April 12th, 2008
Peak Oil has become a recent interest of mine, along with thinking about how we’ll convert our petroleum based infrastructure into an alternative fuel platform. And, frankly, my powers of imagination have been strained and left wanting.
Many economists, especially free-market fundamentalists, ridicule the very notion that “Peak Oil” should ever be taken seriously. After all, free-market fundamentalists tell us, The Market will resolve the problem, given the magical powers Supply & Demand™ economics.
I don’t know if current oil prices are a symptom of larger forces at work (i.e., a tacit acknowledgement by the market of the fundamentals of Peak Oil), or if the current price of crude is due to isolated geopolitical events; however, as Paul Krugman joked, Peak oil is “a dismal theory that keeps getting more plausible.”
As a theory, though current events may portend as evidence of its relevance, if not its eminent existence, Peak Oil is nothing more than the “media’s new version of shark attacks,” according to the NY Times’ Freakonomics blog. And, true to free-market fundamentalists, we’re told not to worry our pretty little heads, because the magical powers Supply & Demand™ mechanics will fix everything:
One might think that doomsday proponents would be chastened by the long history of people of their ilk being wrong: Nostradamus, Malthus, Paul Ehrlich, etc. Clearly they are not.
What most of these doomsday scenarios have gotten wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it. Add to that the march of technological innovation (like the green revolution, birth control, etc.). The end result: markets figure out how to deal with problems of supply and demand. [Emphasis added.]
I don’t doubt that market forces will come into play at some point, but that’s not the fundamental issue. At the heart of the matter is, What comes after oil and how do we push our way through the inertia that will keep us from acting (i.e., abandon the oil infrastructure that we’ve built since the industrial revolution)?
As I said, my imagination has been strained and left wanting.
In the meantime, I’ll wait to see how this 2005 wager turns out:
I don’t share Matthew Simmons’s angst, but I admire his style. He is that rare doomsayer who puts his money where his doom is.
After reading his prediction, quoted Sunday in the cover story of The New York Times Magazine, that oil prices will soar into the triple digits, I called to ask if he’d back his prophecy with cash. Without a second’s hesitation, he agreed to bet me $5,000.
[...]
Mr. Simmons said he favored a [simple] wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he’d bet that the price in 2010, when adjusted for inflation so it’s stated in 2005 dollars, would be at least $200 per barrel.
[...]
[T]he money [for the wager] is being put into escrow in a joint account; the winning side will collect $10,000 plus any accrued interest on Jan. 1, 2011.
As I write this, on April 12, 2008, the price of a barrel of oil is hovering at around $112.
LONDON: Commodity prices mainly rose this week, led by crude oil, which struck a record high above $112 a barrel on the back of falling American energy stockpiles and the weak US currency, analysts said.
March 12th, 2006
The other day some workmates and I were discussing the wisdom of exporting manufacturing (and other well paying) jobs abroad under the guise of what I’ve been referring to as Free Market Fundamentalism. Growing up in the United States and being educated here, it is nearly impossible to escape from being convinced of the notion that the so-called free market is always preferable and that, over the long term, that the free market approach is good for average Americans. The product of this inculcation, that is, the belief that the markets know better and, therefore, that the so-called free markets are always right and good, is what I call Free Market Fundamentalism. Looked another way, Free Market Fundamentalism basically amounts to nothing more than blind faith on the Markets; never mind, of course, that the “Markets” are nothing more than a man-made concept and that there’s nothing inherently good nor bad about them… they just are. However, any rational and reasonable person must concede that, as with any other man-made object or concept, the market function better when proper administration is enforced and regulated (thus, at the end of the day, if we think about it critically, there are no “Free Markets,” only “regulated markets”).
At any rate, last night I read an extremely provocative column by Paul Craig Roberts, a Reagan administration economist and staunch conservative. Roberts has criticized the current Bush administration for mismanaging our economy and for creating fewer jobs than at any other period, except for the Great Depression. Here’s some of what he writes:
Nuking the Economy
Forget Iran—Americans Should be Hysterical About This
By Paul Craig Roberts
[...]
Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth.
[...]
Over the past five years the US economy experienced a net job loss in goods-producing activities. The entire job growth was in service-providing activities–primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government.
US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.
[...]
Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees.
[...]
The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%.
[...]
In five years the US economy only created 70,000 jobs in architecture and engineering, many of which are clerical. Little wonder engineering enrollments are shrinking. There are no jobs for graduates. The talk about engineering shortages is absolute ignorance. There are several hundred thousand American engineers who are unemployed and have been for years. No student wants a degree that is nothing but a ticket to a soup line. Many engineers have written to me that they cannot even get Wal-Mart jobs because their education makes them over-qualified.
Offshore outsourcing and offshore production have left the US awash with unemployment among the highly educated. The low measured rate of unemployment does not include discouraged workers. Labor arbitrage has made the unemployment rate less and less a meaningful indicator. In the past unemployment resulted mainly from turnover in the labor force and recession. Recoveries pulled people back into jobs.
[...]
Economists who look beyond political press releases estimate the US unemployment rate to be between 7% and 8.5%. There are now hundreds of thousands of Americans who will never recover their investment in their university education.
Unless the BLS is falsifying the data or businesses are reporting the opposite of the facts, the US is experiencing a job depression. Most economists refuse to acknowledge the facts, because they endorsed globalization. It was a win-win situation, they said.
They were wrong.
At a time when America desperately needs the voices of educated people as a counterweight to the disinformation that emanates from the Bush administration and its supporters, economists have discredited themselves. This is especially true for “free market economists” who foolishly assumed that international labor arbitrage was an example of free trade that was benefitting Americans. Where is the benefit when employment in US export industries and import-competitive industries is shrinking?
[...]
Polls indicate that the Bush administration is succeeding in whipping up fear and hysteria about Iran. The secretary of defense is promising Americans decades-long war. Is death in battle Bush’s solution to the job depression? Will Asians finance a decades-long war for a bankrupt country?
You can find the entire column here.
