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No one has epitomized our yo-yo economic thinking lately than Thomas Friedman, who followed a column urging let’s go shopping with another urging thrift. This is the dilemma du jour: which companies do we bail out, and which do we leave to drown?
Phrased another way, how do we have a smart recession?
The answer I think is pretty commonsensically clear: we bail out those things that lead to the future we want to have, and let the others paddle on their own.
Case in point: U.S. automakers. Are they leading us to the future? This is a no-brainer: one glance at their sales figures answers this question. If any question remains, consult The Economist, which states flatly that the future for automakers are how well they sell in India and China. Bad news, Ford and GM: China has fuel efficiency standards and India is implementing them. Turns out the years the Big Three spent opposing fuel efficiency standards in the U.S. were a bad career move and the argument that they needed low standards to be competitive was exactly wrong.
There’s a crowdsourced component to this as well. In these econocalyptic times, people are being more cautious with their money. There’s a commonsense logic at work, which is why people aren’t buying gas-guzzling American cars or cheap lead-encrusted Chinese cra- uh, goods. The econocalypse has forced people to begin thinking ahead and making the future part of their calculations. Now, if we can just extend this thinking into what sort of economy we stimulate going forward (and what kind we don’t waste our dollars on), the recession will not be another example of “a crisis is a terrible thing to waste.” Photo by oxmour via Flickr.
It’s probably unfair to finger Rocky Twyman as the architect of the global recession, for a variety of reasons. All Twyman did was lead a mass movement to pray for lower oil prices. But as Ian Ayres asks so succinctly, “Did God reduce prices on the demand side or the supply side?” Apparently Twyman and his followers didn’t specify, and God in his wisdom chose the demand side, in the form of a global recession.
Out of the many lessons to be learned here, let’s focus on this: Twyman’s blithe request illustrates the danger we’re in if we don’t look at the full relationship of oil prices, supply, demand, and the oil production pipeline. This was taught really well by players in the World Without Oil game: at game’s end, when the crisis was apparently “over” and gas prices had stabilized once again (at $5.50/gal US), many players were horrified to see their neighbors fall right back into their old fuel-dependent habits. Which is what I see now all around: people believing that after a period of “false high prices” driven by “speculation,” fuel prices are now declining to their “natural levels” where they will remain, apparently, until the Second Coming.
What has actually happened is that the credit crisis has removed uncertainty from the oil market. Earlier this year, the oil market didn’t know if the oil coming out of the ground would be able to satisfy demand, so prices for oil futures went up. Now, however, it’s clear to the market that a global recession is here, and since the recession will precipitate a sudden drop in demand, it’s also clear that for the short term oil suppliers have too much oil in the pipeline. Thus the tumble in prices.
What this does NOT mean is that we have a lot of oil, or that uncertainty is gone from our oil future. Uncertainty is an indelible part of oil – for one thing, the people who control certainty are the same people that profit from uncertainty. Add to that the tendency for oil to create and maintain non-democratic nations, and the growing strategic importance of energy, and you’ve got an enduring situation where the only certainty is uncertainty.
Plus… as I’ve noted before, success in energy independence means lower oil prices. The people who buy hybrids and use alternate transit drive down the demand for oil, which drives down its price for a while. But the only way to keep the price down long term is to actively pursue alternatives, and not to be seduced by a low price today. As we all know all too well by now, that can change, and astonishingly quickly. Photo by ursonate via Flickr.
It’s depressing of course to see U.S. gas prices dominate our news, because they are unimportant. Or, rather, are important only if they lead us to see the actual problem (which is the role they served in the WWO game). The actual problem being that, in today’s world, people starve without oil. I mean that in both an economic sense and literally.
And what we learned in WWO is that yes, you can prevent people from starving, both economically and literally. But right now you can’t do it without more oil.
You can stop crime, get more water, quell disorders, recover from disasters, address climate change. You just can’t do it without using more oil.
You can build a hydrogen economy, nuclear power plants, an all-sustainable energy grid. You just can’t do it without using more oil.
Where do you get this oil? There are no more gushers, no more huge oilfields, no more cornucopia. The world’s oil industry is now in its Red Queen phase, running as fast as it can to stay in the same place.
What WWO players came to experience is that the oil was going to come from them. From people, that is, who use a lot and have no good claim on it other than that they used to be able to afford as much as they wanted. The inexorable logic of this led many of them to change their real-life lives. They can’t change U.S. energy policy or the production capacity of a Middle Eastern oilfield – but they could (and did) change their own consumption. Thus adding their bit to the angle of the trim tab that will in time alter the course of the great big ship.
How about you? Gas is hitting $4 a gallon in the U.S., 129p a litre in the UK. Is the game is starting, for real this time? What have you learned?