In the last few weeks there has been a noticeable change in tone. Wall Street, which for the last 8 months has been seized by the mortgage and liquidity crises, has finally noticed that $100 oil and the prospects of $4 gasoline might just become a real problem. A growing number of economists are becoming concerned that the Federal Reserve, which has been cutting rates in hopes of reinvigorating the economy, will be forced to stop because of more expensive energy. All the money from the “stimulus package” we will get this summer may end up going into gas pumps. In short, further increases in oil prices could trump anything in the government’s arsenal to aid the economy. [source]
Perhaps we give central bankers too much credit for both stimulating growth and controlling inflation. Look at the correlation of inflation rate and oil prices over the last 35 years.
I put this graph together after reading a news report that said the current inflation rate in the US was the highest in 17 years. The data I found (sources below) say that’s a true statement. The article, however, focused on what the US Federal Reserve and its chairman Ben Bernake were going to do about it, the assumption being that they should keep inflation low and avoid a recession.
two kinds of inflation
A government printing money willy-nilly causes inflation of the worst sort as happened in Weimar Germany which in 1923 issued a 50 million mark banknote worth about $1 US and is happening in Zimbabwe which currently has “the highest inflation rate in the world, above 100,000 percent.”
The USA learned to manage inflation of this kind under Paul Volker Federal Reserve chairman from 1979 to 1987. He was appointed by Jimmy Carter during a time of high inflation which peaked at 13.5% in 1981 and fell to 3.2% by 1983 under his tough-love management that caused a recession and the highest unemployment since the Great Depression but brought down inflation. Or so the story goes.
Was it Volker’s money management or was it OPEC’s response to Carter’s and the US economy’s energy management that brought inflation under control? Carter put in place both incentives for renewable energy as well as efficiency measures while the economy reacted to a fast increase in the price of its fundamental input. Look at the graph above. OPEC responded.
This page at the Hoover Institute touts Volker’s successor Alan Greenspan, Fed chair from 1987 to 2006, as being particularly adroit at keeping inflation low. But was he that good or was it just that the price of oil was low during his tenure?
Isn’t there another kind of inflation, one that is simply the result of increasing demand for a ubiquitous, fundamental resource like oil which is finite and well beyond the control of central bankers? If the world economy is based on oil (and it is) and the demand for oil increases due to developing economies, well, developing, then you would expect prices to rise, not from governments printing money, but from fundamental Economics 101 demand/supply relationships.
Inflation caused by demand of a basic resource outstripping finite supply is to be expected. It’s not a central banker’s faux pas. It’s normal.
oil prices
Consider this:
The 1973 oil crisis began on October 17, 1973, when the members of Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab members of OPEC plus Egypt and Syria) announced, as a result of the ongoing Yom Kippur War, that they would no longer ship oil to nations that had supported Israel in its conflict with Syria and Egypt (the United States, its allies in Western Europe, and Japan). [source]
The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979, allowing Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector. While the new regime resumed oil exports, it was inconsistent and at a lower volume, forcing prices to go up. Saudi Arabia and other OPEC nations, under the presidency of Dr. Mana Alotaiba increased production to offset the decline, and the overall loss in production was about 4 percent. However, a widespread panic resulted, driving the price far higher than would be expected under normal circumstances. In the United States, the Carter administration instituted price controls. [source]
What I’ve cavalierly labeled Asian “miracle” is really the point of maturity of that “miracle.” East Asian economies began to take off 20 years prior and now have a huge impact on the price of oil because of their increasing demands for that limited resource. (Curiously, it nearly coincides with the US invasion of Iraq.)
Looking at the most recent 10 year period for which we have good data, 1996 to 2006, world oil consumption increased by 12.2 million barrels/day, from 71.5 to 83.7. Fully 31% of that increase was due to China doubling it’s consumption. (18% of the world increase was due to US consumption going up 13% percent over those 10 years during which Japan decreased oil consumption 11%.)
