of the finite nature of our resources, a handful of economists had propounded several times in the past (but back in the 1970s in particular) the theory that our resources would soon run out and prices would rise steadily. Their work, however, was never supported by any early warning indicators (read: steadily rising prices) that, in fact, this running out was imminent. Quite the reverse. Prices continued to fall. The bears’ estimates of supply and demand were also quite wrong in that they continuously underestimated cheap supplies. But now, after more than another doubling in annual demand for the average commodity and with a 50% increase in population, it is the price signals that are noisy and the economists who are strangely quiet. Perhaps they have, like premature bears in a major bull market, lost their nerve.

Why So Little Fuss?

I believe that we are in the midst of one of the giant inflection points in economic history. This is likely the beginning of the end for the heroic growth spurt in population and wealth caused by what I think of as the Hydrocarbon Revolution rather than the Industrial Revolution. The unprecedented broad price rise would seem to confirm this. Three years ago I warned of “chain-linked” crises in commodities, which have come to pass, and all without a fully fledged oil crisis. Yet there is so little panicking, so little analysis even. I think this paradox exists because of some unusual human traits.

The Problem with Humans

As a product of hundreds of thousands, if not millions, of years of trial and error, it is perhaps not surprising that our species is excellent at many things. Bred to survive on the open savannah, we can run quite fast, throw quite accurately, and climb well enough. Above all, we have excellent spatial awareness and hand/eye coordination. We are often flexible and occasionally inventive.

For dealing with the modern world, we are not, however, particularly well-equipped. We don’t seem to deal well with long horizon issues and deferring gratification. Because we could not store food for over 99% of our species’ career and were totally concerned with staying alive this year and this week, this is not surprising. We are also innumerate. Our typical math skills seem quite undeveloped relative to our nuanced language skills. Again, communication was life and death, math was not. Have you not admired, as I have, the incredible average skill and, perhaps more importantly, the high minimum skill shown by our species in driving through heavy traffic? At what other activity does almost everyone perform so well? Just imagine what driving would be like if those driving skills, which reflect the requirements of our distant past, were replaced by our average math skills!

We also became an optimistic and overconfident species, which early on were characteristics that may have helped us to survive and today are reaffirmed consistently by the new breed of research behaviorists. And some branches of our culture today are more optimistic and overconfident than others. At the top of my list would be the U.S. and Australia. In a well-known recent international test,1 U.S. students came a rather sad 28/40 in math and a very mediocre eighteenth in language skills, but when asked at the end of the test how well they had done in math, they were right at the top of the confidence list. Conversely, the Hong Kongers, in the #1 spot for actual math skills, were averagely humble in their expectations.

Fortunately, optimism appears to be a real indicator of future success. A famous Harvard study in the 1930s found that optimistic students had more success in all aspects of their early life and, eventually, they even lived longer. Optimism likely has a lot to do with America’s commercial success. For example, we attempt far more ventures in new technologies like the internet than the more conservative Europeans and, not surprisingly, end up with more of the winners. But optimism has a downside. No one likes to hear bad news, but in my experience, no one hates it as passionately as the U.S. and Australia. Less optimistic Europeans and others are more open to gloomy talk. Tell a Brit you think they’re in a housing bubble, and you’ll have a discussion. Tell an Australian, and you’ll have World War III. Tell an American in 1999 that a terrible bust in growth stocks was coming, and he was likely to have told you that you had missed the point, that 65 times earnings was justified by the Internet and other dazzling technology, and, by the way, please stay out of my building in the future. This excessive optimism has also been stuck up my nose several times on climate change, where so many otherwise sensible people would much prefer an optimistic sound bite from Fox News than to listen to bad news, even when clearly realistic. I have heard several brilliant contrarian financial analysts, siding with climate skeptics, all for want of, say, 10 or 12 hours of their own serious analysis. My complete lack of success in stirring up interest in our resource problems has similarly impressed me: it was like dropping reports into a black hole. Finally, in desperation, we have ground a lot of data and, the more we grind, the worse, unfortunately, it looks.

Failure to Appreciate the Impossibility of Sustained Compound Growth

I briefly referred to our lack of numeracy as a species, and I would like to look at one aspect of this in greater detail: our inability to understand and internalize the effects of compound growth. This incapacity has played a large role in our willingness to ignore the effects of our compounding growth in demand on limited resources. Four years ago I was talking to a group of super quants, mostly PhDs in mathematics, about finance and the environment. I used the growth rate of the global economy back then – 4.5% for two years, back to back – and I argued that it was the growth rate to which we now aspired. To point to the ludicrous unsustainability of this compound growth I suggested that we imagine the Ancient Egyptians (an example I had offered in my July 2008 Letter) whose gods, pharaohs, language, and general culture lasted for well over 3,000 years. Starting with only a cubic meter of physical possessions (to make calculations easy), I asked how much physical wealth they would have had 3,000 years later at 4.5% compounded growth. Now, these were trained mathematicians, so I teased them: “Come on, make a guess. Internalize the general idea. You know it’s a very big number.” And the answers came back: “Miles deep around the planet,” “No, it’s much bigger than that, from here to the moon.” Big quantities to be sure, but no one came close. In fact, not one of these potential experts came within one billionth of 1% of the actual number, which is approximately 1057, a number so vast that it could not be squeezed into a billion of our Solar Systems. Go on, check it. If trained mathematicians get it so wrong, how can an ordinary specimen of Homo Sapiens have a clue? Well, he doesn’t. So, I then went on. “Let’s try 1% compound growth in either their wealth or their population,” (for comparison, 1% since Malthus’ time is less than the population growth in England). In 3,000 years the original population of Egypt – let’s say 3 million – would have been multiplied 9 trillion times! There would be nowhere to park the people, let alone the wealth. Even at a lowly 0.1% compound growth, their population or wealth would have multiplied by 20 times, or about 10 times more than actually happened. And this 0.1% rate is probably the highest compound growth that could be maintained for a few thousand years, and even that rate would sometimes break the system. The bottom line really, though, is that no compound growth can be sustainable. Yet, how far this reality is from the way we live today, with our unrealistic levels of expectations and, above all, the optimistic outcomes that are simply assumed by our leaders. Now no one, in round numbers, wants to buy into the implication that we must rescale our collective growth ambitions.

I was once invited to a monthly discussion held by a very diverse, very smart group, at which it slowly dawned on my jet-lagged brain that I was expected to contribute. So finally, in desperation, I gave my first-ever “running out of everything” harangue (off topic as usual). Not one solitary soul agreed. What they did agree on was that the human mind is – unlike resources – infinite and, consequently, the intellectual cavalry would always ride to the rescue. I was too tired to argue that the infinite brains present in Mayan civilization after Mayan civilization could not stop them from imploding as weather (mainly) moved against them. Many other civilizations, despite being armed with the same brains as we have, bit the dust or just faded away after the misuse of their resources. This faith in the human brain is just human exceptionalism and is not justified either by our past disasters, the accumulated damage we have done to the planet, or the frozen-in-the-headlights response we are showing right now in the face of the distant locomotive quite rapidly approaching and, thoughtfully enough, whistling loudly.

Hubbert’s Peak

Let’s start a more detailed discussion of commodities on by far the most important: oil. And let’s start with by far the largest user: the U.S. In 1956, King Hubbert, a Shell oil geologist, went through the production profile of every major U.S. oil field and concluded that, given the trend of new discoveries and the rate of run-off, U.S. oil production was likely to peak in around 1970. Of course, vested interests and vested optimism being what they are, his life was made a total misery by personal attacks – it was said that he wasn’t a patriot, that he was doing it all to enhance his own importance, and, above all, that he was an idiot. But he was right: U.S. production peaked in 1971! This, typically enough, did not stop the personal attacks. There is nothing more hateful in an opponent than his being right. In 1956, Hubbert also suggested that a global peak would be reached in “about 50 years,” but after OPEC formed in 1974 and prices jumped, he said it would probably smooth out production and extend the peak by about 10 years, or to 2016, give or take. Once again, this could be a remarkably accurate estimate!

