As recently as a year ago it was considered heresy to suggest economic growth would not soon resume. Now, however, as The Big Engine That Couldn’t has faltered for several years, it is becoming increasingly clear the economy is running off the tracks.  Both investors and the public are beginning to realize the long-revered goal of endless economic growth is failing.

Anger and fear are widespread, as the livelihoods and hopes of ordinary Americans are being destroyed.  Anger runs among the “99%” over economic injustices that favor the “1%”.  Fear, however, may run among 100% over this question: How do we live when economic growth fails? 

How Do We Live?  These three articles will briefly lay out our current predicament, and discuss ways we can cope.  Today’s post will cover four major reasons — dubbed here “The Four Horsemen of the Economic Apocalypse” — why nothing seems to work anymore.  In the second post, next week, “Out With the Old”, will cover the inevitable end to seven unsustainable practices.  The final post in this series, “In With the New”, will discuss seven ways of living which we can embrace in a world with failing economic growth.

If we act purposefully now as individuals and as a society, we may help to avoid the most chaotic and destructive effects of collapse.  First, we need to understand what has gone wrong — which we will discuss in today’s post.  The adaptations laid out in the next two posts represent ways we may find a “softer landing” — but we cannot expect a return to what we came to believe was “normal”. 

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Three Years to Get Back to 2007 Levels.   After the close of 2nd Quarter 2011, the U.S. Bureau of Economic Analysis published its official estimates of U.S. Real Gross Domestic Product (GDP).  By the end of 2nd Quarter 2011 the U.S. economy was officially producing about the same as its end of 2007 peak — in other words, essentially no overall economic growth for 3 1/2 years.

Less Per Person.  Though the economy was no larger, U.S. population had increased, so as of the end of 2nd Qtr 2011 there was 3.5% less GDP to go around per person in the U.S. than at the end of 2007.  (By comparison, there was a 35% increase per person in China over this same period.)

Heading Into Decline Again?  Having just officially climbed back to 2007 GDP levels, it seems like a really bad dream the economy could once again start heading backwards.  Yet that is exactly the prediction experts are now making.  On November 7th, the Economic Cycle Research Institute, a group with a stellar record of predicting recessions, re-affirmed its recent call the U.S. economy is once again slipping into recession.  So that no one would mistake what that means, in its September 30 press release, the group said bluntly, “Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet.”  Also, on November 25th, Deutsche Bank revised it projections and is now warning of a “deeper” Eurozone recession.

Even Worse Than We’re Being Told?  As bad as the official numbers noted above may seem, the actual story is likely even worse.  John Williams of Shadow Government Statistics notes that government methods of counting inflation in prices have chosen to statistically ignore many price increases, and thus count a misleading share of observed sales as economic growth.  Calculating the same way the government previously used to measure the inflation rate, SGS shows a much higher inflation rate that is more in keeping with everyone’s experience of skyrocketing fuel and food costs, health premiums, etc.  With distortions removed, SGS estimates the U.S. economy has actually been stagnant or shrinking for most of the last decade.

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Why Nothing Seems to Work Anymore: The Four Horsemen of the Economic Apocalyse.   The news that a bad economy is now expected to get even worse is particularly crushing with so many still out of work, and after so much money has been spent.  Leaders debate austerity or stimulus, but common sense says something more must be happening.

The “Four Horsemen of the Economic Apocalypse” have been revealed by many astute observers.  Researchers and analysts such as Chris Martenson ( “The Crash Course” video course, and book) and Richard Heinberg (“The End of Growth“) have written extensively about the first three Horsemen.  The original Tea Party movement (which began as anger over government bailouts of Wall Street), and the Occupy Wall Street movement have focused attention on the fourth Horseman.  To know what lies ahead, we need to know what is wrong:

The Four Horsemen of the Economic Apocalypse

1.  Too Much Debt.  Chris Martenson has plotted a striking pattern of total private and public debt in the U.S. doubling roughly every 30 quarters since the early 1970’s — five doublings of total debt levels in four decades.  This might have been fine had our incomes grown that fast and we could support the extra debt — or if the debt had been used for investments that would now save us money.  Instead, like a teenager who ran to the mall with Mommy’s credit card, we racked up debts with no way to pay them back.  We were living high, but it was all phony, fueled by more, and more, and more borrowed money. 

