Decade Forecast: The Downsizing Of Pax Americana

This is the first post in a series of three, in which I will analyze the major trends that will define the next ten years and their likely impacts on global regions. To put these forecasts into context, I must first describe the narrative through which I view the history of the post-WW2 era (the Oil Age, the Age of Hubris, or as John M. Greer aptly described it, the “age of abundance industrialism” – now on the verge of meeting its Nemesis, the waning of Pax Americana and the demise of global Western hegemony), which is dominated by the concept of “limits to growth” – the 1972 Club of Rome thesis that finite resources and pollution sinks will ensure that business-as-usual economic growth can never continue indefinitely on planet Earth.

A Short History of Abundance Industrialism

Driven by an electro-mechanical revolution powered by a windfall of cheap oil, the world registered its highest GDP growth rates in the 1950-1973 period. The era was defined by self-confidence and a secular “myth of progress”, which reached its apogee with the 1969 moon landings. But the next decade saw the arrival of major discontinuities. American oil production peaked in 1970, and went into decline. Saudi Arabia settled into its role as the world swing producer, enabling it to inflict a severe “oil shock” on Western economies in 1973 to punish them for their support for Israel, to be followed by another in 1979 coinciding with the Islamic Revolution in Iran. The decade also saw milestones such as the publication of Limits to Growth, the ending of hyperbolic growth of the world system, and a new emphasis on conservation and sustainability (which led to significant improvements in fuel efficiency and pollution control – back then, the fruits were all low-hanging, so impressive results were not hard to achieve). Yet the first tentative steps towards sustainability were not to be followed through, as the newly-elected Reagan took office proclaiming “Morning in America!”, with its implicit promise of a return to a past with no future. It was a false dawn.

Thus began the “age of diminished expectations”. In the US, physical production by volume and real working class wages stalled in the 1970’s, and have since been on a plateau (slightly tilted up according to official statistics, slightly tilted down according to unofficial ones). The age of Mammon saw rising inequality, both within and between nations (the sole major exception being China whose ascent to world power began in the late 1970’s). As the American industrial base entered its long atrophy, its economy shifted towards construction, services, and finance, – symbolized by metastasizing suburbia – and made possible by new drilling by the oil majors in remoter areas like Alaska, the Mexican Gulf, and the North Sea, a political-security rapprochement with Saudi Arabia, the IT revolution, and the rise of multinational corporations exploiting globalizing markets and cybernetic technology in a flattening world. Sustainability went out the window; quite literally, as Carter’s solar panels were removed from the White House roof in 1986. Finally, the US harnessed its new role as the focal point of the emerging global neoliberal system to open up their economies to the world, unleashing China’s “surplus armies of labor” and the former USSR’s energy resources in the service of Pax Americana.


[Source: Tracking the ecological overshoot of the human economy, PNAS.]

This new era of international neoliberalism and developed country post-industrialism coincided with the genesis of humanity’s ecological overshoot of the carrying capacity of the Earth. Though the first global pollution alarm in the form of the “ozone hole” led to an impressive response involving a global agreement on the withdrawal of CFC production, the reaction to the growing specter of runaway climate change caused by man-made CO2 emissions – which is ultimately a far more serious issue – has been muted right up until 2009’s Copenhagen fiasco and today. Instead, the party continued in full blast throughout the 1990’s, for the US was too busy basking in the glow of the ostensible end-of-history triumph of “Western liberal democracy as the final form of human government”.

These hubristic visions of imminent utopia, of global drive-in democracy, collided with hard reality in the first decade of what was supposed to be a “new American century”. The United States is in a state of severe economic disequilibrium and has been in rapid decline relative to its competitors – a condition reminiscent of the USSR in the 1980’s. The probable decline and fall of the global order of which it is the locus will constitute the defining trend of the next decade.

Shifting Winds: The End of Pax Americana

What is Pax Americana? It is the liberal, internationalist, post-Cold War order, which has extended its reach throughout the whole world barring a few socialist holdovers like Cuba and North Korea. Globalization, rule of law, human rights, liberal democracy, free markets, economic growth – these are its self-defined values, which it considers to be the apex of humanity’s socio-political evolution. Its critics, from Western leftists to Third World nationalists, decry it as an exploitative, ruinous, imperialist, hypocritical, end-of-history theology, with voluminous references to the inconsistent ways in which these values are practiced by their own sponsors, or wielded as weapons against its ideological and geopolitical competitors.

