Most of us have heard that Thomas Malthus made a forecast in 1798 that the world would run short of food. He expected that this would happen because in a world with limited agricultural land, food supply would fail to rise as rapidly as population. In fact, at the time of his writing, he believed that population was already in danger of outstripping food supply. As a result, he expected that a great famine would ensue.

Most of us don’t understand why he was wrong. A common misbelief is that the reason he was wrong is that he failed to anticipate improved technology. My analysis suggests that there were really two underlying factors which enabled the development and widespread use of technology. These were (1) the beginning of fossil fuel use, which ramped up immediately after his writing, and (2) a ramp up in non-governmental debt after World War II, which enabled the rapid uptake of new technology such the sale of cars and trucks. Without fossil fuels, availability of materials such as metal and glass (needed for most types of technology) would have been severely restricted. Without increased debt, common people would not have been able to afford the new types of high-tech products that businesses were able to produce.

This issue of why Malthus’s forecast was wrong is relevant today, as we grapple with the issues of world hunger and of oil consumption that is not growing as rapidly as consumers would like–certainly it is not keeping oil prices down at historic levels.

What Malthus Didn’t Anticipate

Malthus was writing immediately before fossil fuel use started to ramp up.

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.

Today, I’d like to write about two fairly different books related to limited energy supply. Both are excellent, but intended for fairly different audiences, and focusing on different aspects of our dilemma.

1. “Power Plays: Energy Options in the Age of Peak Oil” by Robert Rapier.

This book is written at a fairly introductory level, giving information about the many energy options we have, and the trade-offs we make as the result of our choices of energy options. The book is not about peak oil per se, but includes a chapter on peak oil as well as a chapter on climate change. The book ends with the chapter, “The Road Ahead." The book is inexpensive–$16.15 from Amazon.

2. “Energy and the Wealth of Nations: Understanding the Biophysical Economy” by Charles Hall and Kent Klitgaard

This book is focused on energy and economics. This book seems to be aimed as a text book, or at an audience who is already familiar with some of the issues, and wants to dig deeper. This book is in two column format with questions at the end of each chapter to facilitate classroom discussion. It covers in depth a wide range of topics, from energy’s role throughout history, to the relationship of energy to wealth production, to energy return on investment, to how to do biophysical economics, to peak oil. It ends with the chapter, “Living a Good Life in a Lower EROI Future.”

Below the fold, I will talk a little more about each.

Some of you may be aware that I am writing a book - the title is Power Plays: Energy Options in the Age of Peak Oil. While I have contributed several chapters to books in the past, this is my first full book, and I only recently learned that the publication process is moving much faster than I had imagined. I signed the book contract in August 2011, and we were targeting completion of the book by year-end 2011. My assumption was that it would probably take months to get final edits, artwork, etc. completed and that it might go on sale during the second half of 2012, but I wouldn’t have been surprised to learn that it wouldn't be available until 2013.

However, I recently learned – to my great surprise – that the book is already for sale at a number of outlets, including Amazon, and that release is scheduled for March 15th, 2012. So I am really feeling the pressure at this point. Right now I have to turn in the final chapters and edits by January 15th. That means I have 2 weeks left to make adjustments. I still have to write three chapters, but a lot of that work is done. The book is supposed to be 250 pages, and I have about 180 written. But nothing is set in stone until January 15th.