Jeremy Grantham has returned to the subject of finite resources. In his latest quarterly letter, he says he didn’t intend to get quite so doomy on us back in April:
With hindsight, there are a few additions and qualifications I would like to make regarding my letter on resources of last quarter. I will start with an overview of the prospects for our collective well-being: there is nothing about the resource limitation problem that we cannot resolve. We have the brain power and, especially, the inventiveness. We have some nearly infinite resources: the sun’s energy and the water in the oceans. We have some critically fi nite resources, but they can be rationed and stretched by sensible, far-sighted behavior to fi ll the gap between today, when we live far beyond a sustainable level, and, say, 200 years from now, when we may have achieved true long-term sustainability. Such sustainability would require improved energy and agricultural technologies and, probably, a substantially reduced population. With intelligent planning, all of this could be reasonably expected. A population reduction could be arrived at by a slow and voluntary decline (perhaps with some encouragement of smaller family size achieved, for example, through greater education).
Energy is not his main concern this time, nor are metals, which he says are an even bigger challenge in the long-term.
The subject of this lesson in resource finiteness is agriculture.
Interestingly, Grantham does not believe water is a “game stopper“. The first big concern is the fertilisers potassium and phosphorous, which although reasonably abundant have some considerable limitations for a growing human population.
Here’s processed potassium, aka potash:
It doesn’t look so bad, except that potassium and phosphorous have the following constraints:
Potassium and phosphorus cannot be made. They are basic elements.
No substitutes will do. Both potassium and phosphorus are required for all living matter, animal and vegetable. Most notably, us. We humans are, for example, approximately 1% phosphorus by body weight.
Modern high-production, single-crop agriculture today is very dependent on finite mined resources, which, if used wastefully, could easily cause a severe problem within 50 years and, if used sensibility and sparsely, could last for perhaps 200 years. And then what? You must recycle and farm super intelligently, as if your life depended on it. And it will.
Then, there’s what Grantham calls “the real bugbear” — soil. We don’t often hear predictions of markets in soil or wars fought over soil, but soil erosion caused by deforestation becomes a vicious circle, he writes. History is rich with examples of erosion, mainly due to plowing.
In fact the real bugbear is the human inability to appropriately discount future losses. To illustrate, Grantham provides this story, “The Devil and the Farmer”:
The Devil, disguised as an innocent agent of a large agricultural company, arrives at a typical Midwestern farm. He has come to suggest to the farmer that he engage in more aggressive farming, and he comes, as usual, with a contract. The contract, if signed, pledges the farmer to farm aggressively and pledges the Devil to guarantee that the farmer’s profits will be multiplied five-fold. But, as always, there is a catch: Footnote 23 is a clause that informs the farmer that squeezing out maximum short-term output will result in the loss of just 1% per year of his soil. The Devil’s deal is dangerously reasonable, and therefore I would guess that 90% of farmers would feel that their families’ well-being requires that they accept it. The Devil has included a spreadsheet that accurately lays out the profits and also lays out the steady decline in the soil’s productivity and, fiendishly, does it honestly. By the end of the 40-year contract, the farm’s productivity is down by barely 5%, and the farmer’s net financial gains are enormous. So successful has this period been that the farmer re-ups for another 40 years. Once again, the Devil does not cheat. By the 80-year mark, the soil depth after some natural replacement is almost precisely half of its year 1 level (and, remember, it also lost one-third to one-half of its soil on average in the first 150 years of farming), but the farm has prospered enormously. And, even after the soil loss, it is still by no means particularly sub-average because it turns out that all of the local farmers have made the same deal. All of their productivities have dropped by 20% to 25% but, because of global pressures on grain prices, the deal still looks attractive. The spreadsheets, which have not lied in the past, still accurately and honestly show how profitable it will be for great-grandson and all of his neighbors to re-up yet again. In this way, by always adopting the plan with the optimal present value and by following strict capitalist principles, the Midwest and the planet marches off the edge of the cliff, as farmers, prosperous almost to the very end, are finally overwhelmed by armies of starving city dwellers!
Alright, then. At least Grantham can see some hope on the soil front - no-till farming.
The question is, will humanity adopt this and other measures at enough scale and in enough time to avoid hitting a rather devastating wall? His last few summary points look at the barriers to doing the right thing in time:
* These types of slow-burning problems that creep up on us over decades and are surrounded by a lack of scientific precision hit both our capitalist system and our human nature where it hurts.
* Capitalism, despite its magnificent virtues in the short term – above all, its ability to adjust to changing conditions – has several weaknesses that affect this issue.
*It cannot deal with the tragedy of the commons, e.g., overfishing, collective soil erosion, and air contamination.
* The finiteness of natural resources is simply ignored, and pricing is based entirely on short-term supply and demand.
* More generally, because of the use of very high discount rates, modern capitalism attributes no material cost to damage that occurs far into the future. Our grandchildren and the problems they will face because of a warming planet with increasing weather instability and, particularly, with resource shortages, have, to the standard capitalist approach, no material present value.
The full letter is in the usual place.
Related links:
Grantham comes face to face with a paradigm shift - FT Alphaville