Energy Is Still A Problem
We have, of late, experienced a drop in oil prices and this is generally billed as the good economic news amid the "perfect storm" of bad news. Wonks Anonymous is not exactly sure that this is the case because it seems to him that this "good news" is just another aspect of the general bad news.
Oil prices are down because our demand has shifted. Our incomes are lower. We take fewer vacations, turn down the heat and generally try to buy less gas. We are buying less of everything nowadays.
And this has happened before. Through the 1950's and 1960's the US economy grew, fueled by cheap oil and natural gas. In the late 1970's we began to come up against the natural boundaries of this growth. OPEC and conflicts in the Middle East helped this along just a bit. Still the real crisis came because no matter how much money we printed, and we printed a lot, growth of output would just not come. Growth required growing oil supplies which were not there.
By the time we figured this one out we had accelerating inflation. Unions bargained for higher wages and everyone else spent their savings to try to keep up. We finally "cured" the economy of inflation by means of one of the worst recessions in post war history. Labor incomes have never really recovered from this slump and most US households still limp along.
Still we have seen growing profits and a repeat of our own post war boom in Asia and some parts of South America. And, like our own boom, development in these countries has been energy intensive. Ultimately the growing demand for energy at any price ran up against limitations in supply. Over the past few years inflation has accelerated and would have continued to accelerate were it not for the sudden collapse of most financial markets.
For the moment inflation has been cured in the same way that descent into a coma can be said to cure seizures. If the patient should rise from the coma the seizures will no doubt return.
Unless we discover vast new pools of suitable fossil fuels - and this seems highly unlikely - we will need to change the way we produce goods and the way that we run our households so as to use less energy. We looked for new fossil fuels in the 1980's and paid a large amount of money to support attempts to turn oil shale and coal into usable fuels. Some people got rich but really nothing much has changed.
So we probably should think about changing our technology. More on this tomorrow.
Oil prices are down because our demand has shifted. Our incomes are lower. We take fewer vacations, turn down the heat and generally try to buy less gas. We are buying less of everything nowadays.
And this has happened before. Through the 1950's and 1960's the US economy grew, fueled by cheap oil and natural gas. In the late 1970's we began to come up against the natural boundaries of this growth. OPEC and conflicts in the Middle East helped this along just a bit. Still the real crisis came because no matter how much money we printed, and we printed a lot, growth of output would just not come. Growth required growing oil supplies which were not there.
By the time we figured this one out we had accelerating inflation. Unions bargained for higher wages and everyone else spent their savings to try to keep up. We finally "cured" the economy of inflation by means of one of the worst recessions in post war history. Labor incomes have never really recovered from this slump and most US households still limp along.
Still we have seen growing profits and a repeat of our own post war boom in Asia and some parts of South America. And, like our own boom, development in these countries has been energy intensive. Ultimately the growing demand for energy at any price ran up against limitations in supply. Over the past few years inflation has accelerated and would have continued to accelerate were it not for the sudden collapse of most financial markets.
For the moment inflation has been cured in the same way that descent into a coma can be said to cure seizures. If the patient should rise from the coma the seizures will no doubt return.
Unless we discover vast new pools of suitable fossil fuels - and this seems highly unlikely - we will need to change the way we produce goods and the way that we run our households so as to use less energy. We looked for new fossil fuels in the 1980's and paid a large amount of money to support attempts to turn oil shale and coal into usable fuels. Some people got rich but really nothing much has changed.
So we probably should think about changing our technology. More on this tomorrow.
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