The U.S. peak oil event of 1971 is important in rebutting today the same arguments that he faced in the 1960s. This time, these arguments are used against the idea that global oil is nearing its peak. The arguments back then were that technological genius, capitalist drive, and infinite engineering resourcefulness would always drive back the day of reckoning. But wasn’t the U.S. in the 1960s full of the most capitalist of spirits, Yankee know-how, and resourcefulness? Didn’t the U.S. have the great oil service companies, and weren’t there far more wells drilled here than anywhere? All true. But, still, production declined in 1971 and has slowly and pretty steadily declined ever since. Even if we miss the inherent impossibility of compound growth running into finite resources, how can we possibly think that our wonderful human attributes and industriousness will prevent the arrival of global peak oil when we have the U.S. example in front of us?

Exhibit 5 shows that global traditional onshore oil, in fact, peaked long ago in 1982, and that only much more expensive offshore drilling and tertiary recovery techniques allowed for even a modest increase in output, and that at much higher prices. Exhibit 6 shows that since 1983, every year (except one draw) less new conventional oil was found than was actually pumped!

Global Oil Prices, the First Paradigm Shift

We have seen how broad-based commodity prices declined to a trough from 2000-03. Oil however, was an exception and, given its approximate 50% weight by value, a very important exception. In 1974, it split off from other commodities, which continued to decline steeply. It was in 1974 that an oil cartel, OPEC, was formed. What better time could there be for a fast paradigm shift than during a cartel forming around a finite resource?

Exhibit 7, which may be familiar to you, was developed when the penny first dropped for me five years ago, and was soon after reproduced in the Sunday New York Times. It shows that for 100 years oil had a remarkably flat real price of around $16/barrel in today’s currency, even as all other commodities declined. It was always an exception in that sense. Oil has a volatile price series, which is not surprising given supply shocks, the difficulty of storage, and, above all, the very low price elasticity of demand in the short term. Normal volatility is, relative to trend, more than a double and less than a half, so that around the $16 trend we would normally expect to see price spikes above $32 and troughs below $8. Drawing in the dotted lines of 1 and 2 standard deviations, it can be seen that the series is well behaved: it should breach the 2-sigma line about 2.5 times up and 2.5 times down in a 100-year period (because 2-sigma events should occur every 44 years), and it does pretty much just that. It is also clear that this well-behaved $16 trend line was shifted quite abruptly to around $35/barrel in 1974, the year OPEC began. And OPEC began in a very hostile and aggressive mood, resulting in unusual solidarity among its members. Oil prices remained very volatile around this new higher trend, peaking in 1980 at almost $100 in today’s currency (confirming, to some degree, the new higher trend) and falling back to $16 in 1999.

Today, looking at the oil price series from about 2003, it seems likely that a second paradigm jump has occurred, to about $75 a barrel, another doubling. Around this new trend, a typical volatile oil range would be from over $150 to under $37. The validity of this guess will be revealed in, say, another 15 to 20 years. Stay tuned. There is, though, a different support to this price analysis, and that is cost analysis. We are not (yet, anyway) experts in oil costs, but as far as we are able to determine, the full cost of finding and delivering a major chunk of new oil today is about $70 to $80 a barrel. If true, this would make the idea of a second paradigm jump nearly certain.

The Great Paradigm Shift

So, oil caused my formerly impregnable faith in mean reversion to be broken. I had always admitted that paradigm shifts were theoretically possible, but I had finally met one nose to nose. It did two things. First, it set me to thinking about why this one felt so different to those false ones claimed in the past. Second, it opened my eyes to the probability that others would come along sooner or later.

The differences in this paradigm shift are obvious. All of the typical phantom paradigm shifts are optimistic. They often look more like justifications for high asset prices than serious arguments. They are also usually compromised by the source. It is simply much more profitable for the financial services business to have long bull markets that overrun and then crash quite quickly than it is to have stability. Imagine how little money would be made by us if the U.S. stock market rose by its dreary 1.8% a year adjusted for inflation, its trend since 1925. Volume would dry up, as would deals, and we’d die of boredom or get a different job. In short, beware a broker or a sell side “strategist” offering arguments as to why overpriced markets like today’s are actually cheap. Finally, the public in general appears to like things the way they are and always seems eager to embrace the idea of a new paradigm. The oil paradigm shift and the “running out of everything” argument is the exact opposite: it is very bad news and, like all very bad news, ordinary mortals and the bullishly-biased financial industry seriously want to disbelieve it or completely ignore it. (Just as is the case with climate warming and weather instability.) It is in this sense a classic contrarian argument despite being a paradigm shift.


On the second point – looking for other resources showing signs of a paradigm shift – the metals seemed the next most obvious place to start: they are finite, subject to demand that has been compounding (that is, more tonnage is needed each year), and, after use, are mostly worthless or severely reduced in value and expensive to recycle. Copper, near the top of the standard deviation list, has an oil-like tendency for the quality of the resource to decline and the cost of production to rise. Exhibit 8 shows that since 1994 one has to dig up an extra 50% of ore to get the same ton of copper.

And all of this 150% effort has to be done using energy at two to four times the former price. These phenomena of declining ore quality and rising extraction costs are repeated across most important metals. The price of all of these metals in response to rising costs and rising demand has risen far above the old declining trend, at least past the 1-in-44-year chance. (There is a possibility, I suppose, that some of the price moves are caused by a cartel-like effect between the few large “miners.” There just might have been some deliberate delays in expansion plans, which would have resulted in extra profits, but it seems unlikely that this possible influence would have caused much of the total price rises. These very high prices are compatible with such possibilities, but I am in no position to know the truth of it.) There also might be some hoarding by users or others, but given the extent of the price moves, it is statistically certain that hoarding could not come close to being the only effect here. Once again, the obvious primary influence is increased demand from developing countries, overwhelmingly led by China; and that we are dealing with a genuine and broad-based paradigm shift.

The highest percentage of any metal resource that China consumes is iron ore, at a barely comprehensible 47% of world consumption. Exhibit 9 shows the spectacular 100-year-long decline in iron ore prices, which, like so many other commodities, reach their 100-year low in or around 2002. Yet, iron ore hits its 110-year high a mere 8 years later! Now that’s what I call a paradigm shift! Mining is clearly moving out of its easy phase, and no one is trying to hide it. A new power in the mining world is Glencore (soon to be listed at a value of approximately $60 billion). Its CEO, Ivan Glasenberg, was quoted in the Financial Times on April 11, describing why his firm operates in the Congo and Zambia. “We took the nice, simple, easy stuff first from Australia, we took it from the U.S., we went to South America”¦ Now we have to go to the more remote places.” That’s a pretty good description of an industry exiting the easy phase and entering the downward slope of permanently higher prices and higher risk.

Agricultural Commodities

Moving on to agriculture, the limitations are more hidden. We think of ourselves as having almost unlimited land up our sleeve, but this is misleading because the gap between first-rate and third-rate land can be multiples of output, and only Brazil, and perhaps the Ukraine, have really large potential increments of output. Elsewhere, available land is shrinking. For centuries, cities and towns have tended to be built not on hills or rocky land, but on prime agricultural land in river valleys. This has not helped. We have, though, had impressive productivity gains per acre in the past, and this has indeed helped a lot. But, sadly, these gains are decreasing. Exhibit 10 shows that at the end of the 1960s, average gains in global productivity stood at 3.5% per year. What an achievement it was to have maintained that kind of increase year after year. It is hardly surprising that the growth in productivity has declined.

It runs now at about one-third of the rate of increase of the 1960s. It is, at 1.25% a year, still an impressive rate, but the trend is clearly slowing while demand has not slowed and, if anything, has been accelerating. And how was this quite massive increase in productivity over the last 50 years maintained? By the even more rapid increase in the use of fertilizer. Exhibit 11 shows that fertilizer application per acre increased five-fold in the same period that the growth rate of productivity declined. This is a painful relationship, for there is a limit to the usefulness of yet more fertilizer, and as the productivity gains slow to 1%, it bumps into a similar-sized population growth. The increasing use of grain-intensive meat consumption puts further pressure on grain prices as does the regrettable use of corn in ethanol production. (A process that not only deprives us of food, but may not even be energy-positive!) These trends do not suggest much safety margin.

