Wednesday, March 16, 2011

Mega Cities

I can't help but think things out in terms of financial outcomes. When I began writing this blog it was to forewarn clients, family, and friends about what was - at the time -  the coming collision of the housing crash and Oil price surge and what it was likely to do to their life savings.

Now, using that framework I want to expand on my thought that "mega cities" will become "uninhabitable" in an energy constrained world.

First, one must accept the assumption - that serious energy constrainment (I know, the word is not in the dictionary... but I like the way it sounds) is coming, at least in how industrial age energy is currently defined. If you reject this, then you will reject the rest of my assertions.

"Amateurs talk strategy. Professionals talk logistics." - unknown

Mega-cities: New York, Sao Paulo, Tokyo, L.A. et al are technological islands - they must import everything.  Think about that for a minute. These regions have supply chain infrastructure/liabilities that are completely reliant on the smooth functioning of myriad other systems: commuting and transportation systems to bring workers in, maintenance systems, worker healthcare systems, food distribution systems... now take a look at what is happening in Tokyo right now. Somewhat unaffected directly by the earthquake and tsunami their distribution system has failed miserably.

My parents-in-law live near Osaka another couple hundred miles further than Tokyo from the disaster... and they have empty stores and rolling blackouts. The only difference is this: In a world wide energy constrained system, one like Japan is experiencing now, the cavalry is NOT coming because the cavalry is energy constrained, too. So, here you are on this energy constrained technological island (not Japan, ALL mega-cities are "technological islands) that requires the importation of everything AND it requires the exportation of all of the stuff previously imported (though in a somewhat different form): Refuse and sewage.

My assertion is pretty simple, really. Mega-cities will not be able to logistically support their populations with food, water, and other supplies, and will be unable to process the refuse and sewage during a period of serious energy constrainment... and the outcome would unfold at lightening speed... and, this will have seriously negative effects on property values and employment, and hence banking, within these mega-cities. These cities will depopulate, and will do so long before the "roving bands of looters" scenario unfolds (not that people won't take what they need... they will simply run out of stuff to take and with food imports into the technological island falling will need to find better ways to spend their time).

The economic strains coming from all of this would be profound.  Why spend your life working to acquire assets that will, by mathematical necessity, become nearly worthless?  You'd be far better doing just about anything else. 20 million people living on a postage stamp piece of land is not a well considered living situation as currently constructed here in the U.S. in the absence of energy inputs in order to provision them.

My friend the Mad Scientist has reminded me often that India has triple the population and roughly the same land area, and that is true (of course, India does not have the U.S. need for space heating). I did not say we couldn't live with what we have... I said that the mega-cities would depopulate and the property prices would decline dramatically with all of that outcome's effects on banking.  Americans will have a very hard time adjusting to an Indian standard of living.

If you accept my analysis so far... why would you send your offspring to be educated, at great expense in years and treasure, in a field that will require him/her to live in a mega city in order to make a living?  Why pay big bucks to live in squalor? Wouldn't you be better off educating them in something very practical (engineering, dentistry, plumbing.... one of my buddies in Florida is a Dentist of sorts... he reads my stuff and recently told me that his son is going to be studying engineering in undergrad, and credits me somewhat. I was thrilled to hear it, and even more thrilled to here that his son wants to go to dental school after engineering college) acquiring productive farm land (I know I have been beating this drum for years... and farm prices are up BIG... but my bet is that they are a far better investment than a liberal arts degree from a "progressive" leaning college), opening a family business, and getting acclimated to your new life? Why would you continue to pay the mortgage on a condo that will be bird nesting grounds? Or live in a home with a property tax bill that is draining the life from you? Why would you buy an expensive automobile?

The population flight to the mega cities of the past 100 years was a flight towards the energy importing, technological islands I mentioned above. As the energy available for import into these regions declines, so will the pull that these regions have exerted on the population. The events unfolding in Japan will put nuclear on hold, long enough, to demolish the attempt to cushion the energy blow from Oil - not that I necessarily agree that doing so is a good idea; or not - long enough that my scenario, I think, is the most likely scenario to unfold.

Lastly, the rules seem to change every f$&**!! day. These are the rules as I see them given the latest data. If the data changes, I will change my mind.

22 comments:

Anonymous said...

I don't disagree that these cities require large import/export infrastructure. However, on the flip side transportation within their borders is significantly more efficient then the much longer distances that exist in rural parts of the country.

Needless to say I think I find myself agreeing with you but I have some doubts based on the fact that transportation in some form or another will be necessary in any environment and it would certainly be much more efficient within the bounds of say New York then it would be in LA which in turn would be more efficient then rural Kansas.