In the face of peak oil with developing economies developing and mature economies like the US increasing their use of oil products, it can hardly be surprising that oil prices increase. Because the world economy is intimately tied to oil, inflation of the kind not controlled by central bankers increases too. Given the price rise in oil of the last couple of years, the question is not why inflation is going up but why hasn’t it increased more rapidly? That’s something central bankers and economists can likely answer — although they will go to great pains to avoid it.
sustainability
A world hooked on growth (see here for the movie) sees inflation as uniformly bad. Rising prices reduce the value of the savings we work so hard to put away for retirement and rainy days. The last thing we want is for some government agency (like a central bank) to destroy our efforts with irresponsible actions that stimulate inflation. What we’re not taught and what doesn’t get air time in the media is that inflation can occur in a perfectly natural way. A few years of bad weather pushes up food prices. Population increase makes housing prices rise (seen as a boon to current house owners but not their children). Increasing world demand for oil forces all prices to rise.
There have been a few leaks in the media umbrella. Peak oil infrequently but occasionally appears in the news. Water shortages in the US west and recently in the southeast found their way to local and national news outlets and made us think about how even a well-developed country like the United States can cope with increasing population. News about climate change leaks through from time-to-time but not in a way that causes too much concern. Even the notion of ecological footprint and the idea that humanity is consuming 125% of Earth’s resources splashes on us periodically. Maybe the next leak will be about the kind of inflation that is beyond our current control mechanisms and how putting off dealing with it just makes the consequences worse, but don’t hold your breath waiting for that one.
Prices rise quickly when demand outpaces supply, and it’s not just oil:
The price of wheat is soaring to record levels, and right now those prices are hurting local businesses and their customers. [source]
The price of wheat has more than tripled during the past 10 months, making Americans’ daily bread — and bagels and pizza and pasta — feel a little like luxury items. And baked goods aren’t the only ones getting more expensive: Experts expect some 80 percent of grocery prices will spike, too, and could remain steep for years because wheat and other grains are used to feed cattle, poultry and dairy cows. [source]
Demand for meat and ethanol increases the demand for grains and the land to grow them; an increasing population increases the demand for everything; and, since agriculture and shipment of all products are dependent on oil, the increasing price of oil adds to the price you pay at the supermarket. You can’t have growing economies and cheap bread, beef, and biofuels. In a world with growing economies and a growing population you can’t have cheap oil either. In fact, we’re looking at the demise of cheap anything.
One way to look at sustainability is as an economy in which prices are stable or decreasing. Price stability comes from population and resources remaining constant. Renewable energy is just that, renewable, not depleted over time (unlike oil). Sustainable agriculture is a way of constantly getting the same productivity out of the land and soil. Prices might decrease due to the invention of new, more productive methods of production, distribution, and organization. We’re good at inventing but give it too much credit for our current “success” most of which comes from cheap fossil fuels which are a source of energy and agricultural fertilizer.
Our economy today depends on the ever increasing availability of cheap energy (fossil fuels) to not just keep prices level but reduce them even in the face of increasing population. Consider the variables. The earth is not more fecund than it used to be; there is not more land, more water, more fish in the sea. The current prices rises at the grocery store and gas pump are merely bills past due for having been using 125% of available resources for too long. It’s a margin call.
negative growth
Using 125% of our resources and faced with rising prices of everything, we need to reduce consumption. This is the bane of every sustainability advocate trying to get the message out, for the message itself is not one any person wants to here and goes against the grain of centuries of growth.
In macroeconomics, a recession is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. [source]
A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe. [source]
Sustainability advocates should be clear about the need for economic recession/depression — as difficult as that is to admit. If we are consuming too much, then the response to that must be to consume less which means negative growth which, by definition, is economic recession or depression.
When a person is overweight, consuming less is a healthy response, and a very difficult one. Given that all mainstream economic thinking is focused on growth in a nearly psychopathic way, it’s hard to imagine going on a consumption diet without dire consequences. We have no model for it, only images of bread lines and great queues of people trying to get jobs. Or so we think.
Is there a different, more positive model?
