The MRE Economy

MRE: Meal, Ready to Eat. It is a self-contained, individual field ration for the US military.
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It is becoming quite obvious that our global economy is reaching its own MRE nexus: Maximum Resource Extraction. Be it in energy, metals, foodstuffs, clean water, habitable and arable land or climate change, man is stressing the Earth as never before. All comparisons with the past are now inapplicable, because the scale at which we are stripping our planet of resources is orders of magnitude greater and more intense than in the past.

To those that have been studying this now permanent crisis, it's not news. The very first time I came upon the term "global warming" was in 1982, in a Foreign Affairs article titled "Society, Science and Climate Change". I will never forget it because I was just out of engineering school and on vacation in Hawaii, right before starting my first job. I read the article while laying on a pristine beach in Kauai. I remember thinking ...this has nothing to do with me; it is so far in the future that I will be long dead before anything really important happens. Wrong is a five letter word, but it might as well have been eleven: wrong plus stupid... But at least it made an impression, because I still remember it after a quarter century.

Much later (2001), as oil prices were starting their upward move, I read John McNeill's Something New Under The Sun (see the books sidebar) and it changed the way I saw things. It dawned on me that mankind is now a much more significant force than Nature and that its actions are affecting our environment, economy and society in profound and time-critical ways.

Putting the two MRE's together, our global economy is only able to function and "grow" in its present form because it is extracting and consuming scarce "ready" resources at maximum capacity. For example, oil is a form of solar energy that was concentrated and "cooked" for us hundreds of millions of years ago. We are consuming it at maximum right now. If you don't believe it (I don't mean Peak Oil, that's another matter), just think of this: the only reason that Alberta's tar sands are a profitable operation is because we are burning natural gas to produce steam for the separation process. From an energy balance perspective, it's a losing proposition. Yet, under MRE conditions, dollars and BTUs have become so unbalanced that people are still willing to accept paper (i.e. debt) instead of equivalent goods, because they think they will be able to exchange it for other goods in the future. Obviously, the negative energy balance says otherwise.

Another example of MRE imbalances is China: hundreds of millions of people are willing to work for a relative pittance - and save a large percentage of it. They do not realize that they are essentially performing an energy arbitrage for the benefit of foreign consumers. They are being paid the equivalent of two bowls of rice daily and provide wealthy Westerners the ability to consume the energy difference contained in their products, as cheap sneakers and t-shirts. But what if the value of their paper savings measured in energy and food terms diminishes rapidly, as is happening right now? Or, worse still, what if the their current wages no longer buy two bowls of rice? Multiply this by 1.3 billion souls and you can bet we are in for upheavals.

And how about stock prices? "Investors" are still willing to believe that there will be enough readily available resources (and steady climate) around for decades on end - otherwise why would they pay P/E multiples in the 40s and 50s? Is this a good bet? Because looking around I see that some other "investors" are betting heavily against them: oil reached $98 today. The two are mutually exclusive, except during that tiny fraction of historical time when holders of paper believe themselves wealthy.

Do a simple calculation: add up all the ready energy reserves in the world (oil, gas and coal) at today's prices and subtract 20% as cost (average EROEI of 5). Then compare to the value of all the shares, debt and fiat money floating around. You will find that there aren't nearly enough energy resources around to cover all those claims on future economic activity. And if we want to be even remotely realistic, we need to subtract from our energy resource balance the rapidly rising environmental costs, lowering our ultimate EROEI to perhaps 3, or even less.

Simply put, our Meals, Ready to Eat are not enough to cover all those meal tickets we have issued.