The fertilizer that we used is also part of our extremely finite resources. Potash and potassium are mined and, like all such reserves, the best have gone first. But the most important fertilizer has been nitrogen, and here, unusually, the outlook for the U.S. really is quite good for a few decades because nitrogen is derived mainly from natural gas. This resource is, of course, finite like all of the others, but with recent discoveries, the U.S. in particular is well-placed, especially if in future decades its use for fertilizer is given precedence.

More disturbing by far is the heavy use of oil in all other aspects of agricultural production and distribution. Of all the ways hydrocarbons have allowed us to travel fast in development and to travel beyond our sustainable limits, this is the most disturbing. Rather than our brains, we have used brute energy to boost production.

Water resources both above and below ground are also increasingly scarce and are beginning to bite. Even the subsoil continues to erode. Sooner or later, limitations must be realized and improved techniques such as no-till farming must be dramatically encouraged. We must protect what we have. It really is a crisis that begs for longer-term planning – longer than the typical horizons of corporate earnings or politicians. The bottom line is, as always, price, and the recent signals are clear. Exhibit 12 shows the real price movements of four critical agricultural commodities – wheat, rice, corn, and soybeans – in the last few years. Unlike many other commodities, these four are still way below their distant highs, but from their recent lows they have all doubled or tripled.

Bulls will argue that these agricultural commodities are traditional bubbles, based on euphoria and speculation, and are destined to move back to the pre-2002 prices. But ask yourselves what happens when the wheat harvest, for example, comes in. Only the millers and bakers (actually the grain traders who have them as clients) show up to buy. Harvard’s endowment doesn’t offer to take a million tons and store it in Harvard Yard (although my hero, Lord Keynes, is famously said to have once seriously considered stacking two months’ of Britain’s supply in Kings College Chapel!). The price is set by supply and demand, and storage is limited and expensive. All of the agricultural commodities also interact, so, if one were propped up in price, farmers on the margin would cut back on, say, soybeans and grow more wheat. For all of these commodities to move up together and by so much is way beyond the capabilities of speculators. The bottom line proof is that agricultural reserves are low – dangerously low. There is little room in that fact for there to be any substantial hoarding to exist.

Weather Instability and Price Rises

But there is one factor big enough, on rare occasions, to move all of the agricultural commodities together, and that is weather, particularly droughts and floods. I don’t think the weather instability has ever been as hostile in the last 100 years as it was in the last 12 months. If you were to read a one-paragraph summary of almost any agricultural commodity, you would see weather listed as one of the causes of the price rising. My sick joke is that Eastern Australia had average rainfall for the last seven years. The first six were the driest six years in the record books, and the seventh was feet deep in unprecedented floods. Such “average” rainfall makes farming difficult. It also makes investing in commodities difficult currently, for the weather this next 12 months is almost certain to be less bad than the last, and perhaps much less bad.

The Unusual Entry Risk Today in Commodity Investing: Weather “¦

For agricultural commodities, it is generally expected that prices will fall next year if the weather improves. Because global weather last year was, at least for farming, the worst in many decades, this seems like a good bet. The scientific evidence for climate change is, of course, overwhelming. A point of complete agreement among climate scientists is that the most dependable feature of the planet’s warming, other than the relentless increase in the parts per million of CO2 in the atmosphere, is climate instability. Well, folks, the last 12 months were a monster of instability, and almost all of it bad for farming. Skeptics who have little trouble rationalizing facts will have no trouble at all with weather, which, however dreadful, can never in one single year offer more than a very strong suggestion of long-term change.

Unfortunately, I am confident that we should be resigned to a high probability that extreme weather will be a feature of our collective future. But, if last year was typical, then we really are in for far more serious trouble than anyone expected. More likely, next year will be more accommodating and, quite possibly, just plain friendly. If it is, we will drown, not in rain, but in grain, for everyone is planting every single acre they can till. And why not? The current prices are either at a record, spent just a few weeks higher in 2008, or were last higher decades ago. The institutional and speculative money does not, in my opinion, drive the spot prices higher for reasons given earlier, but they do persistently move the more distant futures contracts up.

Traditionally, farmers had to bribe speculators to take some of the future price risk off of their hands. Now, Goldman Sachs and others have done such a good job of making the case for commodities as an attractive investment (on the old idea that investors were going to be paid for risk-taking), that the weight of money has pushed up the slope of the curve. This not only destroys the whole reason for investing in futures contracts in the first place, but, critically for this current argument, it lowers the cost to the farmers of laying off their price risk and thus enables, or at least encourages, them to plant more, as they have in spades. Ironically, institutional investing facilitates larger production and hence lower prices! Should both the sun shine and the rain rain at the right time and place, then we will have an absolutely record crop. This would be wonderful for the sadly reduced reserves, but potentially terrible for the spot price. (Although wheat might be an exception because the largest grower by far – China – is looking to be in very bad shape for its upcoming harvest.)

“¦ and China

Quite separately, several of my smart colleagues agree with Jim Chanos that China’s structural imbalances will cause at least one wheel to come off of their economy within the next 12 months. This is painful when traveling at warp speed – 10% a year in GDP growth. The litany of problems is as follows:

a) An unprecedented rise in wages has reduced China’s competitive strength.

b) The remarkable 50% of GDP going into capital spending was partly the result of a heroic and desperate effort to keep the ship afloat as the Western banking system collapsed. It cannot be sustained, and much of the spending is likely to have been wasted: unnecessary airports, roads, and railroads and unoccupied high-rise apartments.

c) Debt levels have grown much too fast.

d) House prices are deep into bubble territory and there is an unknown, though likely large, quantity of bad loans.

You have heard it all better and in more detail from both Edward Chancellor and Jim Chanos. The significance here is that given China’s overwhelming influence on so many commodities, especially in terms of the percentage China represents of new growth in global demand, any general economic stutter in China can mean very big declines in some of their prices.

You can assess on your own the probabilities of a stumble in the next year or so. At the least, I would put it at 1 in 4, while some of my colleagues think the odds are much higher. If China stumbles or if the weather is better than expected, a probability I would put at, say, 80%, then commodity prices will decline a lot. But if both events occur together, it will very probably break the commodity markets en masse. Not unlike the financial collapse. That was a once in a lifetime opportunity as most markets crashed by over 50%, some much more, and then roared back. Modesty should prevent me from quoting from my own July 2008 Quarterly Letter, which covered the first crash. “The prices of commodities are likely to crack short term (see first section of this letter) but this will be just a tease. [Editor’s Note: the section referred to is titled “Meltdown! The Global Competence Crisis,” which discusses the aftermath of the global financial crisis.] In the next decade, the prices of all raw materials will be priced as just what they are, irreplaceable.” If the weather and China syndromes strike together, it will surely produce the second “once in a lifetime” event in three years. Institutional investors were too preoccupied staying afloat in early 2009 to have obsessed much about the first opportunity in commodities and, in any case, everything else was also down in price. A second commodity collapse in the next few years may also be psychologically hard to invest in for it will surely bring out the usual bullish argument: “There you are, its business as usual. There are plenty of raw materials, so don’t listen to the doomsayers.” Because it will have broad backing, this argument will be hard to resist, but should be.

Residual Speculation

Finally, there is some good, old-fashioned speculation, particularly in the few commodities that can be stored, like gold and others, which are costly per pound. I believe this is a small part of the total pressure on prices, and the same goes for low interest rates, but together they have also helped push up prices a little. Putting this speculation into context, we could say that: a) we have increasing, but still routine, speculation in commodities; b) this comes on top of the much more important effects of terrible weather; and c) most important of all, we have gone through a profound paradigm shift in almost all commodities, caused by a permanent shift in the underlying fundamentals.

