The sale on our nation began in 1971 when oil production peaked in the continental United States, and the nation went from being a net exporter of oil to a net importer. From that day forward we began selling overseas everything of value that we had built up over the preceding hundred years or so. Here's why: the extraordinary energy bonanza of the oil age made possible the massive expansion of our economy during the century that oil production rose annually. The massive energy infusion of our domestic oil reserves effectively allowed us to ignore any concomitant and at times steep costs of that economic system given the increasing levels of oil production from 1865 until 1971. Costs like the creation of an enormous interstate highway system, the build-out of America's suburbs and the resulting massive alteration of our patterns of living, the built-from-nothing cities in deserts and swamps with their massive air-conditioning costs and irrigation demands, the expansion of a continental system of commerce with its energy intensive forms of production and transportation - all these and more were easily borne during a period of increasing domestic energy supplies. It was the oil reserves in Pennsylvania, Texas, California and Alaska that provided us the illusion that it was our ingenuity and Protestant work ethic, and not this one-time geologic blow-out, that made possible such achievements that would have been inconceivable to previous ages.
In 1971 the nation no longer had the domestic supplies to allow us to sustain what we had already built, much less continue our now economically- and politically-essential growth. In spite of experiencing the dependency upon Arab tyrants that our oil addiction necessitated, we refused to heed the obvious loss of self-governance that continuation on our course now entailed. Rather than living within our means, we began selling the surplus value we had not created, but exploited, in our century-long fossil fuel burn-up. First we began selling our debt, the promise of any future growth of our national economy increasingly to foreign owners of our treasuries. Then we began selling our jobs, the outsourcing of work that allowed us to avoid paying the actual cost of products by exploiting human labor abroad. We began selling our military to regimes that proved cooperative or necessary, most recently a sweetheart weaponry deal for the Saudis (bought largely with petrodollars that we had been giving them in fistloads over the decades). Our economy seemed to hum along, the "market" growing every year as we continued to import vital and growing supplies of oil even as we increasingly sold everything of value overseas lest we have to face the reality that we had no domestic ability to sustain our growth addiction. We had to start selling off parts of the nation to keep what we still had afloat.
All along it was clear where the collapse would begin: the money economy, built upon the "miracle" of compound interest, would one day become decoupled from the matter-energy economy which allowed for no actual miracles. The laws of thermodynamics couldn't be suspended by all our inventiveness or by any amount of oil: energy cannot be created, only converted to another form, a result of which is the dissipation of energy in the process of conversion - or, "entropy." Our money economy is built on the possibility of endless growth by means of which money becomes more valuable as a result of increased economic (energy) activity in the future. Absent the guarantee of future growth, no banking system could function in anticipation of less valuable future currency used to pay past loans.
In addition to correctly pegging the year 1971 as the point of U.S. peak oil, M. King Hubbert also understood well its implications for our economy. He noted the stresses that the money economy would ultimately experience as a result of limits in the matter-energy realm:
The world's present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evolved from folkways of prehistoric origin.
The first of these two systems has been responsible for the spectacular rise, principally during the last two centuries, of the present industrial system and is essential for its continuance. The second, an inheritance from the prescientific past, operates by rules of its own having little in common with those of the matter-energy system. Nevertheless, the monetary system, by means of a loose coupling, exercises a general control over the matter-energy system upon which it is superimposed.
Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest" ("Two Intellectual Systems," 1981).
Our money system was able to function for the past century not because of our investing acumen, but because of our ability to utilize our potent but ultimately limited oil reservoirs. Growth would cease as a result of geological limits, but our money economy would continue to attempt to find ways to increase the growth of money in the form of loans. Eventually it would seek to make loans even to borrowers patently unable to repay those loans except under the assumption that the laws of physics could be suspended. Given the current price of oil, there is every reason to believe that our financial crisis is not necessarily or merely a credit crisis, but a crisis of the attempt to circumvent the second law of thermodynamics. Money cannot grow in the absence of surplus energy; what America avoided in 1971 by selling its valuables abroad is now being realized with the worldwide encounter with peak oil. The pain of these limits will only be keener given how much more entropy we have thrown off in the intervening 35 years.
It has been suggested that I am a "protectionist." I refuse the label - "protectionism" was a label used to describe those who sought to protect domestic markets from the challenge of foreign markets. A wholly different label would be needed to describe what our times demand: the preservation of those abilities and crafts we still possess, and the fostering of those talents we have given up or forgotten, in anticipation of the time when we will not be able to rely on foreigners to subsidize our profligacy. For the moment foreign powers buy whatever we still have left of value, and will continue to do so for the foreseeable future. Ultimately those institutions will not retain their value (especially the banks that are now being bought by our "owners," merely formalizing an existing arrangement), as the money economy will unravel just as surely for them as it will for us. We need rather to foster local economies where they persist and create them where they are absent. We need to begin to live within our means, a task we can do without government dictates but which might be aided by creative and thoughtful policies that begin to reverse the thoughtless and costly ones that have brought us to this moment. I am not confident that we will willingly embrace self-governance and the acceptance of limits: very little in our past, and particularly our recent past of self-indulgent demands for everything from tax cuts to "the Whopper" suggest a culture of deep and warped entitlement. This does not mean that we will avoid the imperative to accept those limits - only that it will be even more painful when those limits are no longer avoidable, which becomes daily more evident.
In many respects, our nation is currently experiencing massive amounts of entropy - the loss of energy that naturally occurs in the conversion of fuel from one form to another. The effort to keep at bay the chaos of induced by constantly dissipating energy requires work, i.e., energy. As long as there are sufficient quantities of energy available, it is possible to maintain a high energy way of life without noting the growing levels of entropy. At the point at which energy becomes more constrained - that is, it begins to be difficult to avoid noticing and "paying" for the energy lost in the conversion from one form to another - our ability to control the resulting chaos will decrease and the consequences of entropy will become ever more evident. We have built an awesome society, but precisely because of our intensive energy lives we are approaching a reckoning in which all around us is the evidence of increasing levels of entropy. From our housing collapse to our banking crises, from military commitments to food prices, from strains on household budgets to divorce rates, from rising levels of crime to rising levels of type II childhood diabetes, from the rampant steroid use in sports to pornography everywhere - and one could keep going - entropy encroaches upon us in every direction. A relatively small and ecologically complex system (in contrast to our current forms of "efficiency" that increase entropy) can thwart entropy with relatively small exertions of energy (cleaning a house is easier than restoring a city), whereas high-energy environments will throw off massive amounts of entropy that require massive energy investments to resist. As we enter an age of reduced energy, we can expect levels of entropy to increase even as our ability to contend with entropy decreases. Our politicians will promise to restore hope and to bring "change," but until they brush up on their elementary physics, they'll be blowing smoke out their rears, a dense fog into which we'll gladly ensconce ourselves, better not to have to see what's really happening.