Lester Brown and others call for putting the nation on a wartime footing in an effort to combat climate change. During World War II American families did consume less and largely without complaint. It was seen as an act of patriotism. For three years no cars were produced; tires, gasoline, and sugar were rationed. The factories that had produced cars produced planes and tanks. Women and African Americans poured into the mainstream workforce for the first time, filling the slots formerly held by white males who enlisted or were drafted into the armed forces. Instead of planes and tanks, Brown would convert our auto production to make wind generators.
It’s the right kind of idea. But, without a war at hand, how will we achieve it? Perhaps inflation will get so bad the required will can be found. Counting on a general sustainability revelation occurring because of the prevalence of good science and political integrity is, as we’ve found, a non-starter.
footnote
Paul Voker, former Fed chair, writing in 2005:
I don’t know of any country that has managed to consume and invest 6 percent more than it produces for long. The United States is absorbing about 80 percent of the net flow of international capital. And at some point, both central banks and private institutions will have their fill of dollars.
The transfer of international capital to the US along with easy credit availability (subprime lending) may be one reason we have avoided higher inflation in the face of rising oil prices, but clever financing does nothing to increase physical resources. And at some point nature makes a margin call.
references
Historic oil prices:
- IEA and the graph here based on that data set
- WTRG Economics
- InflationData.com
[update: see also this NYT article from March 20]
“Counting on a general sustainability revelation occurring because of the prevalence of good science and political integrity is, as we’ve found, a non-starter.”
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What a brilliant way of saying it. I don’t think I’m the only person around here, in this solar system, who is finding it hard to accept that good science just cannot be followed by rational decision making and social responces that would have been wiser than just allow the demand for fossil fuel to keep rising. It should have been different. The demand for fossil fuels should be decreasing, simply for the fact that we are coming to realize the stuff is poisonous to the Earth, and that in every possible way.
Fossil fuels demand is going up. There is no wisdom in this. But I wonder: what’s it going to take to have a society of fossil fuel addicts take notice? And come to accept that the addiction is very destructive?
Lester Brown mentions wind turbines. — I think we should have been constructing solar plants at a very high speed by now. We should also be discussing the furure of nuclear power? Like, how to ban the production of atomic bombs, for example? Because peaceful nuclear power production could actually save us all. . .?
What a fantastic essay. A well thought-out and very comprehensive catalogue of the sustainability dilemma we face.
I appreciate mulig’s comment, too, but I must say it is further evidence of the disease from which we suffer: Our society desperately grasps at straws to enable our growth addiction to continue. While a shift to solar power is a move in the right direction, it is not a panacea for a number of reasons. Nuclear power is a perfect example of Severeid’s law – yesterday’s solutions are today’s problems. Nuclear plants require massive amounts of concrete (cement manufacture is responsible for 5% of the world’s greenhouse gas emissions), and require massive amounts of water to cool (and we should all know by now that fresh water scarcity is already a crisis, though it will get much worse). And nuclear waste storage cannot be expanded indefinitely.
We must rid ourselves of the notion that (borrowing a phrase from Paul Ehrlich) we can keep “pulling technological rabbits out a hat” to allow our growth worship to continue. The answer is much simpler. It’s one word, and it is so much easier than all the heroics being bandied about. It is “less!”
Dave Gardner
Producer/Director
Hooked on Growth: Our Misguided Quest for Prosperity
http://www.growthbusters.com
Dave,
“Mulig” is a Norwegian word translating to “possible”, and I am trying desperately to believe that it really is possible to change the course of history here. But I know it is going to take more than just a change of language. The last thing we need to do is to adopt the attitude of great pretenders. I’m having a hard time coping with these IEA world energy reports, in which CO2 emissions are expected to rise, rise, and keep on rising, no matter how one cares to look at it.
I’m a social scientist (at best) and under no circumstances an expert on any kind of energy technology. What I think is the smartest thing to do with what little remains of the oil of this world, is make sure that we can run empty but still be supplied with energy. Much of the remaining oil should be used to produce solar cells and wind mills, wave mats and other stuff. — In preparation for a low-carbon future, I mean. — As for the nuclear option, I can only say that it is very difficult to be in favour of a technology which somehow requires some measure of Big Brother attitudes as concerns politics and security thinking.
