Geography, Demography, Technology, Pax Americana, Free Money, and Cheap Energy. This time really is different. It will not end well.
In this book Peter Zeihan really does forecast the end of the world and what comes after. He disguises his incredible depth of research with an easy, casual writing style. Often he presents startling, scary, unpleasant conclusions. When I raise objections in my mind, he pulls out charts, tables, graphs and then says, “This conclusion is not a forecast. It is unavoidable.”
This book is deeply troubling. You should read it.
The book has seven sections:
- I: The End of an Era
- II: Transport
- III: Finance
- IV: Energy
- V: Industrial Materials
- VI: Manufacturing
- VII Agriculture
Section I lays out the premise and each following section drills deeply into how global changes will drive the future in a specific area.
Section I briefly reviews the last century of progress: cheaper, better, much faster, and so much more. And then Zeihan drops the zinger.
It isn’t simply about stuff and speed and memory. The human condition has similarly improved. During the past seven decades, as a percent of the population, fewer people have died in fewer wars and fewer occupations and fewer famines and fewer disease outbreaks than since the dawn of recorded history. Historically speaking, we live in an embarrassment of riches and peace. All of these evolutions and more are tightly interwoven. Inseparable. But there is a simple fact that is often overlooked.
page 1 (kindle version)
They are artificial. We have been living in the perfect moment.
And it is passing.
The world of the past few decades has been the best it will ever be in our lifetime. Instead of cheap and better and faster, we’re rapidly transitioning into a world that’s pricier and wore and slower. Becasue the world–our world–is breaking apart.
History Through the Lens of Geography, Technology, and Demography
In contrast to other historians and futurologists, the author does not see history as a succession of empires, like a parade of elephants, each lasting 150-300 years. He sees history as the inevitable result of the dynamic interplay of geography, technology, and technology. He sees economic activity as the natural byproduct of these fundamental forces. My deep apologies to Peter Zeihan for this oversimplification because it skips over his prodigious research and powerful synthesis.
This difference in viewing and understanding history is profound. A view of history as a succession of empires inevitably leads one to a circular view of history, with each empire simply taking the next turn on the wheel. Zeihan’s view imposes a more continuous, dynamic view of history, with the interplay between geography, technology, and demography constantly creating new situations with new opportunities and new problems. Quite simply, when a region has the right geography, technology, and demography, an empire will emerge there and its leaders will be successful, at least until the three drivers change.
Another odd feature of Zeihan’s historical view is his deep understanding of geography. For him and for history, geography is dynamic. While the geographic features do not change, the value of the features changes considerably depending upon the state of technology and demography.
For instance, early nomadic hunter gatherer tribes needed large regions that had water, preferably in many streams scattered across the region. They needed good hunting grounds with a variety of edible vegetation. Tropical areas worked pretty well. As tribes began to shift to farming, they needed much more water, because crops are thirsty. They needed flat, arable land, with few trees. In short, low-altitude, low-latitude deserts with a big river. While geography did not change, the value of specific geographic features changed dramatically.
A similar shift occurred with sea access as the technology for sailing oceans improved. Large, protected bays became much more valuable and opened the door for global access and exploitation by empire in regions with good ocean access.
Natural resources under the ground have also affected the value of geography. Spain accessed the riches of the new world using its advanced ocean sailing technology. Then the gold and silver in the new world funded the emergence of Spain as dominant world empire for a century or so.
Coal from Newcastle fueled the later expansion of Britain as a world empire. Certainly oil has driven the worldwide importance of the Persian and Arabian oil producers. Just over a century ago, oil elevated the Persian Gulf and especially the Straits of Hormuz into global prominence. Oceans and mountain ranges have both protected and isolated regions, with the value of protection and liability of isolation changing based on demography and technology at any specific time.
As an aside, Ray Dalio, founder of Bridgewater Associates, recently published a book The Changing World Order, which is an exhaustive analysis of world history using the lens of empires. He has identified specific factors that measure the success and power of empires over time and reduced these factors to metrics that can be compared across centuries. A comparison of their respective analyses and especially their predictions is disturbing. How can two authors, each a true master of his craft, come to such different conclusions? Probaby their conclusions are much closer than I can see, and any misunderstanding is my own.
This Time is Different: Pax Americana, Free Money, and Cheap Energy
The author claims the past 75 years since the end of World War II in 945 have been unique in history, due to Pax Americana (my phrase, not his), cheap energy, and free money. These three drivers do not replace the three fundamental drivers of geography, demography, and technology. Rather the period of Pax Americana, free money and cheap energy are simply the current manifestation of the author’s three fundamental drivers of history.
This Time is Different: Pax Americana
The term Pax Americana is only used once in the book. However, it is the perfect term to describe this period, so it is used throughout this review.
To a large extent, geography created the conditions for Pax Americana. After World War II, pretty much the entire northern hemisphere was destroyed. Europe had been bombed, burnt, pillaged and over 15 million Europeans had died. In Russia, the cities of St. Petersburg (Leningrad at the time) and Stalingrad were completely destroyed. Russia lost around 30 million people–11 million military deaths, 10 million civilian deaths, and 9 million deaths due to starvation. Stalin was a mass murderer on a breathtaking scale.