The Creative Tension in Investing in Resources Today

As resource prices rise, the entire system loses in overall well-being, but the world is not without winners. Good land, in short supply, will rise in price, to the benefit of land owners. Technological progress in agriculture will add to the value of land holdings. Fertilizer resources – potash and potassium – will become particularly precious. Hydrocarbon reserves will, of course, also increase in value. In general, owners or controllers of all limited resources, certainly including water, will benefit. But everyone else will be worse off, and a constrained-resource world will increase in affluence per capita more slowly than it would have otherwise, and more slowly than in the past. Remember, this is not simply a recycling of income and wealth as it was when Saudi Arabia stopped some of its pumping for political reasons. Then, we paid a few extra billion and they put money in the bank for recycling. There was no net loss. But now when they pump the last of the cheapest $5/barrel of oil and we replace it with a $120/barrel from tortured Canadian Tar Sands, the cost differential is a deadweight loss. GDP accounting can make it look fine, and it certainly creates more jobs but, like a few thousand men digging a hole with teaspoons, it adds jobs but no incremental value compared to the original cheap oil.

How does an investor today handle the creative tension between brilliant long-term prospects and very high short-term risks? The frustrating but very accurate answer is: with great difficulty. For me personally it will be a great time to practice my new specialty of regret minimization. My foundation, for example, is taking a small position (say, one-quarter of my eventual target) in “stuff in the ground” and resource efficiency. Given my growing confidence in the idea of resource limitation over the last four years, if commodities were to keep going up, never to fall back, and I owned none of them, then I would have to throw myself under a bus. If prices continue to run away, then my small position will be a solace and I would then try to focus on the more reasonably priced – “left behind” – commodities. If on the other hand, more likely, they come down a lot, perhaps a lot lot, then I will grit my teeth and triple or quadruple my stake and look to own them forever. So, that’s the story.

The Position of the U.S”¦.

The U.S. is, of course, very well-positioned to deal with the constraints. First, it starts rich, both in wealth and income per capita, and also in resources, particularly the two that in the long run will turn out to be the most precious: great agricultural land and a pretty good water supply. The U.S. is also well-endowed with hydrocarbons. Its substantial oil and gas reserves look likely to prove unexpectedly resilient, buoyed by improving skills at fracking and lateral drilling. And, by any standard, U.S. coal reserves are very large. All other countries should be so lucky. Second, we are the most profligate or wasteful developed country and this fact, paradoxically, becomes a great advantage. We in the U.S. can save resources by the billions of dollars and actually end up feeling better for it in the end, like someone suffering from obesity who succeeds with a new diet.

The slowing growth in working age population has reduced the GDP growth for all developed countries. Adding resource limitations is further reducing it. If our GDP in the U.S. grew 2% for the next 20 years, I think we would be doing very well. Dropping to 1.5% would not surprise me, nor would it be a disaster. In the past 28 years, we have increased our GDP by 3.0% per year with only a 0.9% increase in energy required. That is, we increased our energy efficiency by 2.1% without a decent energy policy and despite some very inefficient pockets like autos and residential housing. This would suggest that at a reduced 2% GDP growth rate, we might expect little or no incremental demand for energy, even without an improved effort. If in addition we halved our deficit in energy efficiency compared with Europe and Japan in the next 20 years, then our energy requirements might drop at 1.5% a year. Given the plentiful availability of low-hanging fruit in the U.S., this is achievable.

“¦ as for the Rest

Other countries will not be so lucky. Almost all will suffer lower growth, but resource-rich countries will have a relative benefit as the terms of trade continue to move in their favor. Less obviously, those countries that are particularly energy efficient will also benefit. If the Japanese, for example, can produce over twice the GDP per unit of energy than the Chinese, then, other things being equal, the terms of trade will move in their favor as oil prices rise. At the bottom of the list, poor countries with few resources and little efficiency, which already use up to 50% of their income on the commodity “necessities,” will suffer. The irony that they suffered the most having used up the least will probably not make their misery less. Limited resources create a win-lose proposition quite unlike the win-win we are accustomed to in global trade. Theoretically, we all gain through global trade as China grows. But with limited resources, the faster they grow and the richer they get (and, particularly, the more meat rather than grain that they eat), the more commodity prices rise and the greater the squeeze on the poorer countries and the relatively poor in every country. It’s a gloomy topic. Suffice it to say that if we mean to avoid increased starvation and international instability, we will need global ingenuity and generosity on a scale hitherto unheard of.


The U.S. and every other country need a longer-term resource plan, especially for energy, and we need it now!(Shorter-term views on the market and investment recommendations will be posted shortly.)


(1) P.I.S.A. Test 2003, OECD.

(2) Edward Chancellor, “China’s Red Flags,” GMO White Paper, March 23, 2010.

Disclaimer: The views expressed are the views of Jeremy Grantham through the period ending April 25, 2011, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.

— Jeremy Grantham

h/t Oil Drum

49 Responses to Jeremy Grantham must-read, “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever”

  1. Mike Roddy says:

    I don’t really care about investment opportunities. There are dark sides to commodity scarcity, in addition to increased poverty in general. High prices will drive efforts to harvest heavy oil and deep offshore deposits. We’re already seeing disregard of water quality in reckless and politically enabled fracking for both gas and oil. Rising timber prices will drive piracy and degradation of forests wherever they may be, further driving global warming and ruining rainfall and erosion patterns for agriculture.

    Politically, the fossil fuel companies will be the only sector of any kind with unlimited cash, which unfortunately has already led to an effective coup d’etat of the American government. It could get worse, with the Democrats becoming fully purchased. All to enrich people like David Koch, the Rockefeller family, and coal industry investors and executives. The people are going to have to stand up to them, since the media and what passes for our political leadership have gone over to the dark side.

  2. Lou Grinzo says:

    My only real criticism of Grantham’s piece is that I wish he had placed a little more emphasis on the connection between fresh water and food production. Our continued, rampant pumping of deep aquifers in major grain production areas of the world means we’re growing current world population with food that’s largely fueled by not just fossil fuels but also by fossil water. This problem is particularly bad in India, but food production in the US and China are also highly dependent on exploiting this accidental bounty.

    But overall, Grantham nails it.

  3. Nick Bentley says:

    I hope that these resource constraints prove to be a negative feedback which slows our “growth” and limits carbon release. I might consider these limits a good thing if they didn’t mercilessly hammer the poor.

  4. Fred Teal, Jr says:

    I saw a summary of this in Fortune a few days ago. So glad you posted it. I have also seen several similar articles over the past week including some discussion on CNBC this morning. Maybe climate change, resource depletion and sovereign debt problems are becoming mainstream. If they are, I think we are on the cusp of a significant economic shift which may force us to deal with climate change and resource depletion.

  5. Cinnamon Girl says:

    I agree with Lou. Also, I would like to see the quite possible collapse of the marine food chain as a/more of a component in his/a world food picture. Short of Soylent Green, it’s hard to envision our being able to fill the protein vacuum left by widespread marine system collapse. In my view, aquaculture’s resource demand is too analogous to Lou’s groundwater-drain-for-wasted-grain scenario. As to the hedge fund community, I think the same of them as I do of the private weather forecasting services on which they tend to rely–AGW is the elephant in the dining room, and ignoring/denying that primary driver and largest control knob is…dumb. To me, “weather forecasters” who deny AGW are fossils, only more worthless.

  6. Wit's End says:

    Fred Teal, there is definitely a rising consciousness that the plunder of Mother Earth is reaching a critical point. Example: suppliers of freeze-dried survival food are out of stock and not even processing new orders. That reflects growing awareness that we are in for troubled times, and also, just a plain shortage of food. Which brings me to what was glaringly absent from Mr. Grantham’s otherwise thorough analysis, the 20 – 80% reduction in crop yield and quality due to stunted growth from exposure to tropospheric ozone.

    Assuming he’s correct about everything else, maybe the silver lining is that once industrial society ceases to exist and the skies will clear, and plants and trees will once again be able to thrive in a healthy atmosphere conducive to their growth.