I wish there was no such thing as an atomic bomb. I hold faith in Einstein’s famous words about the substantially new way of thinking which is required. And I dread the wisdom of Stephen Hawking and James Lovelock which is that humanity had better make it to another solar system in due time; before we have managed to wipe ourselves out here. This is not the way of thinking that is needed, but so long as it is here with us it is difficult for me not to take it into consideration. And have a laugh at these people. As I know that I’m not going anywhere. And neither are any of them. — – Ha ha ha ha ha. —
History must be rewritten in order to make way for a low-carbon future of environmental protection instead of total devastation, right? I think your movie is probably going to be an effort at that?
Nice to run into you here, Magne. A low-carbon future will definitely be examined in my documentary, Hooked on Growth: Our Misguided Quest for Prosperity; I just want to be sure I don’t add to the group anesthesia – giving people false comfort they can change their lightbulbs, insulate their homes and ride the train, but otherwise continue to insist on economic growth and ignore population growth, and somehow arrive at a sustainable state.
Dave
Thanks to both of you for the kind words. I have to admit this little piece was, like most of what I write, the result of reading something that didn’t seem quite right — or at least not adequately explained. And this after transcribing Dave’s interviews with Albert Bartlett and former Colorado Gov. Lamm (which I need to finish up). I’d also just watched We Feed the World, a brilliant documentary about modern methods of industrial farming and fishing and their consequences.
Championing negative growth is one hell of a cross to bear in our society. It will be made easier by getting more hands to pick it up.
Dave,
You mention the light bulbs, and that’s nice. — Now, I hope that I’ll be wrong about this, but I am kind of disturbed by the feeling that plenty of powerful people want us “to think in a positive way” and act as if nothing very serious is up. It may seem as if self-delusion is the proper way to go.
Now, on a different note: I understand that the next president of the United States will probably be John McCain. Not because the people of the USA want another Republican president, but because the Democratic party are coming up with two potential nominees that are equally unelectable. It is like the world is jinxed with backwards minded politicians taking the lead everywhere. I mean: look to Europe now. Take a look at the hardened faces of all of our political leaders here. It is absolutely true what Trinifar is saying: the growth culture (the real name of the game) is somewhat psychopathic in appearance.
It’s interesting to sit here in one of the 51st states of this world and thinking about the fantastic internet run smear campaigns to come over there. — Hillary Clinton: a woman and the wife of a president who’ll always be remembered as Monica Lewinski’s lover. And then Abubarak Obama who is both a coloured person and a person whose name is a give-away. I say: John McCain is going to win the race for presidency by means of staying dead quiet about all things that have anything to do with the opponent. He’s got every chance to appear like that splendid grandfather figure who is poised to be levelling things up quite nicely.
Any thoughts?
McCain? I don’t think he has a chance. That the Democrats have two viable candidates is a plus. Individually each has raised vastly more money than McCain which, given the Republican leanings of Big Business and the wealthy, says a lot. At the Dem’s party convention in a few months we’ll know whether it will be Clinton or Obama who wins the nomination, and barring disaster that person will go on to become the President of the US.
Asked generically who they prefer, a Republican or a Democrat, people say a Democrat 50 to 37% according to a recent poll. They are also in favor of getting out of Iraq, and more than 2 to 1 disapprove of GWB. McCain is too much like GWB to win an election.
Of course, none of the three will sign on to the negative growth message in this post. I agree with Ralph Nader that in important ways the parties have the same basic faults which mostly involve being in the thrall of monied interests. However, also in important ways, the parties are different, and except for the 30% of the voters who are diehard rightwingers we want a change.
Since world war two and FDR/Truman no party has had more than 8 consequtive years in power and that was Reagan/Bush-1, and Reagan had some kind of supernatural appeal and the luck, as shown in the graph above, of being president during low oil prices immediately after two oil shocks.