But these arguments will soon become academic. As demonstrated by Robert Ayres, there is a glaring hole at the center of modern macroeconomic theory – accounts of growth neglect the vital role of “useful work” (a function of exergy and technical efficiency), whose contribution far outweighs that of labor and capital combined. Both factors have been flattening in the US in recent years, making further growth unsustainable. Furthermore, studies in systems dynamics indicate that brittle systems, with poor “shock absorbers”, can be subject to so-called “cascade collapse“, in which failures at one node produce a self-amplifying resonance that causes many other nodes to fail. If this is an accurate description of the global System, then a setback in any one sphere – be it economic, financial, geopolitical, etc – could usher in a vicious spiral into anarchic apolarity on the international stage.

Pax Americana and its neoliberal ideological superstructure rests on three pillars: cheap oil, American dollars, and the US Navy. Like the legs of a tripod, they all survive – or fall – together. And today, they are crumbling. Let us examine the forces that will be undermining these pillars in the next decade:

Peak Oil

Contrary to the “doomer” worldview, it is almost certainly possible to sustain an industrial civilization without a drop of oil (though ceteris paribus it will be a materially poorer one, because of oil’s uniquely high EROEI). The problem is that today’s industrial system, especially in the US, is built in such a way – gas-guzzling SUV’s on asphalt roads slithering across endless vistas of soulless suburbia – that cheap oil is indispensable to making the commutes and credit flows, the jet flights and JIT production systems, function. An even bigger problem is that Hubbert’s predictions of a global oil peak are (roughly) on schedule: though delayed by the 1970’s oil shocks, it is likely that either 2008 or 2010 was the all-time peak, and oil production will now decline at an accelerating rate – even without accounting for possible discontinuities like a global credit implosiona sudden collapse of Ghawar, the spread of revolution to Saudi Arabia, or Iranian mining of the Straits of Hormuz.


[Source: World Oil Production Forecast – Update November 2009, Oil Drum. Click to enlarge.]

The US spent prodigious sums to fight a war to open up Iraq’s oil reserves, but today its oil production is no higher than in 2000 (and hopes of massively increasing it are probably unrealistic). Russia has reconsolidated state control over its hydrocarbon deposits, discounting Western recriminations over its “resource nationalism”, and has successfully pushed back against Washington-backed “color revolutions”. Central Asia never proved to be the black gold lode of American geostrategic fantasy, and in any case it has since been closed off again by Russia. Due to their immense capital costs, environmental impact, and low energy-return-on-energy-invested (EROEI), there can be no salvation in tar sands or shale. Nor have there been any efforts at mitigation of the kind recommended in the Hirsch report. Any energy transition will be a very drawn-out process, considering the sheer scale of the infrastructure that will have to be replaced – and using continuously lower-EROEI energy sources!

As such, it can be said with a high degree of certainty that the world will soon experience a severe shortfall in liquid fuels. Because of its high degree of dependence on cheap oil, this will affect the US disproportionately, which will have to make good with demand destruction. The consequences will include major knock-on effects on consumers, who constitute the mainstay of American economic power.

State Insolvency

The geological realities of peak oil (2005-2010), in combination with soaring demand from industrializing Asia, have led to the worst crisis since the Great Depression, with the free-fall only being checked by a dizzying panoply of monetary flooding, fiscal stimulus, and government bailouts. As if this weren’t enough, the US faces rising entitlements costs as the baby boomers start retiring, a bloated military-industrial complex, and increasing commitments to Afghanistan with no timetable in sight (where there are now more US troops than there were at the peak of the Soviet intervention).


[The US budget deficit is predicted to permanently remain in the red even under the rosiest assumptions. As of now, it is the more pessimistic scenarios that are being born out – Republican refusals to raise tax rates or cooperate on Medicare; Soviet-like rhetoric about “defense cuts” while real military spending continues rising; etc.]