    Regarding biofuels, consider this wiki entry:

    “Peroxyacetyl nitrate is a peroxyacyl nitrate. It is a secondary pollutant present in photochemical smog. It is thermally unstable and decomposes into peroxyethanoyl radical and nitrogen dioxide gas. It is a lachrymatory substance.
    Peroxyacetyl nitrate, or PAN, is an oxidant more stable than ozone. Hence it has capabilities of long-range transport greater than that of ozone. It serves as a carrier for oxides of nitrogen (NOx) into rural regions and causes ozone formation in the global troposphere.
    The formation of PAN on a secondary scale becomes an issue when ethanol is used as an automotive fuel. Acetaldehyde emissions increase, which subsequently react in the atmosphere to form smog. Whereas ethanol policies solve domestic oil supply problems, they drastically exacerbate air quality conditions.”

    Especially important is that last sentence: “Whereas ethanol policies solve domestic oil supply problems, they drastically exacerbate air quality conditions.”

    First of all, it’s quite unlikely that ethanol can solve domestic oil supply problems for reasons we all know. But…drastically exacerbate air quality conditions? Hmm. Is this in the models measuring ozone?

  7. Mike # 22 says:

    “Second, we are the most profligate or wasteful developed country and this fact, paradoxically, becomes a great advantage. We in the U.S. can save resources by the billions of dollars and actually end up feeling better for it in the end,” This cannot be repeated enough. With our remarkable infrastructure in place, and plenty of good farmland, the US is in a good position to embark on an economic transition away from so much resource consumption. On top of that, we still have the best academic and research base in the world. Let’s use it. Bringing in Dr. Chu was a smart move, more please.

    But look at coal, that is no artifact either. This stuff is harder to get to every year.

  8. dan allen says:

    Chris Martenson’s new book “The Crash Course” (like his free video series by the same name at an excellent follow-up to this post.

    Key message: Perpetual economic or physical growth (especially the exponential growth required by the industrial economy) is impossible in a finite world — and the endgame of resource depletion catches up with you quicker than you think.

  9. Despite the insights, it is delusional optimism seems to be the panacea.

    One we give up hope for even a partial business-as-usual comfort and an adjusted profit – only then can we affect greater change.

    And phrases like: “More likely, next year will be more accommodating and, quite possibly, just plain friendly.” –

  10. Paulm says:

    I guess some of us are starting to understand the exponential function….

  11. Paulm says:

    This is call coming round … Usually a step wise refinement…..

    “Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.”

  12. paulm says:

    In Canada, 54% of those surveyed pointed to humans as the cause, while 49% western Europe residents blamed humans. Only 34% of those Americans surveyed put the blame on humans, while 47% pointed the finger at natural causes. gallup poll…..

  13. Barry says:

    It seems to me the problem isn’t energy and resources so much as what we do with them after we are done.

    We throw stuff away. Nature recycles.

    We use finite resources and throw them away after using them. And we are running out. Duh.

    Nature has used finite resources to grow ever more complex for billions of years by continually recycling resources so they never run out.

    There is more than enough “never runs out” energy available via sun, moon gravity and internal earth radiation. The race for humanity is to shift our economy to full recycling.

  14. Thanks for this article Joe,,, to finish my comment: the phrase “… next year will be more accommodating and, quite possibly, just plain friendly.” shows a Pollyanna disregard for the science. All the science says that climate destabilization will continue. And well beyond the year 2100. Pick your temperature increase: 2 degrees, 4 or 6 degree increase – global average. We are beyond “mild inconvenience” – we have a future locked in somewhere between “painful adjustment” and “Full catastrophe”

    The polar ice will not cease melting next year, or much after that. The seas will continue to rise. And weather will continue to destabilize.

    And humans will continue to fantasize about the good old days.

    Only after we ruthlessly examine the situation with the eyes of science – not commerce, not wishes, not religion – only then can our civilization respond rationally.

  15. Sasparilla says:

    Excellent post Joe, for a primer many different areas of resource depletion and some supporting facts, this is a great analysis. Saving this one for future reference.

    After pondering this document it would seem that we, as a species, are facing two large tests in the coming years. Climate Change and resource depletion. We appear to be failing both, with gusto.

    The information about Hubbert was particularly interesting, while I was familiar with his US prediction, I wasn’t aware of what he said with regards to OPEC and guesstimate of time for world peak oil (2016) – looks like it will be relatively accurate. It will be much easier to do things on large scales (like change our energy production facilities on large scales) before that boundary than after that boundary, of course.

    Obviously the comments on future weather behavior for next year are probably irrationally optimistic but that is a nit pick within the grand scheme of the report and obviously the author is human.

  16. Gord says:

    Great discussion … and timely too!

  17. Richard Brenne says:

    Nick Bently (#3) and our deer friend Wit’s End (#6) hope that collapse will mean less pollution, but unfortunately I’m not so sure.

    Right now about two billion people live on $2 a day or less. Their very survival relies on their ability to find wood and occasionally coal (fallen off coal trains and the like) to cook and heat.

    Now imagine that another two billion lose their access to heating oil, gas and electricity. That means that they, too would scavenge for all the wood and occasionally coal, oil and other fossil fuels they could get. But they’re used to consuming more and so chances are they do.

    Then an even richer two billion could find themselves in the same situation, and possibly even another and richer two billion after that (if UN projection of population is realized and there are nine billion total).

    That means more deforestation than we can imagine. The richest will still demand as many (or more) large-scale fossil fuel operations as possible, while everyone else is burning everything they can get their hands on.

    Ski towns like Aspen and campgrounds in places like Yosemite Valley had to limit or ban the burning of wood (the former presumably in the higest-efficiency wood stoves) with just a few thousand people. Imagine what cities with a thousand to to ten thousand times as many people would be like.

    The only silver lining I can see is one associated with an entire shift in consciousness about everything.

  18. madcitysmitty says:

    Nothing has changed since Paul Erlich introduced these compounding-growth problems to the 60’s generation. He said,”There’s a birth-rate solution and death-rate solution…and the death-rate solution is unacceptable.”

  19. paulm says:

    18 guess what….there is also a both rate solution!

  20. Nick Bentley says:

    Richard Brenne @18

    I don’t disagree with you. I just hope it doesn’t turn out that way. I think there is some cause for hope (maybe not much, but some). It seems we’re in the middle of some sort of inflection point for renewables, solar in particular, and costs are dropping fast. If they drop fast enough perhaps they can pick up some of the slack for those applications which are the largest drivers of deforestation: home heating and cooking. We certainly are living in interesting times. I’m trying my best to adopt a very long view and enjoy the pageant as it goes down, but will be difficult to maintain if it gets hard to eat.

  21. The end of the world should provide excellent investment opportunities for those who are wealthy and are inclined to care more about money than the fate of the species and all other forms of life which happen to share this planet, unfortunately, with humankind.

    I’d suggest that this sort of newsletter should motivate the investor class to live differently … but that is a hopeless cause above all hopeless causes.

    The general sense which I am getting on the ground, so to speak, is that Americans are beginning to realize that something has gone terribly wrong on this planet and they aren’t quite certain about the cause or the consequences. I appreciate the hope expressed by the hopeful, however deluded as it may be, and tell everyone to enjoy these days while they last because when the bad days come there won’t be any end to our troubles.

    As for myself, I devote nearly all of my attention to the 99.999% of all species on the planet which are not currently engaged in self-extermination. Nature existed before humankind and it will still remain long after humankind is long forgotten. The Universe will be perfectly fine without us.

    The sun will keep on rising as it always has and the flowers will keep blooming. Nature will replace all those species which were lost to the human catastrophe, the Sixth Great Extinction. God Himself will breathe a sigh of relief at humankind’s departure and say, “Never again!”

    Humankind is a once-in-a-Universe tragedy. So it goes. Nature has survived bigger catastrophes in the past, though, so my optimism never wavers.

  22. Arthur Smith says:

    I notice Grantham’s commodity price charts are based on US dollars (albeit inflation-adjusted). It seems to me they would look a bit differently in other currencies. That is, how much does this reflect fundamental worldwide constraints, and how much is this just an artifact of the rise and fall of US power?