GWB is disliked even by many Republicans and most independents, and McCain’s message is that he’d be quite similar to him. I think that makes him unelectable.
I hope you’re right. But if the election of John McCain would amount to a disaster, I still believe that might be it. As it is: we’re only starting to smell some of the smear coming from the internet location. Both Obama and Clinton are going to find it difficult to relate and respond to the ugliness that is going to reach their ears.
I think the change makers of the Democratic party has in fact taken the change quest a bit too far by putting up a woman and a coloured person up for the vote. I think it would have been easier to vote for a softer kind of change than presenting the votrers with the alternative of a first ever female president or, in the same fashion, a first ever black president. I think both will be too much too early, and that McCain is going to have to look extra stupid not to capitalize on either option.
This is my guess, of course. Sadly to say, I believe great many ordinary voters are going to be put off by the mere looks of the Democratic candidate.
I watched 60 Minutes a couple of weeks ago, and was appalled by Hillary Clinton’s comment on the question of Obama’s faith. Responding to the reporter’s question on whether or not Obama had a muslim background, she said she had to “take his word for it.” — Which is another way of saying that she’s not quite certain.
Now, as Obama looks more likely to become the Democratic candidate, he’d better not wait long before he starts acting on the information that he’s black (he must speak out on race issues) and the fact that Barack is very likely to be an Americanized version of this very common muslim name Abubarak. I have seen the beginning of a smear campaign against him on the grounds of his name. He needs to respond to this, as the voters are not going to fall for something that might look like cheating. And believe me: I may even say this as a social anthropologist: his name is way too muslim looking for Obama himself not to notice. So he shall have to talk about this. His best option is, I think, to be honest.
It’s interesting to sit here in one of the 51st states of this world and thinking about the fantastic bank and financial crisis which is just about to start taking off in the USA right now, and which this article is also all about.
I’m not going to sit like some idiot and say that I have not been foreseeing this. Of course I have! And I’m not alone in this. I expect most of the people who are browsing about the internet alongside the general patterns of ecology and climate change blogrolls have been expecting this for quite a while. The question is: how are we going to go about the task of comprehending what exactly is going on here?
Is it the end of an era? And, if so, could it possibly be the beginning of a more sustainable era? I mean: let’s face it. We’re not going to reach to the beginning of a sustainable economy before we have drawn the present growth mad ultra capitalist psychopathic greed culture (you all know what I mean) to a halt.
I’m not just kidding.
My most recent blog entry addresses this issue of energy as the basis for all costs in making stuff and providing services. Even human labor eventually comes down to energy input, so it isn’t very difficult to show that energy is the fundamental currency of the economy. [I don't mention it in my blog, but knowledge and ingenuity fit in the category of using energy most efficiently, but this changes the net free energy value, not the fact that it is free energy that is the currency.]
The interesting thing about energy is that it is not just another commodity because of the second law of thermodynamics. You can’t recycle energy. Once used it is gone. Which means you have to constantly replace it as an input to work.
The oil age represents a tremendous ballooning in energy available for work. All fossil fuels, collectively, provide high-grade energy at historically low energy return on energy invested (ERoEI). But now it is becoming increasingly costly in energy input terms to get more net energy.
In my post I run a thought experiment in which I set an energy standard for money. Doing this demonstrates the horrible distortions that have taken place in the monetary economy. Add in the fractional banking reserve system with its magical creation of money and the derivatives markets and it is no wonder the real markets just don’t work anymore. Nobody knows what anything is really worth anymore. All we can judge on is how much we think that widget will make us happy. The only sensible measure of success is making more money rather than making better tools!
It is a conceptually simple way to make the economy work. Let X BTUs = Y $s. There can be no more $s in circulation than you have stored BTUs available to do work. The last part takes into account the net energy problem. Implementation is another issue, but not unthinkable. We already have one accounting system in place. It would be necessary to change measurement processes, but the basic cost accounting process would work the same as it does now.
The up side is that we would begin to know exactly what the worth of everything is. The distinction between human values and actual cost (including future costs in energy consumption) would become completely transparent. It would also provide a means for adding in externalities in a more natural way.
