Jeremy Grantham: Days of Abundant Resources and Falling Prices Are Over Forever

[GliderGuider]

Jeremy Grantham is the British co-founder of Grantham Mayo Van Otterloo (GMO), a VERY large Boston-based asset management firm with over $100 billion in assets under management. In April he wrote a quarterly newsletter under the GMO letterhead in which he makes some remarkable observations and comments about the state of the world today.

I'm excerpting part of the newsletter - it's a real barn-burner. It's amazing for anyone to have compiled it, and triply amazing coming from a finance guy who is one of the industry's heavy hitters. The man Totally Gets It - the whole looming interlocked biophysical/resource/ecological/economic crisis. It's one of the strongest "Cassandra" statements I've seen in the mainstream: Malthus, overpopulation, food supply, climate change, peak oil, human nature - it's all there.

Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever (18 page PDF)

I believe that we are in the midst of one of the giant inflection points in economic history. This is likely the beginning of the end for the heroic growth spurt in population and wealth caused by what I think of as the Hydrocarbon Revolution rather than the Industrial Revolution. The unprecedented broad price rise would seem to confirm this. Three years ago I warned of “chain-linked” crises in commodities, which have come to pass, and all without a fully fledged oil crisis. Yet there is so little panicking, so little analysis even. I think this paradox exists because of some unusual human traits.

Now no one, in round numbers, wants to buy into the implication that we must rescale our collective growth ambitions. I was once invited to a monthly discussion held by a very diverse, very smart group, at which it slowly dawned on my jet-lagged brain that I was expected to contribute. So finally, in desperation, I gave my first-ever “running out of everything” harangue (off topic as usual). Not one solitary soul agreed. What they did agree on was that the human mind is – unlike resources – infinite and, consequently, the intellectual cavalry would always ride to the rescue. I was too tired to argue that the infinite brains present in Mayan civilization after Mayan civilization could not stop them from imploding as weather (mainly) moved against them. Many other civilizations, despite being armed with the same brains as we have, bit the dust or just faded away after the misuse of their resources. This faith in the human brain is just human exceptionalism and is not justifi ed either by our past disasters, the accumulated damage we have done to the planet, or the frozen-in-the-headlights response we are showing right now in the face of the distant locomotive quite rapidly approaching and, thoughtfully enough, whistling loudly.

So, oil caused my formerly impregnable faith in mean reversion to be broken. I had always admitted that paradigm shifts were theoretically possible, but I had finally met one nose to nose. It did two things. First, it set me to thinking about why this one felt so different to those false ones claimed in the past. Second, it opened my eyes to the probability that others would come along sooner or later.

(GG: He then goes on to discuss ore quality of metals and the increasing energy it takes to extract them.)

For agricultural commodities, it is generally expected that prices will fall next year if the weather improves. Because global weather last year was, at least for farming, the worst in many decades, this seems like a good bet. The scientific evidence for climate change is, of course, overwhelming. A point of complete agreement among climate scientists is that the most dependable feature of the planet’s warming, other than the relentless increase in the parts per million of CO2 in the atmosphere, is climate instability. Well, folks, the last 12 months were a monster of instability, and almost all of it bad for farming.

[BeFree]

1. No sweat

The vast majority of the humans on this planet can survive without mass consumption.

This focus on a minority of rich elites is fruitless.

Besides, this isn't the first time a civilization has gone down in flames.

[GliderGuider]

2. The question is

"Can the vast majority of the humans on this planet can survive without basic consumption?"

You're right, it's not the first time a civilization has gone down in flames. It is, however, the first time there has been nowhere else to move to in the aftermath, and the first time the planet has been left in ruins as a result. Given our legacy, it may be impossible for another civilization to arise out of our ashes.

[BeFree]

4. My feeling is

Dogs will populate the next civilization that arises from our ashes.

Saw a dog last night on the boob tube that was using a scooter.
Them dogs are gonna miss us hauling them around in our cars and trucks and with us out of the way will evolve to begin making things to make life easier.

Think of it this way: Some Dogs are in the Garden of Eden, right now, living like kings.

Whatever, the planet will evolve. Unless one can't bring itself to believe in evolution, it is an easy and satisfying concept. The problem of course is the suffering that is coming and I see no way around that fact of biological reality.