Now the major reason why the US has been able to afford both guns (the US military) and butter (its double deficits) in the face of deindustrialization was by giving its many foreign investors an atrocious rate of return, which they accepted in return for America’s “alpha” – its reputation as the largest economy, sole superpower, and global financial center, in other words, the “safe haven” par excellence. It also draws immense strength from the US dollar’s role as the global reserve currency, for instance by allowing it to comfortably buy oil at $-denominated prices even when the currency is weak. But with its “imperial overstretch” (see Afghanistan), moribund financial system, and a budget deficit north of 10% of GDP and projected to remain in the red for the foreseeable future – by some measures, US debt and fiscal metrics are worse than those of the PIGS on aggregate – will this American “alpha” survive? Probably not for much longer.

The creeping monetization of US debt will destroy investor confidence that they will ever make a positive return on their US bond investment. The withdrawal of a single major investor, especially if it coincides with a geopolitical shock, could set off a “cascading collapse” as other investors scurry away from US Treasury bonds. This will leave the US incapable of generating the primary surpluses to service its negative net foreign investment position, leading either to a compound debt trap or a classic emerging market-style currency crisis. Ice or fire? Given America’s democratic system and the bipartisan consensus on fiscal profligacy, I would bet on the latter.

Economic Decline

The collapse of what in some respects resembles an informal tributary system, channeling global (i.e. Asian) savings to the American consumer, will sound the death knell for Pax Americana. As Paul Kennedy argued in The Rise and Fall of the Great Powers, military power is ultimately subordinate to the economic base which supports it. The industrial base that won the Second World War and forged the American superpower has been in decline since the 1970’s – though on paper it boasted a high productivity growth rate, it masked a huge decline in the size and complexity of its “industrial ecosystem”. Mundane manufacturing, the automotive industry, and machine building have all experienced rapid decline; the heavily-subsidized aerospace and defense industries constitute the only major exceptions to this trend.

Now as long as globalization, free trade, and stability reigned, this did not portend international decline. Industrial hallowing out simply freed up workers into sectors that were more in demand, like restaurants, construction, services of all kinds, etc; and women gained many more economic opportunities. The US could get its manufactures from abroad, like Spain during its (literal) Golden Age. Furthermore, the transition from manufacturing to consumption and finance is historically not without precedents, being observed in the halcyon days of empires like Holland and Great Britain. After these former empires had established their initial industrial supremacy through mercantile means, they transitioned to free-trade regimes designed to reinforce their economic hegemony – and in so doing “kicked away the ladder” from countries trying to catch up. (The United States itself was one of the world’s most protectionist nations until the Second World War, at the end of which it accounted for half of global industrial output and drastically reduced tariff rates).

However, as pointed out above, the crumbling of two pillars of Pax Americana, cheap oil and the US dollar, makes the survival of today’s comfortable globalization highly unlikely. When the inflows of cheap credit from abroad cease; when oil flows decline due to geological, political, and geopolitical factors – the US will no longer be able to maintain its privileged position as the world’s “market dominant minority“, its overstretched armed forces will no longer have access to the lavish funding of the days of yore, and the neoliberal world order they upheld will come to an end.

Geopolitical Shocks

Facing the twinned specter of peak oil and fiscal insolvency and supported by an atrophied industrial base, Pax Americana could in fairness be described as a “brittle system” under a growing threat of collapse. Though it may yet fade away gradually into the night, to be slowly displaced by the state-centered, neo-Westphalian, mercantile reality of “world without the West“, it is altogether possible that geopolitical shocks will make the transition far more abrupt and chaotic than expected.

Though nothing’s certain, it is possible, likely even, that the biggest shock will emanate from a confrontation between Iran and the US in the Persian Gulf. Since 2005, the hardline IRGC paramilitary / intelligence clan, whose figurehead is Ahmadinejad), has been in the ascendant in Iran. Their power was further reinforced in 2009 when the Supreme Leader Khamenei sided with the IRGC in the aftermath of the abortive “Green Revolution” spearheaded by the waning “moderate” clerical clan (headed by Rafsanjani), in response to Mousavi’s electoral loss. These internal Iranian developments occurred in tandem with the rising tensions with Israel, Saudi Arabia, and the US over Iran’s pursuit of an nuclear bomb, amidst the window of opportunity left open to the Islamic Republic by the US quagmire in Iraq. Iran sees the Bomb as the best guarantor of regime security by allowing it to establish a regional hegemony in the Persian Gulf region.