Now, families, small businesses, local and state governments, and even the Federal government are reaching a condition of debt max-out.  Our incomes would need to suddenly grow much more rapidly than we have seen to be able to handle so much debt.  However, with everyone weighed down making burdensome debt payments, where are the customers who could kick-start economic activity and cause such increases to income? The Federal Reserve’s policy of encouraging people to consume by taking on even more debt is failing, as banks aren’t loaning to consumers and businesses who already have too much debt.

The day of reckoning has arrived.  Because our incomes are not rising fast enough to service this much debt, our spending must shift into reverse.  Running up the debt allowed us to spend more than our income, but now we have to cut our spending to less than our income if we are to pay back the money we borrowed
.  Many observers expect this “de-leveraging” process to take at least a decade. 

2.  Resource Limits.  If we had just run up a big credit card bill and now need to pay it off, that would be hard but perhaps possible as long as we still have our jobs.  Now, however, we literally may not be able to afford to fill our gas tanks to get to work.  Peak Oil — reaching the limit of world oil production — changes everything. 

Oil is just one example of how the economy is merely a way to channel real physical wealth.   Physical scientists regard the very idea of endless economic growth on a finite planet as ludicrous.  Growing the economy, after all, is just another way of saying we are going to keep converting more and more energy, physical resources and labor into more and more — and even more! — goods and services. 

What happens when there isn’t more?

Rapidly Increasing Prices for Key Resources.  The high consumer price inflation noted by John Williams is likely one sign of increasing resource prices recently noted by GMO, a major asset management firm.  GMO principal Jeremy Grantham’s April 2011 report Time to Wake Up: Days of Abundant Resources and Falling Prices are Over Forever plotted real prices for a mix of resource inputs to the global economy since 1900. 

Though the last century achieved huge increases in the use of natural resources, technology allowed an average 1.2% per year decline in real prices throughout the 20th century.  However, with massive new demands from China and other emerging economies, Grantham writes of resource prices “they are now rising, and in the last eight years have undone, remarkably, the effects of the last 100-year decline!”.  With analysis indicating the trend of abundance has now reversed to scarcity, Grantham calls this “one of the giant inflection points in economic history”. 

The Wolf at the Door.  Hitting resource limits means that growth has a new limiting valve: escalating resource prices.  For instance, if companies begin to hire more workers, they will want to drive more and use more gasoline.  However, when we have reached physical limits on world oil extraction, more demand will drive up gasoline prices — for everyone.

The increased gas prices act as a  “Wolf at the Door” to steal prosperity.  Paying more for gasoline means people must cut back on other purchases. The economy then sinks back into recession and many of the new jobs will be lost.

Traditional economics would argue the extra money we spend for gasoline should simply loop back and be spent again.  However, with increased energy needs to extract harder-to-get new oil sources such as deep ocean drilling and tar sands, much is literally burned “up in smoke”.  Also, the money we send abroad for imported oil has no guarantee of returning.

Peak Oil is just one example of limited resources curtailing our hopes of affordable expansion. There are now warnings of Peak Coal and limits to many other key resources.  For instance, dreams of a greatly expanded electric grid may be costly given short supplies of copper recently noted by Goldman Sachs.

3.  Destruction and Decay of Infrastructure.  Richard Heinberg has noted that destructive forces from climate change, oil and chemical spills, and other environmental effects of producing more and more goods are acting as a third major drag on growth and prosperity. 