Just glad I am an old man; when my selfishness wins the day.... Peace.

[txlibdem]

3. Climate instability: overwhelming scientific evidence for climate change

:applause:
Thank you for posting!

[CanonRay]

5. Kunstler has been saying this for years.

I wonder how many Rethug CEOs read this and know the Rethug position on Climate Change is fucked up?

[Odin2005]

6. Nanotech, we need it, ASAP.

[GliderGuider]

7. Yeah, there's nothing wrong with civilization that a bit of grey goo won't fix... nt

[Terry in Austin]

8. "Hydrocarbon Revolution"

Perfect!

We get so sidetracked by our fascination with technology that we forget an essential feature of it: no matter how clever the device, ultimately something has to turn the crank -- be it slaves, mules, or (lately) burning something.

Now, we're finding that stuff to burn is getting scarce, and we're basically just waiting for a miracle to keep the motors humming.

Deus ex machina, anyone?

[dmallind]

9. Ermmm...Jeremy?

About this bit....

"I was too tired to argue that the infinite brains present in Mayan civilization after Mayan civilization could not stop them from imploding as weather (mainly) moved against them. Many other civilizations, despite being armed with the same brains as we have, bit the dust or just faded away after the misuse of their resources. This faith in the human brain is just human exceptionalism and is not justifi ed either by our past disasters, the accumulated damage we have done to the planet, or the frozen-in-the-headlights response we are showing right now in the face of the distant locomotive quite rapidly approaching and, thoughtfully enough, whistling loudly".

Strange that a human brain sitting in exquisite controlled comfort communicating by means of invisible packets of information flying around the world instantaneously, both undreamable to the Mayans, would use the example of Mayan decline to, purportedly at least, demonstrate the foolishness of trusting in the human brain. Perhaps the US will decline like the Mayans. Perhaps Islam will. Perhaps the Caucasian ethnotype will. But that doesn't mean humanity will, any more that it did so with the Mayans. You'd think a smart guy would have noted the irony. Seems like faith in humanity after all is pretty well justiofied by our success after past disasters.

[dissidentboomer]

10. Very interesting. I'd like to read more by this person.

I've had many of the same thoughts Grantham describes for a decade now. I'm new at this board and maybe I'm an "old timer" here but I don't know that.... I'm 53 and a refugee from a discussion board where over half of the posters are libertarian or free market idealogues who view all issues from their narrow points of view. They're not dumb but their educations, experiences, and worlds are narrow and technical.... which, unfortunately, is now the norm, thanks to the death of the braod liberal arts education. LOL.... Sorry for the digression....

Back to Grantham's thoughts.... I think they are right on target. We've probably reached peak oil. Water is scarce and becoming precious in several parts of the world. I'm pretty sure that the climate is changing and that is beginning to damage crop production in certain areas.

What I also think could be the case is that at least some of the wealthiest and most powerful folks on the planet saw this happening at least a decade ago and began to plan - not for the common good or to help develop alternative energies, technologies, etc. (Although, some ARE helping with these urgent tasks.) but to amass enough wealth, land, and resources to be comfortably sheltered, protected, and provided for when things really start heading south. I'm convinced that, although many of them cynically decry global climate change, environmental regulation, alternative energies, peak oil theories, they really do think oil and water are running low, climates are changing, the planet is over populated in areas, and, fairly soon, "hell is coming to breakfast" in the USA. I also believe that they are sure that Jesus, some new Einstein or Fermi, aliens, Obama, Michelle Bachmann, or even the Chinese capitalists won't save us.

[Bigmack]

11. One of the MOST interesting and important things you've posted

And you've posted some doozies! I printed out the long form of this and read it with breakfast, tho it sure didn't make swallowing easier! To read THIS sort of stuff coming from and investment guru type is VERY interesting indeed. I've been wondering when those so-called financial wizards would start to realize that THINGS HAVE CHANGED FOR F'ING EVER! Haven't found ANY until old Jeremy came along. I cannot figure out why the simple logic of the impossibility of infinite growth in a finite system hasn't occurred to more of those deluded folks. Ms Bigmack

[pscot]

12. The problems of compounding growth

in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety). The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.

(from the summary)

[laser_red]

13. I guess some people don't know what an electric car is. nt