This is unacceptable to everyone in the region. Israel views an Iranian bomb as an existential threat; Ahmadinejad expresses the opinion of 62% of Iranians when he says the Israel state should be wiped off the map. The Jewish state is now ruled  by Benjamin Netanyahu, a man who in 2007 opined: “It’s 1938, and Iran is Germany, and Iran is racing to arm itself with atomic bombs”. Not much room for compromise there. The rulers of Saudi Arabia, beset by Iranian-stoked ferment amongst their Shi’ite population and undermined by the Iran-backed al-Houthi insurrection on their Yemeni border, view the prospect of an Iranian bomb with similar trepidation. Though they will protest in public, they will be quite happy to see an Israeli-American strike on Iran; rumor has it that Saudi officials have given Israel permission to fly over their territory via backdoor diplomatic channels.

The US is hesitant. Striking Iran carries great risks. First, no matter how good and accurate your bombs are – the US has accelerated the development of a bunker-buster capable of penetrating 60m of reinforced concrete – they are only worth their weight if you know precisely where to strike. Iranian nuclear facilities are highly dispersed and concealed, making the extent of US intelligence on them uncertain. Second, Iran can mine the Strait of Hormuz and harass oil tankers with coastal shore batteries, diesel submarines, and merchant raiders. This will put at risk 20% of the global oil supply; even if the blockade proves ineffective, as predicted by most analysts, soaring insurance rates may result in oil prices spiraling into new highs due to unprecedentedly tight supplies. Third, the Islamic Republic has a panoply of retaliatory options at its disposal: a renewed Hezbollah missile barrage against Israel, increased support for Shi’ite insurgencies in the Arabian peninsula, and above all a resurgence of political violence and state instability in Iraq. As mentioned above, hopes have been pinned on Iraq to delay global peak oil by another decade. Yet it has always been a land of unfulfilled potential, its imminent oil production takeoff regularly stymied once per decade – in 1979 with the outbreak of the Iran-Iraq War, in 1991 with the Gulf War, in 2003 with the US invasion. It would not be out of character for its oil production to plummet again in 2012, in the face of renewed internecine warfare, Iranian incursions, and mining of the Strait of Hormuz.

Given all these risks and uncertainties, it is not surprising that the US is pursuing a cautious approach, restraining Israel and pushing for “crippling” sanctions on Iran, targeting its gasoline imports. However, the latter will not achieve much, especially since Russia – which has not received the firm recognition of its sphere of influence over the post-Soviet space that it really wants from Washington – will be able to torpedo any sanctions by allowing Iran to import gasoline through its Central Asian surrogates. Israel may grow impatient and eventually jump the gun without US permission. But Iran will likely consider Israeli and US actions to have been coordinated, and will embark on its “Project Mayhem.” The US may be forced to rush in and respond unprepared to contain the fallout as best it could. Now it is true that alarmist predictions that the US Navy will be crippled by Iranian low-tech swarm attacks are largely unsubstantiated, and there is no question that the US will have no trouble in gaining full air superiority over the obsolete Iranian integrated air defense system. However, defeating Iran’s dispersed retaliatory assets in detail may be a difficult and prolonged undertaking, perhaps even requiring the military occupation of strategic Iranian regions such as Khuzestan and Kish Island.

The US finds itself caught in a Catch-22 situation. Let Iran be, and it develops a nuclear deterrent allowing it to make a bid for regional hegemony – if it is not preempted by an Israeli strike. Attack Iran, and needless to say, anything worse than the most optimistic scenarios (in which the Strait of Hormuz only remains blocked for a few days) will constitute a tremendous physical and psychological shock for Pax Americana, a shock in which all its three pillars come under strain in the form of oil supply disruptions, financial turbulence, and prolonged aeronaval operations.


