The world reached a significant milestone recently: the global population exceeded 7 billion, as outlined in the State of World Population 2011 report by the United Nations Population Fund. This moment not only highlights the sheer size of humanity but also raises questions about the rapidity of this growth.
To put this in perspective, consider that during the time of Christ, the global population was approximately 300 million. Over the next 1,800 years, the population added a mere 700 million, reaching 1 billion when John Adams was President of the United States—a development that startled the intellectuals of the period.
The surge in population has historically sparked apocalyptic visions, notably from the English economist Thomas Malthus. Between 1798 and 1826, he published six editions of his renowned work, *An Essay on the Principle of Population*, predicting dire consequences from population growth outpacing food supply.
Yet Malthus proved incorrect. Just 127 years after his forecast, in 1927, the global population reached 2 billion. This was followed by 3 billion in 1959, 4 billion in 1974, 5 billion in 1987, and 6 billion in 1999. And now, here we are at 7 billion.
The significant acceleration in population growth, particularly since the Industrial Revolution, has coincided with a corresponding rise in per capita income. What insights can we draw from this correlation?
The Conventional Crude Oil Production Peak
This relationship suggests a vital link between population growth and economic development, both heavily reliant on energy. While we haven’t conducted a formal study, it seems plausible to assert that rising global populations and economic expansion are tied to increases in energy production.
Over the past two centuries, the global economy has flourished primarily on the back of affordable and abundant energy—especially oil. Continuous increases in oil production have been a key driver of economic growth. However, what happens if oil production stalls?
Take a moment to observe the signs of an economy sputtering under the weight of diminished energy resources.
According to a report from the International Energy Agency (IEA) released in January 2007, the average world oil supply—including biofuels and non-crude sources—was 85.24 million barrels per day in 2006, marking a modest increase of 0.76 million barrels per day from the previous year. This growth was significantly slower than the average annual gain of 1.2 million barrels per day observed from 1987 to 2005.
Unfortunately, recent years have revealed that future increases in oil supply may come at a much higher cost. The 2010 IEA World Energy Outlook indicated that conventional crude oil production peaked in 2006. This suggests that future gains in oil supply will likely have to come from unconventional sources such as tar sands or deep water drilling.
The Decline of Per Capita Wealth
The challenge with unconventional oil production is that it is prohibitively expensive. Consequently, the economy must adapt to rising energy costs, a transition that has proven difficult.
At the onset of the new millennium, a barrel of crude oil was approximately $24. By 2006, the year conventional crude oil production peaked, prices had risen to an average of $58 per barrel. Before the financial crisis of July 2008, oil prices soared to over $145 per barrel.
After a decline to about $37 per barrel in early 2009, prices rebounded to over $100 in the second quarter of 2011 and now hover around $90. Despite these soaring prices, economic growth has not matched this trajectory.
Between 2000 and 2005, the U.S. gross domestic product increased from roughly $9.8 trillion to $12.5 trillion—an increase of over 27 percent. From 2006 to 2010, GDP only grew from $13.3 trillion to $14.5 trillion, a mere 9 percent increase.
Clearly, in an atmosphere of high crude oil prices, economic performance has faltered. While it’s uncertain if this reflects a direct correlation or mere coincidence, what stands out is that the era of inexpensive oil is drawing to a close, even as demand, fueled by population growth, continues to rise. This may indicate an irreversible decline in per capita oil production, possibly foreshadowing a decline in per capita wealth.
Sincerely,
MN Gordon
for Economic Prism
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