    Also he seems doubtful that speculation has much influence on oil or the other major commodities, and yet Goldman pretty clearly stated the opposite recently. Yes, of course there are real constraints, and compound growth at any rate has to end eventually, but I don’t think this piece is a good technical analysis of the present situation.

  23. Aaron Lewis says:

    Re #2 Lou,
    Irrigation water requires large amounts of energy to pump. We are past the days when irrigation canals run down hill. Irrigation is very energy intensive.

    And the deeper we go for water, the higher the mineral content and lower the grade of the water.

  24. Richard Brenne says:

    Arthur Smith (#22) writes “I don’t think this piece is a good technical analysis of the present situation.” You’re right, because it’s a good fundamental analysis. Of course there are always monetary, psychological and thus technical and speculative factors, but they’re superimposed over the fundamentals of supply and demand.

    Grantham is a fundamentals guy, as is Warren Buffet, and that’s why Buffet could probably buy and sell every day trader there’s ever been.

    The fundamental reality and I think the guiding theme of Climate Progress is that in every way we’re running into limits to growth, and this trend has only begun and will only accelerate. By acting as wisely as possible we can lessen the damage as much as possible, but the impacts are coming and will not be reversed.

  25. Richard Brenne says:

    David Matthews (#21) – I agree with the overall theme of your comment, with a couple of (dick) caveats.

    I don’t see God as having created the idiotic element in human kind, nor do I think that God is material or materialistic or knows or cares anything about life in matter, which inevitably ends in tragedy. I think God is spiritual, knows only good, and knows us as we really are, even if we don’t appear to know this about ourselves right now.

    That doesn’t mean that we don’t care about everyone and everything we see around us, but I think if we see them in the spiritual light the most caring and understanding spiritual teachers have seen them, we can help them most and alter consensus reality in only positive ways here and now. (And by doing everything we can for each of them both directly and indirectly.)

    And about life going on without us, as many of us have quoted many times, in his book “Storms of My Grandchildren” Jim Hansen says that if we burn all available fossil fuels (as we show every sign of doing), he’s “dead certain” that we’ll create a permanently dead planet like our sister Venus, including all the flowers you so eloquently describe and everything else.

    Maybe it’s about time to do that consciousness changing thing. . .

  26. Merrelyn Emery says:

    Wow, this bloke is seriously good with the exception of his weather forecast as others have noted – looking out the window at another abnormal morning here! ME

  27. Solar Jim says:

    RE: Fossil carbon as a commodity to set on fire.

    With a mineral like copper we mine, refine, fabricate and install it. It is located somewhere in society, even if in the dump.

    Defining mined hydrocarbon materials as “energy,” we are mining and then destroying this planetary wealth with the supreme human technology – control of fire. This perverse process moves critical matter from the lithosphere to the biosphere in a geologic instant. Contaminating the ecosphere in this way acidifies marine ecology (H2O + CO2 = Carbonic Acid) and reverts our atmosphere to prehistoric conditions when much of the earth’s cryosphere did not exist.

    This unfolding submergence indicates that coal and fluid hydrocarbons are NOT commodities of “energy” but matter. There is some indication that heat of combustion for a pound is exceeded by thousands in radiative forcing from the fossil carbon humans add to air. Perhaps our downfall is that we do not know (due to usual ignorance, arrogance and greed) the difference between Matter and Energy. For example, combustion efficiency defines this matter as “energy.”

    Perhaps oxidizing these explosive materials over the past century, a century of war, as “energy” is turning out ultimately to be an economic bomb, instead of just their usual usage (note: TNT is nitrogen and the petrochemical toluene). It and we go boom, one by explosion and one by implosion.

  28. Bill W says:

    Am I the only one for whom most of the charts are cut off on the right?

  29. Jeff Huggins says:

    An Ethical Frankenstein?

    Perhaps that’s not the best title for me to give this comment, but I couldn’t think of a better one just now. (I did include a question mark!)

    I applaud most of the content and the general observations and insights. But this piece strikes me as odd and as very reflective of the “type” that I’ll call the “seemingly concerned and ethical investment opportunist”. (Again, I couldn’t think of a better phrase just now.)

    When it comes to the IMPLICATIONS of the trends and dynamics that the post describes, there seem to be two types (of two very different sorts): One is that the world is in trouble and that big changes will (or would) be necessary if we want a more sustainable, more healthy, more just, more (etc.) world for everyone, realizing of course that we have a big population problem that we have to somehow manage and address. The other is that there will be Winners and losers and that there are Profits to be made — so why not be Profit-making Winners?!

    In other words, when push comes to shove, the post doesn’t make it clear (at least not to me) whether the author would rather (if his own conscience were his guide) own and invest in ExxonMobil, or, instead, call for the U.S. to immediately transition from oil and coal to clean and renewable sources of energy? Is this author, based on all the analysis, ultimately suggesting to investors (the winners, who want to continue “winning”, if you can call it that) that they should own and “harvest” and indeed “milk” the resources and the increasing profits that can be made from ever-more-limited and ever-more-valuable resources? (It sounds like it to me.) Or is his conscience mainly focused on, and concerned with, informing the world and us that deep changes are necessary if we want to live sustainably, healthfully, AND justly and fairly? Perhaps other work (by the author) makes his stance more clear? Or perhaps the author finds himself in a position where he (feels he) has to go back and forth between his moral voice and his “if you want my investment advice” voice, thus confusing the matter of where he really stands and what he thinks we should really do?

    If he were giving advice to his best friend (or even to himself), would he advise that we (in the U.S.) should get off the oil and coal habits, quick, and that we should try to encourage and help the whole world to do so, or would he invest big in ExxonMobil and cast his shareholder vote for Rex Tillerson to continue as ExxonMobil Chairman, CEO, and champion of profit-making? Or both? (I suppose that some people could rationalize doing both, somehow. After all, “if I don’t do it someone else will.”)

    I DO applaud the analysis and the occasional warning, of course. From those standpoints it’s a great piece. But if the author had to choose between maximizing profits to himself (and/or to his investment clients) and being a hero for the sake of humankind, future generations, and other species, what would he do? The piece doesn’t make it very clear, at all.

    Be Well,


    [JR: Check out his Wikipedia entry and you’ll see what he does.]

  30. Steve L says:

    Just a quick look at his line-fitting and use of normal distribution (presumably without accounting for autocorrelation) makes me unimpressed with his analysis. He may be right, but he hasn’t supported his conclusions well statistically. In my opinion.

  31. Jeff Huggins says:

    Thanks, Joe, for your comment. I just scanned the Wikipedia entry for Jeremy Grantham, and his philanthropic and climate-related activities look great. And I did enjoy the post itself.

    Yet it all still raises an interesting question, if I understand his role and organization correctly. For example, would it be possible for you/CP/CAP to find out whether GMO funds own shares in ExxonMobil, Royal Dutch Shell, and/or Chevron? Has GMO taken a stance on advising people, including institutional investors, to disinvest in oil and coal companies on ethical grounds, or to vote in favor of the Rockefellers’ earlier shareholder resolutions to split up Tillerson’s roles at ExxonMobil? I have seen more than one case in which a conscience-oriented or environment-oriented investment guru or fund is conscience-oriented or environment-oriented except when being so costs them more than $0.99. And when it comes to financially supporting initiatives that can be said to have something to do with climate change and clean energy research, even ExxonMobil can claim (and often touts) its support for the program at Stanford, for example. So I’d be curious to know whether GMO owns oil and coal stocks. The question doesn’t take away from the substance covered in the post, of course: the problems are very real, and I’m not doubting that the piece is sincere on Mr. Grantham’s part. But if society is to actually face and EFFECTIVELY ADDRESS the problems that he identifies, leaders in the financial and corporate worlds, and in government, will actually have to put their feet where their mouths and claimed intentions are. They’ll have to walk the talk WITH their own money and with straightforward, clear, emphatic advice. The degree to which GMO funds own shares in the companies mentioned is an indicator of where that stands in this case. I don’t know the answer, myself.

    Thanks and Cheers. (And great post.)


  32. Mossy says:

    No, Bill W., they were cut off for us, too.

    A good, simplified film on this resource depletion, combined with Peak Oil, CC, etc. is “The Great Squeeze.”

