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TechnoratiRendering The Old World Obsolete
OTTAWA - The bad news is it's much worse than you think. Oil, that is.
Yes, we all gasp and weep at the pumps. But that's just a little taste of what record-high oil prices will inflict in the coming months and years. Oil is a component in almost everything we consume -- from food to plastics -- and so the pain in the gas tank will slowly radiate into every aspect of our economic lives.
With everything costing more, inflation will rise. And when inflation rises, interest rates must follow. Remember that the last oil shock of this magnitude -- the crisis of 1979-1981 -- ultimately pushed mortgage rates toward 20 per cent. Even half that rise would make millions of people suffer in ways they haven't for a generation.
And that's not all, my friends.
As former employees of GM and Air Canada know, record oil prices are already gnawing at the economy and killing jobs, but what we've experienced so far is mere foreshadowing.
"The U.S. economy has managed to avoid feeling the full brunt of oil prices over the last few years," write Avery Shenfeld and Meny Grauman in a CIBC bulletin, "but 2009 will be the year that its luck runs out."
A recent Maclean's cover featured a disconsolate man with a gas nozzle pressed to his temple. It's an understandable sentiment, particularly after one reads the accompanying story, which suggests the damage done by the oil shock will fall somewhere between the catastrophic and the apocalyptic.
Truly, it's the end of the world as we know it. But as the song says, I feel fine.
Like it or not, this had to happen. Our economy is largely built on a single, finite energy source that is heavily concentrated in dangerous lands far away. That's not a stable foundation. It was bound to crack and crumble. The move to an economy built on more diverse energy sources -- a more stable and sustainable economy -- was inevitable.
That should have been obvious after the oil shock of 1973. It should have been doubly clear after the 1979 shock. And triply so when anthropogenic climate change became established fact.
But we were complacent. From the mid-1980s to the early part of this decade, we could have taxed the bejeezus out of oil and poured the proceeds into mass transit and alternative energy research. But we North Americans chose the easy way out: to let prices fall, to have more vehicles than children, and to build sprawling cities where every quart of milk and visit to the gym requires someone to fire up an internal combustion engine, belch crap into the air, burn more of an irreplaceable resource, and bring climate change a little bit closer.
So now, it's 25 years after the last oil shock and our energy foundations are cracking and crumbling. Oh well. It was inevitable. And desirable.
Yes, desirable. A lot of pain will come out of this, but also a lot of good.
Obviously, there will be big improvements in energy efficiency and innovation. In 1979, soaring oil prices immediately spurred huge gains that steadily grew until the price collapsed in the mid-1980s -- and the gains were lost in the witless gluttony that followed. If today's prices keep climbing and never turn around, we will not have the option of returning to witless gluttony.
A nice little side-effect: Greenhouse gas emissions will be reduced immediately, with future gains as new technologies come on-stream. Those who care about climate change, the fate of the planet, etc., should be pleased with this.
A somewhat less obvious benefit is the smack in the face urban planners are about to receive. As the cost of transportation rises, people will value housing nearer to their work. Urban design that brings homes, shops and employers closer together -- and allows people to get around on feet and bicycle wheels -- will flourish. Suburban monocultures and soul-crushing commutes will slowly shrivel.
High oil prices will also challenge China's unhealthy dominance of global manufacturing. Why do cheap Chinese goods flood every market from Nome to Nigeria? In part, because cheap oil made global transport cheap -- and so the fact that Chinese factories are very far away from the markets they swamp didn't add much to the cost of Chinese goods. Soon, it will matter. And local manufacturers will get a little breathing room.
It's the same story on food production. With cheap oil, it didn't matter whether apples are grown 100 miles from the consumer or 10,000. With expensive oil, it will. And local farmers will reap the rewards.
Then, there's the effect on the world's thugocracies. Not coincidentally, oil-producing countries typically have brutal or corrupt governments. Every barrel of oil we don't consume is a barrel of oil they can't use to entrench their power. A cheap, mass-market, electric car will be the ultimate weapon against thugs everywhere.
And let's not forget congestion. Transportation infrastructure is so overloaded that airport departure times increasingly resemble guesstimates. Fewer air travellers may mean fewer flights -- and lost jobs -- but it will also mean more efficient travel, which is good for economies and harried travellers alike.
The same change will come to our roads. In a recent analysis, the CIBC's Jeff Rubin estimated that if gas goes to $7 a gallon in the U.S. -- as he expects -- "we are likely to witness the greatest mass exodus of vehicles off America's highways in history. By 2012, there should be some 10 million fewer vehicles on American roadways than there are today."