The down side is that in a world with shrinking energy supplies (offset by whatever efficiencies we can invent) everyone will have less currency to work with. But this would certainly force us to set priorities (e.g. Magne’s desire to use existing energy to invest in future renewable energy). We could evaluate the relative worth of spending our resources on SUVs vs. solar panels.
In any case, it strikes me that this is a simple proposal that perhaps many people will be able to understand. Maybe we could formulate a message around the concept and start a movement! Maybe, if it isn’t too late, we could have a real impact on decision making.
George
George: “But this would certainly force us to set priorities (e.g. Magne’s desire to use existing energy to invest in future renewable energy). We could evaluate the relative worth of spending our resources on SUVs vs. solar panels.”
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Setting our priorities in a way such as this would certainly not be a bad idea. I think we are going to have to get our priorities right in such a lot of respects.
Question: how is humanity as a whole going to respond to the general idea that mass death is going to occur (an idea that is spreading very rapidly), while not doing anything to stop this from happening? How are we supposed to look at future, fear what we’re expecting, and not even try to do anything about it? How are we going to look at a future of massive climate refugee movement all over the planet, and at the same time do nothing what’so’ever in order to get prepared for tackling and positively dealing with inevitable social stress and chaos? Just looking ahead here, thinking about the climate change and what damage it’s going to do to Southern Europe (for example) in the next twenty years? My God. If we do not start to do something about global warming, I’m afraid we’re going to find it difficult to tell our children about some of the most basic facts of life. Like the fact that even the Southern Europeans didn’t respond to the warming of the planet, even if they knew that because of expected desertification they would have to surrender to God’s Will or whatever?
Now, I’m back on the increasing-fossil-fuel-demand train of thought here. How are we going to live with the fact that a lot of good science says that we’renot supposed to make use of fossil fules no more, while at the same time accept the social fact that fossil fuel use, supply and demand is up, up, up. No matter what people want to tell us about peak oil? Oil use is expected to go up, up, up, until the earth’s oil reservoirs have all of a sudden run empty. It’s like: aarrgh! Are we never going to learn the simple lesson that oil, gas, and coal is unwise, while all sorts of other forms of energy providing activites are all very good? Never?!
George’s post on “why isn’t the economy doing what Ben Bernanke wants it to?” can be had here.
Like me, George has a background in computer science, engineering, and business. Unlike me, he also has a PhD and a position in academia. What I think we share is an eye for energy and business costs. As he says in his post,
That’s quite similar to what I’m pointing to in this post. It seems that the US inflation rate since 1973 can be explained entirely in terms of oil prices — except for the last few years. That inflation did not increase proportionately to oil prices recently is not necessary a good thing. It appears that the financial tomfoolery that postponed inflationary effects has only postponed the margin calls — which makes it that much harder to answer them.
Another point of agreement. George writes,
The comments about presidential candidates not being willing to come out and promote negative growth reminded me of this little clip I put on YouTube awhile back. Fox News tried quoting Bill Clinton out of context to make it appear he was indeed promoting negative growth as a solution to climate change.
What I find so interesting is that 1) Bill Clinton would have been correct if that’s what he’d said, 2)obviously Bill Clinton doesn’t have the backbone to actually say that (though he came close) and 3) the Fox News folks thought that labeling Clinton as against economic growth would be the kiss of death (sadly true).
In case this effort to embed the video doesn’t work, you can access it at: Bill Clinton: We Have to Slow Our Economy
Dave Gardner
Producer/Director
Hooked on Growth: Our Misguided Quest for Prosperity
http://www.growthbusters.com
Yeah, I remember that happening and agree with your analysis. Somehow, we have to make it safe for politicians to speak the truth. I’ve come to see expecting them to do otherwise as being my own naivete — when truth speaking about this topic is a political death.
