Oil Prices as a Limit to Growth

Our media -- the great Dispensers of Amnesia -- would have us believe that the so-called real estate meltdown lies at the root of our current economic troubles.

Never mind the trillions of dollars of wealth that the Criminals of Wall Street slurped, sucked, and bled from the economy.

Never mind the bloated, ravenous swine at the top of the Corporate Pyramid Scheme who chuckle with malignant glee as they destroy the careers of working people and solemnly pronounce that "the American Worker is over-compensated when we consider the needs of the Global Marketplace."

Never mind the price of oil.

What? Oil has fallen from -- what was it? The neighborhood of $150/barrel? -- to below $40 per barrel. How can it be that its price limits economic growth, let alone is able to trigger an economic contraction?

Here's the deal: Of the major oil producers, only the Saudis have any real headroom for production. Mexico's fields show signs of a rapid decline into exhaustion. Venezuela has infrastructure problems. The same is true of Nigeria. Canada's oil is tied up in expensive, hard-to-extract tar sands. Russia's new-found, oil-backed chest-puffing will soon deflate. The list goes on. Maybe our good friends in Iran & Iraq have some headroom. Yeah. That's it: Iran will do everything it can to help our economy.

The economies of India and China continue to need unprecedented amounts of energy. Their citizens have exactly the same rights as everyone else on our planet to the pursuit of happiness, and they are in fast pursuit. They will buy as much oil as they can, and without changes in their growth strategies, they will drive oil demand.

Oil prices have softened largely because the US economy has softened. We hit a bunch of economic "soft patches" (remember that term?) and our economy turned south. Sadly, we seem to be on the verge of forgetting that against the backdrop of all the other economic events, oil import costs matched and then surpassed the percent of GDP that we saw in aftermath of the 1973 oil embargo.

When oil price reaches a certain threshold value, it acts as a brake on the economy. It makes the transportation of goods more expensive. It makes what little manufacturing that we still do less profitable. It causes us to spend more to heat and power our homes. For those of us who are employed, increased oil prices result in increased commute costs. 

When we spend more for energy, we cut down on our discretionary spending. Since so-called "consumer spending" accounts for approximately 66% of our GDP, a significant drop in that spending has a big effect on the overall economy.

If our economy has already been weakened, high oil prices can trigger a situation in which we spin into a recession. Eventually, the economic slow-down results in a temporary softening of oil prices, but as the recession bottoms out, our need for energy will firm up and then drive the price of oil as our economy expands.  

The price will rise until it reaches a level that impedes economic activity. Then we are again susceptible to an economic contraction.

The Amigo thinks that there is a way off this treadmill. 

Energy conservation and (real) renewable energy generation provide this way. Note the term "real" in the preceding sentence.

 

Most bio-fuels are little more than a re-direction of our tax dollars into the maw of agribusiness. Maybe tropical regions -- Brazil comes to mind -- could sustainably grow sugar cane or sugar beets and process that crop into alcohol, but we're not going to see that happen with corn from Nebraska. The sugar content of the crop just isn't high enough.  

Maybe oil-producing algae will let us produce bio-diesel. The Amigo doesn't know enough about that to make a call.  Some skepticism is warranted.

Nuclear energy has, over its checkered history, received orders of magnitude more government subsidy than all forms of renewable energy put together. In fact, the investment equation is so out of balance that nuclear has gotten more federal tax dollars in the last decade than the cumulative federal investment in all forms of renewable energy.

And don't let anyone tell you that nuclear energy is clean and renewable. Have you ever heard of a thing called a uranium mine? Mine tailings from said uranium mine? Nuclear fuel refining? Transportation and sequestration of nuclear waste? The notion that nuclear energy is anything more than another boondoggle whereby tax dollars better spent elsewhere are instead channeled into the coffers of a few big corporations is the shallowest of lies.

But there is so much that we can do. Here is a list. It's not a trivialized "10 Things You Can Do to Save the Earth" list. Rather, it outlines a scalable strategy that can be applied locally, regionally, and nationally:

• Wind, Sun, and Tidal Flow all have promise. Perhaps you have the financial and location-related resources to adopt one or more of these. Domestic solar hot water in particular represents a modest investment with a reasonable payback in many locales. At least educate yourself on what makes sense in your region.
• Ultra efficient buildings and vehicles are absolutely necessary. You can start with wherever you live and make incremental changes to improve its efficiency, enhance comfort, and reduce your monthly utility bills.
• Residential scale rain catchment can reduce runoff, erosion, groundwater pollution, and waste. You can start with as little as a simple rain barrel hooked to a downspout and grow your system. If you have the resources you can build a large system that can offset a significant fraction of your water needs.
• Local production of goods and services hold promise for living wage jobs. This grows slowly and only with concerted effort among people living in an area. Zoning changes can facilitate mixed use and this in turn can help convert unlivable housing developments into real communities.
• Walkable towns and neighborhoods enhance our health and our sense of place. What lies within a 10 minute walk from your door? Do you even know? If there is something of value within a 10 minute radius, then nurture it. Encourage your neighbors to do the same.
• "Victory Gardens" during World War II eased shortages and provided healthy food to millions. What really stops you from growing a few vegetables for yourself or your neighbors?
• The free-flow of information and high performance computing both provide opportunities for growth -- especially if we can deploy the waste heat from those compute farms to good use.
• Recycling at the regional level can reduce energy needs, reduce the need for extractive industries, and reduce transportation costs. Recent developments are beginning to allow single-stream recycling. This means that you won't need to sort your recyclables into so many categories. It also means that more items can be recycled economically. 
• Don't forget reuse. This is an especially efficient of recycling action. Used clothing stores often provide high quality goods at reasonable prices. Surplus and salvaged building supplies can be adapted to new uses. 

All of these factors can have a positive impact on our quality of life. Many of these actions can be undertaken as individuals or via informal neighborhood arrangements. Each time the Amigo looks at the list, more points get added. You could add a few points of your own and customize your actions to your economic situation and your locale.

Until we wean ourselves off oil as a fuel, we will continue to bump our heads against the price of oil every time our economy digs its way out of recession and begins significant expansion. The best way to enable this change is to be conscious of what you buy and who you buy it from. If you live somewhere that enjoys an uncorrupt local government, you can also try to influence local policy towards sustainable choices. Talk to your neighbors. You will probably find some at least who feel the way you do and will want to share knowledge, expertise, and labor. Such interactions build communities and require neither wealth or legislation.

Remember: limited power is not the same thing as being powerless. Each of us can do a little. Together, well...