Prices Will Have To Go Up Permanently

This a continuation of the train of thought started in yesterday's post. You may want to check below.

If you believe Wonks Anonymous the slowdown that we are now experiencing has a very real cause aside from the financial shenanigans with which we are all familiar. That cause would be the limits to economic growth imposed by our energy intensive technologies and lifestyles. We need to find more fossil fuels somewhere or to find ways to do without fossil fuels.

Either of these solutions will require a sustained rise in the price of fossil fuels. New supplies of fossil fuels will be more expensive to find and produce - we have already exploited all the cheap and easily produced sources - hence we will need to pay more. If no new supplies are to be had at a reasonable price - see the post Peak Oil in this blog - then we will need to adapt our habits and technologies to this fact. Good will and warm fuzzy feelings about saving the Earth are all very well but nothing promotes conservation like price increases.

Now something like this happened for some time in the 1970's and 1980's. The price of energy went up while other prices, and our wages, stayed the same. We had to give up more of our time and more other goods to get a given quantity of energy. People drove smaller cars and insulated their houses. Businesses adopted more energy efficient technologies. As a final result the economy could grow even while it used the same amount of energy or less.

Growth was, by the standards of the 1950's and 1960's and even by the standards of the early 1970's, disappointing.  Real purchasing power of most workers stayed stagnant and a great part of the impetus for growth was the exportation of production to developing economies which offered cheap labor and used energy intensive technologies that the developed world had scrapped.

Energy use was increased by the heavy dependence of this system on shipping goods produced with cheap labor further and further to market.

When the real price of energy dropped of course we consumed more of it. In all but a few enclaves like Ashland Oregon, Subarus gave way to minivans and SUVs.

Sometime about two years ago we once again came up against out limited supply of energy. Prices started to rise again and - as in the 1970's - economic growth began to slow. Slow growth made the housing bubble unsustainable and, as before, worry about keeping a job distracts us from the problem of filling our gas tank.

During this whole cycle we have all shown the attention span and foresight of a somewhat slow 4 year old. If it is not a problem right now let's forget about it.

We could do this over and over again, gradually lurching toward a more energy efficient economy in between bouts of economic stagnation or we might try something else: This time we need to find a way to keep energy prices up and, indeed, gradually increase them.

This cannot be done by closing our eyes and chanting market magic. Someone, private sector or government, needs to take action and when action is taken there will be serious consequences. Many will experience discomfort, inconvenience and worse. Income will be redistributed and a certain amount of discontent will be created.

Tomorrow: Alternative paths to expensive energy.


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  • 10/24/2008 9:28 AM Anonymous wrote:
    One way to increase petroleum prices is to put an increased tariff or even an all-out embargo on oil from places like Iran, Russia and Venezuela. This has the manifold result of increasing oil prices here (thus discouraging petroleum use), increasing the incentive to drill for the tiny bit of oil left within our own borders and for developing oil alternatives, reducing our dependence on these countries and reducing their oil revenue which they in turn use for purposes unfavorable to us.

    However we decide to raise oil prices, it will hit our economy hard. In a recession, the last thing struggling farmers and small businesses need is a fuel price hike. I think this can be someone mediated by making public transport options more abundant and convenient in urban and suburban areas, which will in turn reduce demand for fuel thus returning us to a similar price for petroleum but with less being used in aggregate.
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  • 10/25/2008 8:07 AM Sher wrote:
    We have a real opportunity right now to move this country in a different direction. The recession and high gas prices are forcing people to limit driving. More people are enthusiastically embracing alternate transportation (walking, bikes, public transport).

    I want to see the next President aggressively promote energy conservation through heavy duty PR, tax breaks or whatever it takes.

    I want Congress to put together a comprehensive, long-term plan which will decrease energy consumption.
    Reply to this
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