Speaking the truth about so many topics seem to lead to political death. Now, I wonder: how are we going to believe in a change for the better, so long as the political reality is that you can’t mention population growth, can’t mention the need for a reduction of consumption, can hardly even mention global warming as a political topic, and so on. We need honesty now; not political nilwilling. It’s interesting to see how all the solutions to our common problems turn out to be political taboos.
Another thing:
We (and the UNDP, the IPCC, and different national and non-governmental bureaus of future investigation) can’t just be diagnosing this cancerous future forever. We need to reach the point of action taking, or else we will remain looking at a future that is looking bleaker and bleaker by the day, until there can be no other option than to finally … what? … come up with a few “good” reasons to wage a world war both on China and Iran…?!
It may sound stupid, I know. But war may be understood as a stupid political reaction to bad times. I don’t want to think along these lines, but historiacally it is still true to say that after a depression, what comes next is war. It’s a way of recharging the batteries, so to speak. Giving the people a sense of purpose, among other things. And as China is expanding in Southern Asia and Africa. And as Iran is right on track to becoming a nuclear power. I guess you know what I mean. Good economic and security reasons to go to war are everywhere to be spotted. —
All the while it will remain wiser to think that in the face of global environmental problems we should all be looking to a future of world peace and planetary togetherness. A dream come true.
Uh. Don’t respond. The thing is: “anything is possible when everything’s uncertain.” — And that’s confusion.
As I’ve thought some more about my proposal to peg dollars to BTUs it is seeming to me to be nearly a magic bullet!
Might we be able to change people’s thinking by giving them a new perspective on the real economy?
I am imagining that a beginning point would be to start some kind of information center that would publish product and service costs as energy units. Perhaps even compute a shadow GDP in energy units. The purpose would be to start people thinking in energy flow terms and give them a way to compare their purchases to real wealth.
As an advocacy action, it would require carrying the message to policy makers, politicians, and academics. “We need to know the real costs in order to make better decisions!”
Would people start to think more clearly about their consumption and child-bearing decisions if they were exposed to real costs? “That TV has a price of $1,000 but it required a total of 200,000 BTUs to produce, 500 to mitigate waste products (externalities), and will require another 50,000 BTUs to recycle (dust-to-dust analysis). If BTUs == $s the real cost is $5,000 in resources.” or some such.
In case I’m just infatuated with my own thought experiment, somebody point me to reality again. Please!
George
George,
I think your idea has a lot of merit — quite a lot — and wish I had the time to delve into it in more detail. Here are some off-the-cuff thoughts.
You say,
The challenge is to come up with a methodology that gets accepted by enough people to carry some weight. I know you are a switched on systems guy, so you know the issues. The way to get started is to look at what others have done then do something and get some feedback.
I’d love to have a resource which would give me some, maybe rough, but reliable and justifiable information about the energy cost of everyday things.
Putting “lifecycle energy consumption analysis” into Google proved somewhat fruitful. Click here for that search.
You might look at the ILEA (Institute for Lifecycle Energy Assessment) and it’s mission statement.
There’s of course a Wikipedia article on Life Cycle Assessment which says,
Gristmill has a nice post on a farcical lifecycle energy use study. This is the sort of thing, drivel from deniers, we’re up against.
And so on.
But your point is a good one. When about to make a purchase or swap one product for another, we should be able to get a sense of what a product costs to make, to dispose of, and to use in standard energy units. Something other than BTU’s since that’s very much a US unit. megajoule (MJ) might get my vote, kWh is another possibility, but something that’s international.
Hm. You have the drivel from deniers, and then you have the smugness of spammers. Seeing global warming as a social phenomenon as well as a natural catastrophy in the making, I sometimes think about the thought pattern of spammers, and I nod to myself: of course this is a social phenomenon, too. Problem is: there are far more spammers and deniers than there are people who are seeking large scale climate change action.
Anyway: this is just one of the things I’m learning to cope with here.
Ta da. ,-)
http://www.atimes.com/atimes/China/JC08Ad01.html
“But a close examination of the FY 2009 request indicates that the principal sources of future budget growth are not the “war on terror” or other such low-intensity contingencies but rather preparation for all-out combat with a future superpower. Probe a little deeper into Pentagon thinking, and only one potential superpower emerges to justify all this vast spending: the People’s Republic of China.”