In conclusion, given the inherent fragility of the neoliberal world order and the mounting stresses on it in the years ahead, stresses that could be explosively released in a major geopolitical crisis – possible in Iran, though major clashes in other hotspots like the Caucasus or the East China Sea cannot be dismissed – it is unlikely that Pax Americana will survive the decade.

Yet its collapse will not herald a global collapse and a sudden descent into the Olduvai Gorge, for Pax Americana is ultimately just a subsystem of a larger system – that of global industrialism, the System that encompasses virtually the entire world, with the sole exception of hunter-gatherer remnants in the Amazonian fastnesses and a few mystical recluses. The American empire, much like the Soviet one, will retreat from globalist pretensions, while maintaining a continental hegemony. In the meantime, powered by domestic coal and a new kind of resource tributary system – one based on bilateral deals instead of open markets – China will be well on its world-historical “great reconvergence” with the West, making it the preeminent superpower of the age of scarcity industrialism.

The geopolitics of scarcity industrialism are the topic of the next monograph in this series.


  1. Wally Putin says:

    It’d be good if you wrote an SSR on the Baltic states (Estonia, Latvia, Lithuania).

  2. Yalensis says:

    Wow, impressive analysis! Scary… but impressive.

  3. Scowspi says:

    AK, I’ve mentioned my skepticism about your Sino-triumphalism. Case in point – have you seen this report on China’s “Ghost Cities”?:

    The Communist Party’s obsession with “growth” at all costs clashes with the reality of resource scarcity.

    • Not this one in particular, but I know of China’s housing bust and unoccupied ghost cities. Two arguments I’d raise against it having anything but a marginal effect on its economic growth:

      1. According to the latest Census, some 50% of the population is still in the countryside, or more than 600 million people. Perhaps another 150 million of these will move to the cities in the next decade. So 64 million unoccupied apartments doesn’t appear to be that big of a deal in the context of China’s vast magnitudes.

      2. Unlike Westerners, the Chinese haven’t yet come round to converting their houses into ATM’s. A housing bust will only cripple over-enthusiastic developers, but otherwise I don’t see how it could have a major negative effect on consumption. To the contrary, it might even have a positive social effect by making housing more affordable.

      I agree that in the long-term, the growth obsession has to end. Fortunately, China’s leaders are fully cognizant of Limits to Growth – far more so than their Western counterparts, where cornucopian business-as-usual remains the dominant ideology – and are beginning to take concrete steps towards building a more sustainable society.

      China has made remarkable achievements in development, but it remains the largest developing country in the world. Population, resources and the environment have put great pressure on our economic and social development, and there is lack of adequate balance, coordination or sustainability in our development… In the next five years, China will make great efforts to build a resource-conserving and environment-friendly society. We will further implement the basic state policy of resource conservation and environment protection, raise energy efficiency, cut the intensity of greenhouse gas emissions, develop a circular economy, promote wider application of low-carbon technologies, and actively respond to climate change. By doing so, we hope to balance economic and social development with population, resources and the environment, and embark on a path of sustainable development. – Hu Jintao

      Can you imagine President Obama saying this? He’d be “outed” as a commie / green extremist by Republicans if he used half as many of the bolded phrases as Hu Jintao in a speech. And it’s not all just talk, either. China has invested a lot into renewable energy sector, with the result that today it manufactures half the world’s wind turbines and solar panels.

  4. I think you are overestimating the importance of Iran-US-Israel conflict. For US Iran is much more natural ally than backward Arab regimes. Israel is mostly interested not in Iran nuclear bomb but in avoiding pan-islamic cooperation. And last but not least – the Arab Spring has possibility to redefine the regional power lines, especially by removing lot of Arab-Iran tensions.

    • A bombing campaign of Iran will achieve negative results for US-Israel. Their best hope is for internal regime change via some coloured revolution or insurrection such as in Libya. They have no chance of invading Iran like Iraq, that would require conscription in the US. Iran is much bigger than Iraq. After the Iraq lie most Americans would not volunteer to go to die in Iran for some fuzzy reason.

