Friday, March 22, 2013

We Have Met the Enemy

"Have they no grandchildren?"

--Jeremy Grantham, interviewed by Charlie Rose
[53:39--click here]

Investment adviser Jeremy Grantham (GMO) worries that the human population has surpassed the carrying capacity of planet Earth.  We are seven billion going on ten by 2050; we need to be on our way back down to four.  We survive at the moment solely because of fossil fuels, representing "millions of years of stored energy" and affording us "an amazing, but short, time-out."  How short?  Let's say 250 years, and we are well into the second half.

In the competition for resources, "the rich half of the world is pricing out the other half."  Crude oil has quadrupled in price since 2000.  Indeed, "resource prices are squeezing the rest of the system," likely constraining economic growth to little more than 1% annually for the foreseeable future.  The world's phosphorus, essential in sustaining animal and plant life, will be exhausted in 50 years, assuming an annual increase of 2% in consumption.  Most portfolio managers don't care.  They live in a "paper world," not the real one, and are too busy chasing short-term returns to worry about long-term consequences.

Grantham advises that we not confuse human ingenuity with a resource bonanza.  To those confident that we will somehow figure things out, Grantham observes that throughout human history robust civilizations, prior to the mining of coal, routinely collapsed.  After the time-out, they may again.

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