A similar effect should be seen in Canada, too, because our gas prices, although higher than in the U.S., are still cheap relative to other developed countries.
As private transportation declines, demand for mass transit will surge. For a politician, that means votes and so governments will respond. Expect steady, sustained investments.
To see what lies in store, compare Caracas and Oslo. Caracas, the capital of oil-rich Venezuela, is notorious for its awful traffic jams; Oslo, the capital of oil-rich Norway, is a model of clean and efficient transportation. Obviously, there are many factors at work in this contrast, but a major one is the price of gas: Venezuelans enjoy the cheapest gas on the planet thanks to massive state subsidies; Norwegians have long endured some of the stiffest prices at the pump, thanks to heavy gas taxes.
We may fantasize about paying Venezuelan gas prices -- 25 cents a gallon -- but it is Norway's high-cost policy that delivered the dream.
And finally, and perhaps most fundamentally, there's economic and political security. The more we rely on oil, the less secure we are. The more we diversify our energy sources, the less vulnerable we will be. It's that simple. And thanks to the current oil shock, we will diversify. Whether we like it or not.
Like an addict kicking a habit, we will have to go through a period of painful withdrawal. But the good news is that, in time, we will all agree it was for the best.
Gardner writes for the Ottawa Citizen.
© The Leader-Post (Regina) 2008
11 Comments so far
Show AllIn response to PADRAIG PEARSE's preceding comment, here is how the "discipline" of economics presumes to "solve" any and all economic "crises." Drawing the implication of the entropic law of diminishing returns,
"Gloomy Malthus thought, at least in his first edition of 1798, that the end of economic development could be an equilibrium only down at the minimum level of subsistence. Above this subsistence wage, population would continue to grow; below it, population would die off; only at this level could there be lasting equilibrium." [Paul A. Samuelson, Economics, ninth edition (New York: Mcgraw-Hill Book Company, 1973) 736.]
In retort, Paul Samuelson responds, "Malthus failed to realize how technical innovation could intervene—not to repeal the law of diminishing returns, but to more than offset it." [Samuelson 737.] Indicated is economic incorporation of the law of diminishing returns is superficial at best. Indeed it is difficult to determine how "to more than offset" effectively differs from "to repeal." By means of serial substitution of "technical innovation," entropy is defeated, which is why to an economist, recession and depression are incomprehensible, and thus unpredictable.
Compounding the inherent befuddlement of economists in dealing with matters going wrong is their cavalier conception of human psychology. Economist David Colander summarizes this with,
"Different sciences have various explanations for why people do what they do. . . . Economists . . . argue that if we want an analysis that's simple enough to apply to policy problems, . . . heavy psychological explanations are likely to get us mixed up. At least to start with, we need an easier underlying psychological foundation. And economists have one—self-interest. People do what they do because it's in their self-interest." [David Colander, Microeconomics, sixth edition (Boston: McGraw-Hill Irwin, 2006) 188.]
Accepting "heavy psychological explanations . . . get us mixed up" because considering more variables than the "easier underlying psychological foundation" of economics, it is difficult to understand how economic resolution of "policy problems" can be successful since considering fewer variables than apparently more accurate "heavy psychological explanations," they must fail more often than not.
DogLeg
spot on
www.brightneighbor.com
Game changer!
"Problem is, everyone was so enthralled with industrialization, they didn't give a thought to an alternative. Now that it is dying, we have no replacement. This is frightening."
You're right; the window of opportunity has passed.
The writing was writ large on the wall 30 years ago, when Dr. M. King Hubbert was proven correct and OPEC cut production to blackmail the West. At that time, which should have been an epiphanal moment of clarity, a true President, a person of singular intelligence, vision, and leadership could have declared the energy equivalent of Kennedy's man-on-the-moon program, with the goal not of masturbatory nationalism and enriching the military-industrial complex (as if they were being impoverished by the Viet Nam war) but of quite literally saving civilization, and quite possibly the planet. Instead we got Ronald "If you've seen one redwood, you've seen 'em all" Reagan, and his comical sidekick James Watt, who's stated goal was to auction off all of America's natural resources as quickly as possible to the lowest corporate bidder before the Rapture begins. If we started right then, devoting all of our energies to weaning the world off of fossil fuels with the resolution, effort, and sense of urgency that we invested in WW II, then perhaps today we'd all be coming in for a relatively soft (if bumpy and somewhat scary) landing. As it is, the one and only thing our Government has done is to make profligately wasteful behemoths like HumVees and Ford F-650 pickup trucks tax deductible. All of the hope that as-yet undiscovered technological replacements for oil will somehow save the day like the cavalry riding over the crest of the hill at the last desperate moment, guns blazing, is sheer fantasy at this point. The GAO predicts that by 2015 new technologies could displace only about 4% of projected U.S. annual oil consumption; far too little, far too late. We had the opportunity, we had the time, and arguably we had the resources and wherewithal, and we blew it. When faced with the hard choices, we went with whoever offered us the most immediate gratification and the most comforting fairy tales, as humans historically always have.