I suppose if you were 100% self sufficient (if such a thing could ever really exist) then the need for transportation could be eliminated.

But if you agree with the assertion that energy supplies will dwindle (possibly quickly) but not to zero and not over night then you would have to agree that the efficient use of those resources becomes much more important.

Large rural spaces minus sufficient horse/oxen populations to support them do not lend themselves well to efficient use of energy sources that remain and would likely be cut off long before the cities.

I guess what I am saying is that I don't see the rural areas of the country being really much better than the cities other than the ability to feed ones self. But one bad harvest could cause isolated rural folk to starve just as quickly as anyone else.

Bottom line is that if you believe energy inputs will decline in a rapid fashion, then you must realize that the population will shrink in ALL areas of the planet not just the cities.

ChrisInGa

russell1200 said...

Chris says it well:

There are two issues: sustainability and efficiency. Large cities are more efficient (by a lot), but not sustainable.

http://reflexionesfinales.blogspot.com/2011/01/scaling-laws-for-sustainability.html

confederate miner said...

does anyone know if Japan has enough spare capacity to make up for what has been lost? Do they have any off line coal plants that could be started up fairly quickly? if not they are gonna be in really bad shape. Not that they are not in a hell of a mess as it is.

Greg T. Jeffers said...

Chris:

There will ALWAYS be enough oil to run agriculture. ALWAYS, as in at least past the life times of my grandchildren.

One does not need to be 100% self sufficient... one's region needs to be self sufficient MORE OR LESS. Trade will go on, but I doubt the kind of trading that I have made a living at for the past 20 years.

Yes, transportation will be more sufficient in NY... but what for? To get to jobs to do what?

I think you are suffering the fallacy of concreteness... things will not always be equal.

And I did not say rural. Much of rural will be just as f*&^ed up as mega city. The same places that supported small towns in the past will do so again.

Dextred1 said...

Chris,

Energy is important, but not as important as food and clean water!!! Sewage water is not so tasty that I would try cooking in it :).

Greg T. Jeffers said...

sorry... "fallacy of misplaced concreteness".

PioneerPreppy said...

There maybe more efficient transportation infra-structure in cities. Of course it isn't as dramatically over the top as it might first appear. Yet I can tell you from experience when oil becomes scarce the farmers will get more of that oil than anyone else. Or at least thats how it worked last time.

You have to have the goods produced to transport them.

Anonymous said...

I guess I will just have to disagree with all of you. We already see today suburbia contracting back into the core of the cities today. We already see the highway system, its bridges, and drainage systems falling apart.

Resources will be drawn into the cities all along the way. Sure large scale farming will receive resources. Most especially those along rail lines and those that are drawn into what was once suburbia. And we are also likely to see manufacturing come back to the states.

There is no doubt that there will be a process the transforms us from what we are today to what we will be. But I can assure you with the vast majority of the population in the cities that with the exception of farming rural America will get the short end of the stick in nearly every category first.

Anonymous said...

My prediction is that it will unfold in nearly the exact opposite way it came to be in the first place. We started off rural, gradually moved into the cities, and then a mass migration into the cities, followed by a gradual sprawl into the suburbs.

Imagine the exact opposite as the suburbs retreat into the city followed by a mass exodus out of the cities fallowed by a gradual shrinking of whats left of the cities.

Greg T. Jeffers said...

Dear Anon:

I think that's as reasonable analysis as any...I could see it happen that way initially...

People do vote with their feet. I completely agree that the suburbs are DOA.

I think we need to define "city". I live in a "city" of 100,000 population. That's more people than London had in the middle ages. I think my "city" will be just fine. Its an old riverfront city with rail service and lots of farms surrounding it. Do I think a "city" of 10,000,000 can function in an energy constrained world? Not even a little bit.

Greg T. Jeffers said...

What will the people do that they can trade for the resources they need? Manufacturing? What, cars? Airliners? Think about it... what exactly will they be trading for?

In the absence of growth in nuclear power electricity generation growth will come to a halt. And then it will shrink. Yes, its survivable... and no, you cannot "grow" a fractional reserve banking system/economy without growing electricity generation - or at least not for long.

The question is about confidence in the "system". I don't see much confidence in any system in an energy constrained environment.

PioneerPreppy said...

I am sure the cities would like to pull the resources unto themselves and abandon the rural areas but they can't. Maybe they can pull back out of West Texas, New Mexico or other rural areas with little natural rainfall but with oil reserves falling they will need every last square foot of farmland just to feed the cities. Especially with the reduced yields less petroleum use will force.

There is simply not enough farmland around these mega cities to keep the populations alive.

Greg T. Jeffers said...