If this sounds far-fetched, consider this: has New Orleans been fully restored?  What became of the homeowners and farmers, many who were uninsured, affected by massive Australian wildfires and floods?  What of U.S. communities affected by the record dozen billion-dollar-plus weather disasters so far in 2011?  FEMA is now essentially broke, and cannot provide enough assistance to help communities fully recover.  Looking ahead, how will major ports continue operations once sea levels begin to rise? 

The already inadequate responses to destructive events are highly visible. We are even in denial about basic maintenance.  As our cars jolt down decaying roads, we can ask ourselves whether we ever considered what it would cost to maintain all the roads, bridges, electric lines, satellites, schools and other critical structures we built on the run-up to where we now stand.  Will we repair our crumbling infrastructure and be able to keep building even more?

4.  Greed.  With average citizens deeply struggling, it is particularly galling that a powerful elite are stealing money, power, and hope away from the middle class.

In the last Great Depression and at least through the 1950’s, even the wealthiest saw the need to preserve a robust middle class, and a path for the poorest Americans to improve their lot.  This was not altruism but a pragmatic sense that customers who can afford to spend are the real “Job Creators”.  Today, however, the levers of power are jiggered to funnel contracts, bailouts and tax breaks to the most powerful, protected by enormous corporate bribes campaign contributions. 

The greatest harm done by this political corruption is our inability to address problems.  In the financial arena, the option of letting reckless banks fail and protecting depositors, rather than preserving banks and bonuses, was never seriously considered.  Regarding energy and climate,  the depths of avarice may be seen by campaigns to confuse the public.  Similar to the well educated cigarette lobbyists who knew perfectly well the real scientific evidence, today’s oil and coal lobbyists are willing that energy shortages, harmful pollutants, and climate disruption will inflict great suffering (even on their own grandchildren), merely to reap current profits.  

While the most pyschopathic behavior has been exhibited by an amoral few, we must also admit that any extreme “con job” is fueled by encouraging greed in the victim.  How many who are now burdened with debts they cannot repay, wondered at the time why the bank was willing to lend them so much money? &nbs
p;Too many of us succombed to bubble madness, and the desire to have more than we could afford.

Offering Nothing but “Blood, Toil, Tears and Sweat”?   The above four challenges point to a stark future with severe changes ahead.  It is long past time for someone to sound a wake-up call like Winston Churchill’s famous speech to the British House of Commons shortly after the outset of WWII.  We need such a frank talk that lays out the real prospects ahead, pulling no punches.  However, with the quality of today’s “leaders”, such truth won’t come from a politician.

Instead, the public must look to the experts themselves.  Gail Tverberg, Editor of Our Finite World, has just such a presentation, which she gave this year to her church group, posted at Energy Bulletin here.  By the time you read to the end, you feel a real sense of the onslaught of an entirely new reality.  She concludes “there is no real solution to our predicament”.  She might just as well have said, as Churchill, “I have nothing to offer but blood, toil, tears and sweat.”

Too Scary to Think About?  Though we can intellectually accept that resource limits will inevitably shut down economic expansion, the idea this is already happening is terrifying.  It is hard to contemplate without a deep fear settling in one’s stomach. Will I lose my job? Will my children ever be able to find work?  Will we be reduced, like Scarlet O’Hara in Gone With The Wind after the South’s defeat caused the devastation of her life, to scratching hungrily in the dirt for a lone turnip

Before We All Start Scratching for Turnips…  Before we allow our society to sink into a chaos of devastation and deprivation, there are many unsustainable practices we will jettison, and new ways of living we can adopt in a world with failing economic growth.

In the next two posts, we will cover these “Out with the Old” practices that must end, and “In With the New” options — for individuals and for our nation.  We can and will adapt, which is what humans do best. 

Our prosperity — the ability to live comfortably in an advanced culture — will not long continue to be measured by owning more and more things, and living in bigger and bigger houses.

It will be much better than that.

Article originally published at www.EnergyEconomyOnline.com