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Posted just to show that I’m not a complete maniac here. There are other people — people in the press — worried about what is happening in the military budget department of the nations of this world. As there can be no doubt that military spending is rising steadily all over the world, and not only in the US. Far from it.
I’m intrigued. Foolish me thinking that all kinds of climate change and poverty alleviation action would require peace in our times. Silly me.
Ta da.
Magne,
In the same speech in which Eisenhower warned of the influence of the military-industrial complex (his farewell address in January 1961), he said,
This interview is interesting too.
Some speech, that one.
In the 1970s the gold price went up before the oil price. As has been the case with the latest run up in oil. Was the world running out of gold then and now? Were we consuming more gold than before? Hardly. In both instances (in the 1970s and now) there was simply too much of that green paper that the fed prints and a government keen to be complicit in the game. Inflation snakes its way through the system in odd ways (like a rat moving through a python) but commodity spot prices always move upward long before consumer prices and we are now merely seeing the early signs of what is to come (unless they do a harsh reversal of form). The coming inflation is a failure of government, nothing more. If you are in doubt then study the price of commodities during any historical transition from price stablility to inflation. Commodity spot prices are the canary in the mine when it comes to inflation. Always have been, and probably always will be.
I’d suggest a little time studying Says Law might be more helpful than focusing on ecological footprints. I’m not saying the latter are not important but they don’t explain inflation.
p.s. As explained elsewhere “free markets don’t have central banks”:-
http://alsblog.wordpress.com/2007/10/18/free-markets-dont-have-central-banks/
Terje.
It’s not always like it always has been. I personally believe humanity is faced with problems today that the world have never truly faced before. What used to be the case in days before ours may not be of any consequence in comparison to the present situation.
I think we are going to have to admit that there can indeed be something new under tha sun, so to speak. And that the new thing is “global warming.”
Terje,
I’m not saying ecological footprints explain inflation. Look at the graph at the top of the post. From 1973 to the present, the inflation rate correlates strongly with the price of oil, and, to me, that makes a lot of sense. If oil prices go up radically, how can you not have inflation? Since sometime in the 20th century, certainly since the 1950’s the world economy rests square on the back of oil to produce goods, to power products, and to transport everything.
If you assume that a natural resource like oil is effectively infinite, you can claim that high oil prices will stimulate production and bring oil prices (and inflation) down. Since the first two oil crises were the result of voluntary political/cartel actions rather than a fundamental lack or increased cost of obtaining the resource, oil production could and did increase.
The current situation is very different. No one argues about world peak oil anymore, only over the expected (or past) date of ocurrence. No one argues about increasing competition for oil due to growing economies, especially in developing countries. Thus, “Inflation caused by demand of a basic resource outstripping finite supply is to be expected. It’s not a central banker’s faux pas. It’s normal.”
I agree with your point that “commodity spot prices always move upward long before consumer prices.” Gold is a famous example. People get concerned about inflation eating into their savings and convert money into something they believe will hold its value better.
Certainly this is part of what’s happening with current oil prices. It’s perhaps a viscious cycle: We have increasing demand for oil, the inability to produce enough more to meet that demand, prices then increase, people get (realistically) skittish about inflation, and they invest in oil knowing that’s a safe harbor. Now we have demand for oil as a product to use and as an safe-investment vehicle both driving the price higher.
In the event that there is any interest in some new ways to think about economics and the nature of money, I have just posted a blog on a proposal that might actually point the way toward solutions.
Its not a magic bullet, but it is a single approach that might actually answer a lot of seemingly disparate problems. Critiques encouraged.
George
Hey, have you guys thought of joining and promoting Earth Hour 2008?
Switch off all your lights and appliances on stand-by this March 29 (tomorrow) from 8PM to 9PM and join me.
Check out the US Earth Hour website!
[...] couple of weeks ago I made essentially the same case, suggesting that inflation has been tightly bound to the price of [...]
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