For several hundred years the global average standard of living has been rising rapidly. This has been especially evident in the Western world. What factors deserve the credit for this unprecedented improvement in the human condition? Will it continue to improve into the future?
The term ‘work’ in this essay, refers to any effort or energy expended in the performance of a task; it includes but is not limited to what you do during your 9 to 5 job. For many thousands of years, people have performed ‘work’ to improve their standard of living by using only their human muscle.
Productive output, the sum of all work that a society performs in the production of goods and services, establishes that societies average standard of living. Average does not mean equal. In most societies, a few receive a large share of productive output, while the rest receive a smaller share. For all of human history total productive output per capita grew very slowly, because we were limited by how much work we could do with muscle alone. The Industrial Revolution changed everything as muscle power was no longer a limiting factor, and our standard of living began rising very rapidly.
Shall we give Capitalism the credit for our dramatic growth over the past 250 years? It has offered an efficient method of organizing human labor (muscle power) to perform more work in the transformation of Capital into productive goods and services.
Shall we give the spread of democracy the credit because it permitted the free flow of information that fostered innovation and improvements in productivity; which is an increase in output per unit of labor input?
The answer to both questions is yes, some. But neither of the above factors would have made much of a difference if it were not for the discovery of a new way to do work by consuming energy.
In the 18th century the use of stored solar energy (coal) started becoming popular as a way to perform work. The burning of coal provided access to rich iron deposits which then permitted the construction of bigger machines that could harness that energy. By the 19th century an easier to use liquid form of accumulated solar energy (oil) became popular. Increasingly these energy sources were used to perform more work than was possible with the use of muscle alone, leading to a rapid increase in the total productive output of society; and therefore the average standard of living.
At first, oil wells was easy to access, sitting just a few feet below the surface. The amount of energy required to extract it was negligible. Over the years we used up the easy oil, but we found a lot more deeper under the ground. Eventually new deposits started getting scarce and getting deeper. Every new barrel of oil required a little bit more energy to be consumed to extract it?
Our standard of living is the sum of our total productive output or work, which includes the energy consumed. If you use 1 unit of energy to obtain 100 units, then only 99 units of that energy are left to do productive work. Over time, as it becomes harder to obtain the next 100 units, the energy remaining out of those 100 units to do work declines. If extracting 100 units of energy then requires consuming 5 units of energy, only 95 units remain to do productive work. We call this the declining marginal utility to of the next unit of energy.
Prior to the 1970’s, the United States increased the average standard of living of its citizens by rapidly increasing oil production to offset the declining marginal utility of the next barrel of oil as it became harder and harder to obtain. When peak oil production in the U.S. occurred during the 70’s, it was realized that we could no longer maintain the perpetually rising standard of living that Americans had become accustomed to by consuming more oil.
In fear, our misguided but well-intentioned politicians tried to reverse the effects. To paraphrase the conventional wisdom at that time, they said things like “We need to liberalize the Capitalist engine, let it run free to be more efficient.” And, “we need to make access to debt easier, so people can borrow, and thereby increase consumption.”
Unfortunately, all of those political solutions have been short sighted and do not address the core problem of declining marginal utility in our energy supply. Drilling for tar sands, and deep sea oil is very expensive, costing about 20 barrels for each 100, leaving only about 80 for use in production of our global average standard of living. The same thing is happening to natural gas and coal. Because there is a finite supply, future units are harder to extract than units extracted in the past. This is not a problem that can be solved by simply drilling more wells and increasing the rate of extraction. Doing so will just accelerate the decline in the marginal utility of our energy supply.
Serious thought needs to be given to the decline in our energy supplies marginal utility and our inability in improve our standard of living. Our current Socio-Economic system seems ill equipped to even acknowledging this problem, much less develop a long term working solution.