The usual assumption that economists, financial planners, and actuaries make is that future real GDP growth can be expected to be fairly similar to the average past growth rate for some historical time period. This assumption can take a number of forms–how much a portfolio can be expected to yield in a future period, or how high real (that is, net of inflation considerations) interest rates can be expected to be in the future, or what percentage of GDP the government of a country can safely borrow.

But what if this assumption is wrong, and expected growth in real GDP is really declining over time? Then pension funding estimates will prove to be too low, amounts financial planners are telling their clients that invested funds can expect to build to will be too high, and estimates of the amounts that governments of countries can safely borrow will be too high. Other statements may be off as well–such as how much it will cost to mitigate climate change, as a percentage of GDP–since these estimates too depend on GDP growth assumptions.

If we graph historical data, there is significant evidence that growth rates in real GDP are gradually decreasing. In Europe and the United States, expected GDP growth rates appear to be trending toward expected contraction, rather than growth. This could be evidence of Limits to Growth, of the type described in the 1972 book by that name, by Meadows et al.

Trend lines in Figure 1 were fitted to time periods based on oil supply growth patterns (described later in this post), because limited oil supply seems to be one critical factor in real GDP growth. It is important to note that over time, each fitted trend line shows less growth. For example, the earliest fitted period shows average growth of 4.7% per year, and the most recent fitted period shows 1.3% average growth.

In this post we will examine evidence regarding declining economic growth and discuss additional reasons why such a long-term decline in real GDP might be expected.

During the CNN Republican presidential debate Tuesday, November 23, Newt Gingrich made statements about U.S. potential oil supply that reveal either total ignorance of energy or supremely dangerous demagoguery. He stated that the United States could discover and produce enough oil in 2012 to cause a worldwide oil price collapse.

GINGRICH: But let me make a deeper point. There's a core thing that's wrong with this whole city. You said earlier that it would take too long to open up American oil. We defeated Nazi Germany, fascist Italy, and Imperial Japan in three years and eight months because we thought we were serious.

If we were serious, we would open up enough oil fields in the next year that the price of oil worldwide would collapse. Now, that's what we would do if we were a serious country. If we were serious...

(http://blogs.suntimes.com/sweet/2011/11/cnn_republican_debate_nov_22_2.html)

Earlier in the debate, when discussing the impact on Europe and the global price of oil of stopping Iranian exports through sanctioning its central bank, Gingrich said that would not be a problem. The United States would simply provide an additional 4 million barrels of oil per day to Europe to cover the Iranian shortfall.

BLITZER: The argument, Speaker Gingrich -- and I know you've studied this, and I want you to weigh in -- on the sanctioning of the Iranian Central Bank, because if you do that, for all practical purposes, it cuts off Iranian oil exports, 4 million barrels a day.

The Europeans get a lot of that oil. They think their economy, if the price of gasoline skyrocketed, which it would, would be disastrous. That's why the pressure is on the U.S. to not impose those sanctions. What say you?

GINGRICH: Well, I say you -- the question you just asked is perfect, because the fact is we ought to have a massive all-sources energy program in the United States designed to, once again, create a surplus of energy here, so we could say to the Europeans pretty cheerfully, that all the various sources of oil we have in the United States, we could literally replace the Iranian oil.

Now that's how we won World War II.

(http://blogs.suntimes.com/sweet/2011/11/cnn_republican_debate_nov_22_2.html)

It seems absurd to have to rebut these preposterous statements, but here are the facts.

This is a guest post by Derik Andreoli, Senior Analyst at Mercator International, LLC

It has been a tumultuous month when it comes to oil and fuel markets. As of the writing of my Oil and Fuel column in the May issue of Logistics Management, which was submitted on the 15th of April, WTI (the crude stream traded on the NYMEX) was at $109.66 per barrel, up 19.8% from $91.55 where it sat at the beginning of the year. Meanwhile, the spot price for Brent Blend, the benchmark crude stream traded on the European Intercontinental Exchange (ICE), had climbed 30.1% from $95.82 on January 3, to $124.63 by the 15th of April. My warning in the May article was that refiners’ costs were better reflected in the price for Brent, and that supply chain and logistics professionals following the WTI price were going to get caught short as the refiner average acquisition cost had diverged from a historical average of $2 to $4 per barrel below the WTI spot price to $4 per barrel above the WTI spot price.

Since the writing of the last column, the prices for a barrel of both WTI and Brent Blend have gone on a roller coaster ride. The spot price for Brent climbed as high as $126.64 by the 2nd of May before falling by nearly 12% over the next three days alone. Meanwhile, the front month WTI futures price reached a peak of $113.93 on April 29 before falling by more than 16% to a low of $95.33 by the 12th of May.

Of course volatility is precisely what should be expected when oil markets are tight, as they have been since the onset of the recovery. Despite living up to expectations, however, the recent volatility has led some to conclude that the prices simply don’t reflect the underlying fundamentals of supply and demand, but such a conclusion is not supported by sober analysis. The precipitous price decline has led others to postulate that the mini-bubble inspired by the shuttering of Libyan production has been popped, and the price of oil has returned to a fair level. Yet others, like ExxonMobil CEO, Rex Tillerson, are all-too-eager to pass the blame of high fuel prices on to Wall Street and the little-understood high-frequency trading of quantitative hedge funds.

The OPEC Monthly Oil Market Report and IEA Oil Market Report both came out on Tuesday and allow us to see how events in the Middle East are starting to play out in global oil production statistics.

NB: This is a lightly edited crosspost from Early Warning