From a pre-war population of 75 million, Japan lost 2 million in military deaths and another one million in civilian deaths. Tokyo had been destroyed. Hiroshima and Nagasaki had been leveled by atomic bombs.
China fared the worst. Its military deaths reached 45 million with an additional 15 million civilian deaths. In 1959-1961, only 15 years later, Mao caused the starvation of another 40-55 million people due to the catastrophic results of the “Great Leap Forward.” Mao Zedong is the greatest mass murderer ever.
The United States escaped any damage on its own soil, with the exception of Pearl Harbor. It was protected by its two great moats, the Atlantic and Pacific Oceans. As the only country still standing, with a functioning economy at the end of the war, the United States ruled the world. In the author’s words:
At the end of World War II, the Americans created history’s greatest military akliance to arrest, contain, and beat back the Soviet Union. That we know. That’s no surprise. What is often forgotten, however is that this alliance was only half the plan. In order to dement their new coalition, the americans also fostered an environment of global security so that any partner could go anywhere, anytime, interface with anyone, in any economic manner, participate in any supply chain and access any material input–all without needing a military escort. The butter side of the American’s guns and butter deal created what we today recognize as free trade. Globalization.
page 2 (kindle version)
Globalization was created directly by Pax Americana. Prior to this, pirates and government-sanctioned privateers pretty much prevented significant ocean commerce. While pirates and privateers were not very common, they had a powerful negative impact on all aspects of ocean shipping. Ships were built faster to escape from pirates, and smaller to reduce losses when captured. Ships did not store goods above the gunwales where pirates could see the cargo and estimate its value. Shipping costs, such as insurance and operating costs were high. Shipping schedules and routes were unpredictable, in part to avoid predictable patterns that pirates could use, and in part because shipping volumes were much lower, so ship owners juggled routes and schedules as opportunities arose. Globalization and global trade is driven by secure, predictable, low cost ocean shipping, which was a direct result of Pax Americana. The author describes the impact of globalization:
Globalization brought development and industrialization to a wide swath of the planet for the first time, generating the mass consumption societies and the blizzard of trade and the juggernaut of technological progress we all find so familiar. And that reshaped global demographics. Mass development and industrialization extended life spans, while simultaneously encouraging urbanization. For decades that meant more and more workers and consumers, the people who gave economies some serious go One outcome among many was the fastest economic growth humanity has ever seen. Decades of it.
page 3 (kindle version)
Times have changed. The United States is stepping back from the world. No other nation has the military capacity to guarantee security for all on the high seas, much less the desire to do so. The generation of post World War II is going into retirement from jobs, from urbanization, and from consumption. That generation gave us much, but they failed to give us a replacement generation.
This Time is Different: Free Money
As a result of World War II, the United States dollar was the only currency with any value, because the United States was the only country that had enough gold to support a gold-backed currency. To formalize its position, the US hosted an international conference at Bretton Woods in 1944 to establish the rules for currency exchange. The International Monetary Fund was created at this conference. The price of gold was pegged at $35 per ounce, but individuals and businesses could not convert; only sovereign nations had that privilege.
After the war ended people started to rebuild, which took lots of money, so the United States printed lots of greenbacks to supply the currency needs of the entire world. Other nations took advantage of the convertibility clause and exchanged dollars for gold at the fixed rate of $35 per ounce. What a surprise. As the author explains,
Gold backed dollarization on a global scale was a certainty. It was similarly certain to fail….
page 177 (kindle version)
For the first time, a major government didn’t even pretend to have anything in the vault. The only “asset” backing the dollar was the “full faith and credit” of the U.S. government. The very nature of America’s post 1971 globalization-fueled alliance gambit was quite literally based on none other than Tricky Dick Nixon saying, “Trust me.”
We had zero idea of what to epect as, hand in hand, we all gaily skipped down the road less traveled: the road of fiat currency.
Since the invention of money and currency, fiat currencies have never worked well. Coins contained metal with a real market value. Paper currency was backed with gold, silver, or some other valuable, heavy object.
With the advent of fiat currency, the only limit on the amount of money created is the good judgment of the government. You can imagine how well that has worked, every time. It is just too tempting for politicians to print “free” money to pay for all their plans. It is especially disturbing to realize that the world embarked on this experiment only 50 years ago. This time was definitely not different.
In the short term, fiat money has allowed the US to provide finance and liquidity to the world. It has financed the greatest expansion in commerce and economic growth ever seen.
This Time is Different: Cheap Energy
The author reviews the history of energy consumption by humans, from human muscles to oxen, then wind and water. Windmills and water wheels are good, but unreliable and low volume. Romans in Britain, no doubt irritated with the cold, wet, dark winters there, used coal for home heating as early as 100-200 AD. With the development of the steam engine throughout the 1700’s, culminating in the patents by James Watt in 1765-1769, Great Britain went all in on coal to power its Industrial Revolution. The world followed.