Lots of truth, but the article says "we" as "we are all one" instead of "we the people" versus "them the elites". Sorry to rain on your "unity" parade but the class war has to be exposed. People did not give up their civic responsibility without strong encouragement from the elites. It was the elites who deliberately failed to implement a responsible energy policy. Expose the culprits or else you'll have new forms of the same old rackets in the future. For example, after allowing the elites to perpetrate their "business as usual" over the past several years of energy chaos they massively abused biofuels. Surprised? They will massively abuse everything. Expose them. Isolate them. Ostracize them from the society. Try embracing localism. Divert the river of resources away from the "emerald city".
Simply enough, industrialization is a failed experiment. All this talk of the rise of China and India is rubbish. The poor buggers got onto the industrialization bandwagon just as it was coming apart. Problem is, everyone was so enthralled with industrialization, they didn't give a thought to an alternative. Now that it is dying, we have no replacement. This is frightening.
"General Motors and the oil companies destroyed it by purchasing all of the major transit companies in major cities, firing the workers, then buying all the bus manufacturing and ditto."
Not quite right:
http://en.wikipedia.org/wiki/Great_American_Streetcar_Scandal
DogLeg July 15th, 2008 2:45 pm
I was just referring to the fact that our country is large and has vast spaces to cover. City to city and inter city it would work. But not outside cities or rural areas. Just meant to say its only applicable in the mix to solve the problem.
Also many times people talk about the problem only in urban terms. How do I explain that you'd have a hard time driving a Prius down country roads in Texas to a lady in Vermont? You'd lose your teeth. Or that many of the folks in Texas need that pick up ( a lot don't) This was just a thought, had nothing to do with what you said really. Hhuummmm....I wonder if that indicates anything?
"I will tell you that eventually they were held accountable and fined, hold your breath, all of $2500"
What a surprise!
I know that Dallas is looking into restoring the electrified streetcars downtown. They were there when I grew up and worked beautifully. I think thats a good start! Hope they do it.
T More,
I strongly urge you to do a little research on the vestigial mass transit in this country. General Motors and the oil companies destroyed it by purchasing all of the major transit companies in major cities, firing the workers, then buying all the bus manufacturing and ditto. This to encourage suburban growth, thus, the purchase of an automobile.
I am not going to tell it all to you, look it up. I will tell you that eventually they were held accountable and fined, hold your breath, all of $2500.
Here's some additional benefits to the demise of crude:
From Carfree Times, issue 10
"On 22 September, the French Environment Ministry will hold another carfree day, following the success of last year's event, when residents of 34 French cities were encouraged not to drive for a day. An official survey found that 89% of citizens were favorably disposed towards the event and 81% wanted to see it repeated. Air pollution emissions fell by 40-50% in the participating cities. Interestingly, noise reduction was the effect most appreciated by the public. These improvements were achieved with just a 14% reduction in automobile traffic."
An excerpt from http://www.carfree.com/car_crisis.html dealing with social isolation and death of street life:
"Donald Appleyard's Livable Streets documents his definitive research into the impact of the urban automobile on casual social contact within neighborhoods. Appleyard clearly shows that the level of traffic inversely correlates with the level of social contact. As traffic on a street increases, people retreat from the street and attempt to shut it out of their lives. Traffic noise makes conversation at normal levels difficult or impossible and steals the usual opportunities for casual interaction on the street. Residents rarely encounter their neighbors and often do not even know who their neighbors are. This leads to a gradual breakdown in the sense of community in the affected block."
Some comments about things like mass transit have limited application in the United States simply because of our size. A few other things are perhaps a bit off. But in the main, I have to agree with Dan Gardner about the benefit of high oil prices.
They will force us to do what we should have done last time as he points out. Bite my tongue, but I almost hope gas stays up, though it will be painful to those that can least afford it.
It will also wring the inefficiencies out of our economy and make better use of our resources.