    A very interesting post, except for the optomistic future weather predictions. And thanks to Wits End for reminding us of the negative influences of tropospheric ozone and PAN.

  33. Lewis C says:

    To put this report in perspective, I’d compare its value with that of the so-called ‘Stern Report’ from a few years back. For all that was exclusively focussed on global warming, and highly self-censored, and absurdly limited in what solutions it offered, the UK govt gave the author a knighthood simply to emphasize the priority they gave his report.

    By contrast Mr Grantham’s report should, were he but British, earn him a barony. – Not least for his uniquely cogent juxtaposition of many critical feedstocks’ declining affordability and its emerging impacts on the global industrial culture, and its inevitable transformation of that culture for good or ill.

    The fact that he wrote this as the former Chairman and now Chief Investment Strategist of a firm managing over $100 billion of capital elevates its importance greatly, for its information will be considered seriously both by his professional peers and by many investors large and small. And as an extraordinary scientist called Stafford Beer remarked, “Information is that which changes us.”

    I suggest that this is exactly the sort of overview of the imperative need for society’s re-orientation, written by a top rank commercial professional, that has been needed for many years. It will automatically reach people whose decisions are critical for mitigation who are otherwise impervious to the information that we’ve been trying to get over to them for decades.

    Some notes:
    First, kudos to Joe for posting so remarkable a report from so wildly unlikely a source as a senior capitalist fund manager – whom many seem to see as being beyond the pale simply by profession.

    Second, Mike at 1. – Grantham may or may not share a problem with Munich Re, which is that while providing exceptionally fine information on our predicament, he is not yet proactive in addressing it – in Munich Re’s case they’re not yet charging re-insurance rates according to the client-operation’s net carbon efficiency. In Grantham’s case, such proactive options might well include helping to locate the funding for new media outlets that would be independent of the fossil lobby’s approval, in order to disseminate and to help advance the case for mitigation as a supremely urgent priority.

    Maybe a courteous letter to him on this prospect would be worthwhile ?

    Third, Grantham’s suggestion that this year is likely to grant far more stable weather than the globally extreme events of 2010 sounds more like a standard statistical projection than any kind of cornucopian complacency. Particularly given that the entire report centres on the statistical assessment of data and its inherent probabilities.

    Fourth, the idea that the report may be skewed by the relatively recent relative decline of US dollar’s dominance of the global economy is simply not borne out by the data. There was no precipitous fall in the dollar’s value early last decade to justify the assertion that the proposed paradigm shift from slowly declining to steeply rising commodity prices was merely the artefact of such a fall. The sheer improbability of commodities still being on the old trend are worth noting – for instance: rubber at 1 in 1,500, corn at 1 in 14,000, and coal at 1 in 48,000.

    Fifth, I wonder whether others are able to read all the text of this report, but have all the graphs cut off at about 1990 – is this a glitch in their insertion, or is it just this screen ?

    Finally I’d urge people to read this report with a focus on what is being said rather than on the presumed ethics of the author. This sentence stuck me as particularly telling:
    “Suffice it to say that if we mean to avoid increased starvation and international instability, we will need global ingenuity and generosity on a scale hitherto unheard of.”
    I wonder how many here would share that view ?



  34. meito says:

    SO i guess there isn’t a commodities bubble after all, the rising prices of commodities signals real scarcity

  35. Dean says:


    “Never runs out energy”

    Really? This argument again?

    Seriously…second law of thermodynamics…look it up

  36. Richard Brenne says:

    Bill W (#28) – Yes.

    Nick Bentley (#20) – I agree with you, share your sentiments, and only wonder if your name would create difficulty for a Beverly Hills valet parking driver.

    Dean (#35) – While I see what you’re saying (the second law is my second-favorite law), I think overall Barry’s comment and vision are both excellent. We need his optimism and he’s made so many good, creative points here I only thank and applaud him. Others including myself might have a darker vision from time to time (okay, always), but I would do nothing but thank and encourage Barry for his priceless vision. And I hope more than anything that he’s right and I’m wrong.

  37. GarethD says:

    He leaves out a very important area driving up commodity prices though. Speculation by investment companies. Try reading

  38. Matt says:

    Reposting a link to UBC ecologist Bill Rees discussing resource capacity, biological foot print and related matters. Good talk if it has passed you by so far, the man is a great communicator.

  39. sydb says:

    The candy store can run out of candy. For people in Britain it did from 1939. Rationing continued till about 1954.

    Now it looks as though the world’s candy store is showing signs of not much in the warehouse. The inexorable mathematics of the exponential function are catching up with us as Grantham demonstrates so eloquently. But where are the adults to tell the children that the jar is nearly empty and the cupboard nearly bare?

    Instead, we see either the stupid or the dishonest promising ever greater goodies if you vote for them. All it needs is “efficient exploitation” and it will last forever.

    It’s quite instructive to use a calculator to run the hundred year growth at different rates. Using Windows calculator and the y^x key I quickly got the following increase for continuous year-on-year growth over a century:

    1% = 2.70, 2% = 7.24, 3% = 19.22, 4% = 50.50, 5% = 131.50, 6% = 379.30, 7% = 867.72, 8% = 2199.76, 9% = 5529.04, 10% = 37780.

    Even over ten years, 10% gives 2.59 not that much less than one percent over a hundred years. 0.1% over 1000 years gives 2.72.

    A sceptic might argue that we aren’t really consuming that much more over the whole century as the integral under the curve will be less than the numbers quoted, but most of the numbers become so absurd it really makes little difference.

    The failure to understand the power of exponential processes is demonstrated tragically when a fire occurs in a building. Flames do not creep across the carpet as in the movies, nor is it like a bonfire. The trapping of the heat of combustion coupled with the exponential dependence of reaction rate on temperature leads to a small fire flashing over within a minute or so, often before many have even realized that there is danger. Then we hear about the horrific death toll.

    I hope there are no exponential feedbacks in the climate system. If there are, Congress must ban them now! I’m sure John Boehner can step up to the plate for this one.

  40. Buzz Belleville says:

    This is quite depressing. Too depressing in fact. Anyone know of a good long-term assessment to the contrary? I need at least a glimmer of hope (because the thought that humans can fundamentally change their ways is not much of a glimmer). Can technology save us? The earth’s resiliency? Another world war or global disease epidemic? Anything?

  41. Lewis C says:

    Buzz – personally I found hopes and fears to be a lousy basis for a constructive level of morale – just a roundabout of fraught emotions – a few decades back.

    The alternative is to accept that we have a chance of successful mitigation – giving us something like an emergency landing from the hights of our society’s present delusions – but definitely somewhere else than the expected destination and not on a conventional airport runway.

    The glimmer you seek may be found in working back from that scenario to what attitude and actions were needed to achieve it. For me the fundmental change is our letting go the folly of trying to address the global ‘problematique’ (the suite of chronic cumulative interactive problems) from the perspective of competitive petty nationalisms. A global full-term perspective is the foundation on which the resolution can be established.

    Grantham’s line on this is as clear as most I’ve read:
    “Suffice it to say that if we mean to avoid increased starvation and international instability, we will need global ingenuity and generosity on a scale hitherto unheard of.”

    Working for that outlook is not only worth doing for its own sake – regardless of uncertain outcomes, it is also the best basis for morale that I’ve come across. Spending time eack week walking in the best of nature you can reach can also help to keep things in perspective.

    Chin up –


  42. Mike # 22 says:


    We have always been aware of the finite resource problem, see Limits to Growth (1972) the books focus was on the carrying capacity of natural systems. Limits to Growth (LtG) has drawn a lot of inaccurate criticism from the BAU entrepreneur types, who go after any paradigm which isn’t some variation on drill baby drill, but the central message of LtG has come through in good shape.

    Many BAU entrepreneurs have rejected the idea that conservation of resources is needed, nor any restrictions on exploitation. Their goal is to make a buck today, and to heck with the future needs for these resources, and point to ever dropping prices for these resources as proof the conservationists are wrong and that LtG was hooey. What Grantham is showing is that the “ever dropping prices” thing has gone out the window. This is important because an economic model built on cheap abundant resources, like ours, is just dumb. We can do much better.