And getting back to our banking system:

The total value of mortgages against properties in the mega cities dwarf's the countryside... and that's the risk to the financial system. Who the hell is going to keep paying a $2.5 million mortgage on a "luxury" Manhattan apartment when supply constraints are demolishing the local economy? What happens to the banks? How will they continue their function of money creation?

I lived and worked in New York for most of my young life... the entire city lives off the cash flow coming in from Wall Street. What happens to that cash flow in an environment of declining Oil and Nuclear power?

Greg T. Jeffers said...

Without it, what do the people trade with for the resources they need?

How is fuel rationed so that the city can continue to remove garbage and maintain infrastructure? Where do the revenues come from to pay for this?

I always maintain that "There are no macro solutions". Cities of 10 million are by definition "macro problems" and would require "macro solutions" - which I reject out of hand.

dennis said...

If agriculture has the energy they want there will be no need for people in rural areas. The people will be easier to control in cities. It might be ugly, but the agricultural corporations have a lot of power. The more people go without food the more the government will back the corporations right down to forcing the small farms to be swallowed up by the big ones. Look at the banks. Think Soylent Green...

Anonymous said...

I think you guys have jumped too far into the future. I am sure you all realize that while what you speak of will occur eventually that there will be a time line to this whole process. What you speak of is down that time line quite awhile.

My point is that while we traverse that time line (aka while there are still resources to be had) that the larger cities will get priority over those resources (with the exception maybe of large scale agriculture as you point out) due to the fact they will utilize them more efficiently.

Lets not forget that there are a number of means to produce electricity, heat, and propel a vehicle. Most of them are in decline as well no doubt but the decline will be uneven and the decline will not be instantaneous.

Now as it relates to the economy. That is likely to suffer significantly much more quickly. And it may be the cause of much of what you speak of on a much more accelerated time line. I guess it all depends on how linked we are to that financial system and how quickly we become willing to jettison it.

ChrisInGa

Greg T. Jeffers said...

Chris:

"My point is that while we traverse that time line (aka while there are still resources to be had) that the larger cities will get priority over those resources (with the exception maybe of large scale agriculture as you point out) due to the fact they will utilize them more efficiently"

I think that that is probably the most likely outcome.

That does not change the fact that markets are discounting mechanisms - they discount future outcomes - and they will discount the future of mega city economies and real estate values FAR in advance.

But I do appreciate the way you think and present your ideas.

Anonymous said...

Greg,

You and I see the market differently. You see it as a discounting system. I see it as a bunch of people with too much money gambling and in some cases scamming.

The sheer fact that auto manufacturers are worth anything suggests they don't discount too far into the future. And lets not forget about the bubbles they keep blowing through pure speculation (housing bust, dot com bust, just to name two).

You have more faith then I do I guess.

ChrisInGa

The Mad Scientist said...

Just so you know Greg,
Barclay's today quoted my number of increased demand for NG or LNG in Japan of 1.2 BCF a day.
MS

PioneerPreppy said...

ChrisinGa

I gave alot of thought to your opinion today regarding the time line and your thoughts on some of us being too far along it.

I see your point but what I couldn't get around is the simple volume of resources each mega city and all the smaller yet still major cities would need. New York may in fact be able to pull on their entire state but I doubt other states are going to comply. Personally I think all major cities are tinder boxes and will explode into lawless mob rue before alternative infra-structure can be brought online.

I have no doubt these alternatives you mention will be employed I just doubt they will come soon enough to help the major (including mega) cities.

Of course your theory makes more sense with less possible resistance for places outside the U.S.. So I really think you are correct in your projection in some areas.

Anonymous said...

There may be a rosy future for small cities in the future, and I think there will be. However, the transition is going to be awful. Some people are moving to the cities because they want to live there, e.g. the new urbanism movement. But, most of the new residents are going to be essentially refugees abandoning suburbia whom will not be happy with the new arrangements, to say the least.

Compounding the problem, the city will need a belt of market gardeners around it. However, the banks who become owners of the suburbs, will hold out hope for the old regime and insist that they are still worth more than their value as farmland. It’s going to take a while to sort this all out; all the while the suburbs become lawless bands akin to Sherwood Forest that surround the cities. Perhaps the French suburbs would be a better model.

Best,
Dan

Anonymous said...

PioneerRacist cain't wait for the reckoning, when the masses flee the cities and he can do what he has always dreamed of doing: shooting niggers and spics. That's what lives deep in the heart of the majority of the "preppers" (sounds like something for hemorrhoids) long for: the unfettered ability to kill the people they hate so deeply. Faggots, niggers, kikes, spics, dune coons, etc. Oh yeah, don't forget lib'ruls. Nothing gets the end of a prepper's dick frothier than the prospect of shootin' lib'ruls.