      Saudi Arabia is the country that deserves regime change by all objective measures. Iran is a democracy compared to Saudi Arabia, which is a medieval fiefdom that spreads terrorism around the world. Cry me a river that Iran would want to undermine the Saudi regime. The holy west tries to undermine every country that does not dance to its tune. And that is why Iran wants the Bomb.

      • Yalensis says:

        @kirill: Another tactic that Israel/America seem to be taking against Iran is cyber-warfare. They (Israelis) claim they set back Iran’s nuclear program by 5 years or so by introducing a worm into their software. Not sure if this is true or not, but sounds plausible.
        If Americans did invade Iran (which I doubt), they would NOT lack for volunteer soldiers, even without draft. Given unemployment rate in US. Also, most Americans don’t care that they were lied to about Iraq, they are a warlike people and believe any war is okay, so long as they win. It is only a military defeat (like Vietnam) which makes them go all introspective.
        Totally agree with you about Saudi Arabia.

  5. I wonder what the ideological consequences of this will be not just for America but around the world. It would seem to be a rupture in Baudrillard’s simulation. Right now all sides engage in strengthening the system, paradoxically even those who oppose it and are marginalized by it (they go on the internet and talk about conspiracy theories, post on forums, watch Glenn Beck with either credulity or cynical irony, watch Dancing with the Slutty Housewives of Kentucky). Hence I feel that it will not be characterised by a gradual transition to a new ideological equilibrium, but by crisis. I think the new norm will be neurotic cynicism and tyrannical paranoia, so keep a keen watch for the depressed coworker who might come to work packing, or the apocalyptic millenarian christian who burns the koran, the origin of species and probably soon just about anything.

  6. georgesdelatour says:

    You might find this article interesting:

    Here’s a quote:

    The exact same resource can do very, very different things, depending on social and technological development. It was social limits, not physical limits, which meant that Ancient Romans could not use coal to make things move & other ancient communities could only use uranium to make glass look yellow. And the main problem with resource pessimists is that they continually misinterpret social limits as physical limits. They naturalise social limits, reinterpreting & re-presenting problems of social development as problems of nature’s shrinking bounty. They make the fatal flaw of arguing that the main barrier to progress & human comfort is the barrier erected by nature’s limited resources, when in fact it is the barrier erected by crises of social imagination.

    It seems very clear to me that today, still, the main problem we face is absolutely social rather than natural. We now live under a cult of sustainability, a social & political framework which says that we should never overhaul what exists & should instead make do with the world as it is. The idea of sustainability is anti-exploration, anti-experimentation, anti-risk – all the qualities we need if we are going to make the kind of breakthroughs that earlier generations made with coal & uranium & other resources. In contrast to the past, today human society is accommodating to social limitations, & accepting the idea that they are natural, rather than trying to break through them. The Malthusian mindset is winning, & that is a tragedy for all of us.

    • Nobody is stopping exploration for oil and gas around the world. This applies even to areas of the US where development is restricted. The accumulation of empirical evidence from year to year about the declining global discovery rate is beyond question. There are discovery spikes like the Caspian in 2000 and offshore Brazil in 2010 but they don’t add up enough to change the ratio of 6 barrels consumed for every barrel found. The all-time peak in discovery was in the 1960s and it is not surprising that 40 years later the world stalled in terms of production in the face of very large price increases after 2004 that should have opened the taps. We aren’t finding vast new deposits of coal either, although there is still lots of it left. Until cornucopians show some evidence that there are centuries of oil and gas left in the ground they will remain a bunch of deluded jokers not worth the time of day. There are a trillion barrels of oil under the Alaskan National Wildlife Refuge? Really. Cornies need to get off the crack.

    • Yalensis says:

      Very interesting point. I agree that just because oil runs out doesn’t (necessarily) have to mean humanity reverts to Stone Age. Maybe we (humanity) eventually find a way to utilize energy of, say, anti-matter. Or maybe we go into space and find energy sources on asteroids. Lots of possibilities. We should never give up. Excelsior!

  7. Chrisius Dossius Optimus Maximus says:

    Ahmadinejad did not say that Israel should be wiped off the map. It’s a deliberately tendentious mistranslation. So stop repeating it, it’s wrong! 🙂