    LtG pointed to a peak in per capita food consumption to occur about now (not bad for some 1972 modelling). If Grantham’s numbers are any indication, the average diet cannot continue to trend towards more meat. This is not a bad thing, unless the global response is to ignore the people who can no longer afford to eat. We need to show some flexibility in our diets; for non vegetarians a diet which includes some fish or poultry is inexpensive and healthy, and requires far less resource input than the red meat and processed food diet.

    LtG pointed to a peak in industrial output per capita also to occur about now; and if we stick with BAU industrial process, they may have nailed this one also. However, industry can show a lot of flexibility in the raw materials it uses, with some notable exceptions. So East Germany made paper cars after the war, we made liberty ships out of concrete, nylon was substituted for silk, and so on. Copper, with roughly one third still in the ground, one third above the ground, and one third lost, will definitely become more costly to manufacturers–there are other examples like this and the only solution is to close the material cycle, i.e. near perfect recycling of some elements. In 1972, a renewable powered closed materials economy was not being imagined, now it is.

    Changes are needed in two distinct areas. First, we need to respect the carrying capacity of the natural systems at ALL levels of the planet’s ecosystem. Second, we need to close the materials cycles and move away from scarce materials and materials which destroy the carrying capacity.

    Buzz, here in America we have been inundated with many false messages about our model of consumerism, so much so that the prospect of changing away from this model seems almost impossible. But consider, all the pieces we need to build a society which is a net zero consumer of resources are ready right now. Renewable energy, cradle to grave manufacturing, good agriculture, electric transport, and so on. (The jet airplane replacement is a little tough, but see CryoPlane.) After looking at solutions (and working with some of them) for thirty years, I can assure you that the technology is on the shelf. I have struggled for years with trying to understand why people see this as so difficult. Partly, they’ve been framed and conditioned to think that what they have is the best there is. Partly, they don’t waste a lot of minutes each day worrying about it. And partly, they don’t have first hand experience–as in the new tech works like the old tech–so they have no confidence. This could change naturally, as the resource issue creeps into peoples lives and into their spending, but we need to go a lot faster, which means we need some leadership ASAP.

  43. Gnobuddy says:

    I think Mr Grantham’s report is one of those incredibly important pieces that you run into only a handful of times in a lifetime.

    That said, the fit line Grantham uses ceases to fit the data after 1940. Raising the right end of the straight line fit by roughly a half inch (on my 19″ monitor) results in a much better fit over the entire x axis range of the data. Due to the y axis being logarithmic and marked only once every order of magnitude (at 10 and at 100) it is difficult to put this in more accurate terms, but I’d say the right end of the fit line needs to move up to roughly where 20 would be on the y-axis (remember, it’s a logarithmic axis, with markings getting progressively more crowded as you go from 10 to 100).

    This, of course, means that we have not in fact lowered the cost of commodities at 1.2% a year averaged over the past century, but by a substantially lower amount, perhaps by about 0.75% or so (a rough guess from eyeballing the data).

    Interestingly enough, raising the straight-line fit to match the data better as described above also makes the current (2002 – 2010) price spike look a lot more like the various other historical spikes in the figure – WWI, WWII, and the 70’s OPEC oil shock. Mr Grantham’s table of wildly extreme multi-sigma departures from expected values also starts to look a lot tamer.

    However I have no doubt at all that we are indeed running out of numerous global resources, and therefore I have little doubt that Grantham’s conclusions are essentially correct, despite detail inaccuracies such as these.

    The future is here, and we can expect a growing wealth of extreme weather events accompanied by a growing scarcity of commodities as the years roll by, barring a miracle.


  44. Richard Brenne says:

    Buzz Belleville (#41) – In addition to Lewis’ and Mike’s excellent answers that I wholeheartedly endorse, I think there are additional levels to contemplate.

    I think we’ve been trying to grow everything in matter to grow our egos when I think that we’re here to grow spiritually and shrink our egos ultimately to nothing.

    To me the greatest tragedy of all is when we don’t grow spiritually and we’re smug, self-satisfied and spiritually, morally, ethically and intellectually bankrupt, as most of us have been in the West (and often East) for some time.

    No one seeks hardship and going into it hardship is almost universally dreaded, but after some hardship, especially those who have grown spiritually have seen how the hardship helped them grow, in fact how their growth might have appeared impossible without it. Well, I think we’re all in for some unavoidable hardship. (Of course another term for this is life. And death.)

    In the tradition of spirituality I subscribe to that goes back in some cases almost 100 to 200 generations, the feeling has been that material life is a kind of dream-state and that dying might just mean being born into a very similar state, one with progress if one has progressed or temporary regress if one has regressed.

    These folks I respect most demonstrated both their caring and understanding by helping and healing others, often the poorest, most destitute and those suffering most.

    And I’m not talking about embracing religious dogma, but rather rejecting it for the original teachings of these most high-minded and caring individuals.

    These folks saw another, spiritual reality right here and now where the rest of us agree to consensus reality only in matter. Many of the most caring folks I know including some of the most legendary commenters here are atheists, and I embrace their brand of spirituality (as opposed to materialism so in the broadest definition of things you can’t see) as well. I also agree with them that God didn’t create anything material.

    I don’t know Merrelyn Emery’s spiritual beliefs (though I’d like to), but whatever they are I’m on board, because like the spiritual visionaries going back those scores of generations I mention, she sees caring communities here and now, mostly among indigenous peoples.

    Sorry that this is probably more than you asked for. I guess I just feel that the kind of materialism we’ve been practicing offers no hope, while genuine spirituality offers all hope. Only when we dramatically change our consciousness do we see things happening that seemed impossible before. And these include all the practical and necessary steps people like Lewis and Mike mention as well. Unfortunately without the most dramatic shift in consciousness humanity has ever known (both in numbers of people and per capita magnitude), I don’t see their visions (and those of other visionaries like Barry and Zetetic and Merrelyn Emery) being realized.

  45. Calgacus says:

    Those “superquants” should make better friends with numbers. It’s easy to calculate a ballpark figure in your head for 4.5% growth over 3000 years. By the old accountant’s “rule of 72” 72/4.5 = 16 years to double. 3000/16= 187.5 =190 roughly (these rules of thumb will usually underestimate), so the number should be about 2^190. 2^10 = 10^3 approx, so 2^190 = approx 10^57.

  46. ovaut says:

    More significant than the fact i think we’ll fail to avert global warming is the fact I’m failing to act in accordance with that view — except, my primary reason for thinking we’ll fail is the manifest supremacy in me of the same tendencies i take to be unlikely to stop driving us to climatic grief.

  47. spiritkas says:

    I understand investors themselves and in some situations farmers enjoy the futures markets, but in my opinion any sort of financial investment, purchasing, hoarding, etc. of commodities is a form of speculation. I’d see the only honest reasons for buying a commodity are to utilize or deal wholesale with the commodity to small buyers. Simply being an investor and ‘putting money’ and ‘taking positions’ in commodity markets for the sole purpose of making money regardless of the knock-on effects is an example of speculative looter behavior. It seems to me it is pretty much limited to investor-class rich folk explaining away why they are needed in the world and how wonderful liquidity is to have.

    I do enjoy though that the guy does take a bit of a swipe at the money for money class of folks by attributing the boom-bust profiteering cycles to their behavior and notes that they do it for their own benefit to have 8-20%+ run ups in the value of goods rather than a steady state growth with no cycles. He isn’t ashamed of them and simply observes the fact of it, which is fine for his argument. Still I find that profiteering motive which has caused great harm to millions of people so that millionaires can reap a few extra more millions they don’t need to live, eat, or own a few roofs more than a bit unethical and immoral. A lot of people loose out on these needless and fraudulent boom-bust cycles and it is mostly the common person.

    But why would we ever consider the bottom 90% of people? That’s just silly!

  48. banflaw says:

    If we use up all our resources now, we won’t have what we need to deflect the asteroid when it comes.