Oil has been discovered many times throughout human history. In 1847 James Young, a Scottish chemist, discovered a natural petroleum seep in the Riddings coal mine. He distilled a light liquid suitable for oil lamps and a heavier distillate suitable for lubrication. From that start, the oil and gas industry took off in time to power the Industrial Revolution into its next act, in the early 1900’s.
The author focuses on the interplay between Pax Americana and the global oil industry.
Considering the transport conundrums tht have held humanity back throughout the six-millenia-long stretch of recorded history, oil is a pretty magical substance. Oil-derived liquid transport fuels increased our capacity to move objects at distance by a factor of one thousand. On-demand electricity, directly or indirectly made possible by oil, had a similar impact upon our productivity. For the first time in history, we could do anything and go anywhere at anytime. Even better, for the first time, “we” didn’t mean the most powerful empire of the era, but instead every individual person. Once your home is wired, everyone can have electricity at low cost. Unlike wood or coal, oil-based liquid fuels such as gasoline and diesel are so energy-dense and so easily stored that we store them within our modes of transport.
page 224 (kindle version)
Without oil, the American led global Order would have never had a chance. Nor would have passenger cars. Or global food distribution. Or global manufacturing. Or modern health care. Or the shoes most of us are wearing. Oil’s power is such that in many ways, it has almost enabled us to ignore nothing less than geography itself.
Almost. The restriciton oil insistes upon is not technological, but instead one of sourcing. Oil feels no obligation to exist in locations that are convenient. For the entirety of the Industrial Age, getting the oil from where it exists to where it isn needed has been … gnarly…
Pax Americana and oil reinforced each other. The explosive economic growth created by Pax Americana and globally available, cheap oil, eventually threatened them both. In the author’s words,
At the dawn of the B retton Woods era, the entire (US led) alliance (sans the United States) used under 10 million barrels per day (mbpd), the majority of which was sourced from the United States itself. By 1990 just the advanced members of the coalition were using well over double that, 90 percent of which was imported–and with the Americans all by themselves importing another 8 mbpd. …
p. 230 (kindle version)
Prices hit their historical high of $150 a barrel in 2008, a fifteen-fold increase from just a decade earlier, even as global demand topped 85 mbpd.
Just eight countries–iran, Iraq, Kuwait, Saudi Arabie, Bahrain, Qatar, Uniter Arab Emirates, and Oman–produce 20 mbpd, which is about 20% of the current global oil demand of 100 mbpd. This is a problem, as Zeihan describes.
These eight countries have two things in common. First, they are technologically incompetent or, at the very best, criminally lazy. Their educational systems are sad jokes, and local citizens lucky enough to gain technical degrees out-of-region tend not to return. These countries as a matter of course import millions of foreign workers to handle everything from their power systems to building construction to civic infrastructure.
page 234 (kindle version)
Second, as technologicallyincompetent as these states are, they are even less competent when it comes to naval action. Few have ever domestically constructed anything more interesting than a speedboat, and inn nearly all cases,not even that. Iran’s navy in particular is mostly composed of inflatable Zodiacs. None have the capacity to patrol theri coastlines, juch less ntheir trade approaches, much less the trade lanes uon which their income–their existence–depends.
Other oil producing countries, such as Russia, have their own physical production challenges and difficulties with long-range distribution of oil. America is perhaps unique as an oil producer. Most of its oil production areas are located in temperate regions. Due to fracking technology, which was pioneered by American companies, the United States has increased production to become the largest oil producer in the world. Just as important, it has the pipelines, refineries, and harbor facilities to ship oil, LNG, and refined products anywhere in the world. In just 20 years, the United States has swung from the largest importer of oil to one of the largest exporters of oil.
The world has changed.
Zeihan details four reasons that, in the near future, the world’s oil supply will be disrupted.
First, the United States had a vested interest in maintaining global oil flows, both for its own economic well-being as well as for its broader strategic coals. These concerns no longer apply and no other country has America’s technical acumen or its military reach.
page 248 (kindle version)
Second, producing oil is never free, and oftentimes it isn’t even cheap. … In the late Order of cheap capital that’s eminently doable. In the constrained financial conditions of the Disorder, not so much.
Third, due to the concentration of supply, oil is the product that sails the furthest to reach its destination. The longer the sail, the more important it is to have a calm security environment.
Fourth, oil projects are not quick. A typical onshore project requires three to six years between first evaluation and first production. Offshore projects typically take a decade or more.
The United States is losing the need to maintain the Pax Americana. It is self-sufficient in oil and is busily restoring production capabilities lost during the great offshoring.
The United States is losing the financial strength to maintain the Pax Americana.
The United States is beginning to lose the collective will and interest in maintaining the Pax Americana.
This Won’t End Well
With the loss of the Pax Americana, free money via the American dollar, the disruption of cheap energy as oil supplies dwindle and shipping becomes much less secure and reliable, and the inevitable loss of working age population due to the demographic catastrophe, the author says the coming Disruption is unavoidable.
In sections II through VII, he details how the Disruption will unfold for specific geographic regions in the areas of transport, finance, energy, industrial materials, manufacturing, and agriculture. It is depressing. I argued against every chart and table, and especially against each depressing conclusion. The book is relentless. I lost almost every argument. Maybe you will fare better.
Trail of Sparks 