For Obama: some environmental cheers and jeers

The Thinker by Rodin

No candidate running for president will run a perfect campaign and that certainly includes Barack Obama. When I endorsed him in January, I said he too was a flawed candidate. Overall, Mr. Obama has pleasantly surprised me with his post nomination campaign. He comes across as very thoughtful and articulate. It is clear that his campaign is remarkably well managed and on message.

If a presidential candidate is serious about winning, some accommodation toward the politically fickle winds of the moment is generally considered necessary. So we have seen in the last few days some statements by Barack Obama that have my head shaking. Pandering may seem necessary when winning at all costs is the goal, but when it happens it lowers my opinion of the candidate.

Obama’s proposal to release oil from the Strategic Petroleum Reserve was one of these political accommodations that made me wince. What a bad idea! Yes, I know his plan is to remove the easily refined light sweet crude oil from the SPR and replace it with the harder to refine heavy crude oil. This is supposed to result in no net loss from the SPR. As a result, he believes this will provide some working relief to the middle class, which is still reeling from the latest oil shock.

The SPR is there for a reason: to accommodate the nation’s needs in a national emergency. No such emergency exists. I grant that many families are suffering under the burden of $4 a gallon gasoline. Still, the economy is in no danger of collapse. Artificially lowering gas prices, if it works, simply encourages more of the dependence that got us in trouble in the first place. Obama says such a release would be temporary. He points to the effect of a decision made late in the Clinton administration to sell oil from the SPR and says that decision reduced gas prices. It is unclear whether it would have that effect today, but it would make it harder for America to get over its addiction to oil and move toward a post oil age. This is a politically expedient decision but overall a call I think he will regret.

Another bad call: tacitly agreeing with John McCain that we need to drill for oil off our coasts. Obama characterizes this change of heart as one part of an overall energy strategy and suggests such drilling would be limited. He knows that any oil we discovered would have but the most modest effect on oil prices. If oil companies started drilling tomorrow, it would be at least six years before we would see any oil from these fields.

There are a few reasons that oil companies are not drilling in these tracts that they are already allowed to drill in. Their geologists have surveyed these oil fields. The likelihood of getting oil in the quantity desired is slim and the cost of drilling in these deeper waters is high. In addition, you cannot force an oil company to drill for oil. Oil companies will look out for their bottom line, and if it does not increase it they will politely spurn politicians’ suggestions. This means that both Obama’s and McCain’s calls for drilling are specious. There are the many coastline states that have prohibited offshore drilling. They recall California’s 1969 experience that fouled 35 miles of beaches. Any oil that is recovered would have only the most modest effect on oil prices and would do nothing to move us to a post oil economy. Even if there were no oil spills, the drilling would have a major environmental impact on our seaboards.

What the nation needs is a comprehensive energy strategy that moves us into a post oil economy while simultaneously moderating greenhouse gas emissions. It may not get much in the way of votes, but if the nation had a strategy like this backed up by money and commitment it would be good not only for the nation and the environment, but good for the economy too. It would stimulate growth in jobs that are environmentally friendly.

However, I did like Obama’s speech today in Berea, Ohio. Obama pointed out a few days ago that a great way to reduce oil consumption is for drivers to make sure their car is tuned regularly and their tires are properly inflated. Republicans for some reason latched on to it as a crazy idea and began handling out tire pressure gauges to draw people’s attention to the proposal. This attitude is particularly odd coming from Republicans, who are reputedly big on individual responsibility. His proposal is not laughable; it is effective and can be made workable.

If I were running for president, I would do more than just suggest that Americans do these things. I would give modest tax deductions or credits for having your car tuned. Aside from the 1-3% reduction in oil consumption, if Americans practiced this regularly, it would help get Americans into the habit. Most Americans are too busy to be proactive about car maintenance. Knowing they can get a tax deduction for being kind to the environment (and their wallet) can lead to a pattern where most people will have their cars tuned regularly.

Getting people to check their tire pressure regularly can be accomplished too. We could offer modest credits for gas stations that add or expand air pressure hoses. A tire pressure center should provide tire pressure gauges on site and easy guides for determining the correct tire pressure for your tires. Why not add a penny to the gasoline tax but offer a penny a gallon rebate for checking your tire pressure within one hour of filling your tank? Simply insert the same credit card you used for your gas purchase to activate the tire pressure system at your gas station where you filled your tank to claim your credit. These modest steps, along with regularly increasing CAFE standards are pragmatic steps toward energy independence.

I suspect that before this campaign is over we will see many more accommodations by both Obama and McCain to lure in swing voters with proposals that are stupid. I just hope that these latest proposals from Obama are not serious and are discreetly dropped when, as I expect, Obama wins the election in November.

The hard road ahead

The Thinker by Rodin

In 1980 at the tender age 23, I voted for John B. Anderson for President. Anderson was an independent candidate. Anderson was full of great ideas that were politically non-starters. One of his ideas was to increase the federal gasoline taxes by fifty cents per gallon. This was at a time when you could buy a gallon of gasoline for under a dollar a gallon. His rationalization was that the tax would serve three purposes: reduce our dependence on foreign oil (we had already been through two oil shocks during the 1970s), give us incentive to practice conservation and provide the funds needed to achieve energy independence. This great idea killed his campaign. He started his campaign at above 25% support in polls and ended up with 7% of the vote.

John B. Anderson, Independent for President in 1980

In one of life’s little ironies, just a month after the tragic events of September 11th, John Anderson showed up at my church and gave a talk. (See picture.) He was then about to retire as president of the World Federalist Society (now Citizens for Global Solutions). There was time for questions and answers after his lecture. I went to the podium, looked him in the eye and told him I proudly voted for him in 1980. I mentioned his gas tax proposal and opined that events had sure proven him right. Had we taken the unpopular steps he suggested in 1980 and imposed on ourselves a fifty cent a gallon gasoline tax, the events of September 11th likely could have been avoided. It was President Reagan after all who strategically aligned us with Saudi Arabia, providing a compact of military arms for a dictatorial state for the assurance of low oil prices. It was our support of this oppressive state that provided the animus for Osama bin Laden, a citizen of Saudi Arabia to target the United States on September 11th. If only we had the courage to follow through on Anderson’s courageous idea, three thousand Americans who died that day would still be alive and we might also be energy independent today.

Change is never fun and serious change is usually resisted. Those who embrace inevitable changes though often end up ahead in the end. Why has the Euro been doing so well while the U.S. dollar has been in the toilet? It is because in Europe they were prepared for a changing world. Gasoline has been highly taxed for decades in Europe specifically to discourage the automobile and to encourage public transportation. If you have been to Western Europe, you know that it has phenomenal public transportation. Right now, Europe is also leading the way on global climate change. Among many initiatives, it is markedly reducing its carbon footprint through fuel efficiency standards in place today that we will not have in ten years. Not surprisingly, the European economy is doing rather well in shaky economic times. Its currency is so valuable because Europe as it is configured and managed is very well matched for our changing times.

What has the United States done? It would be polite to say we have been dragging our feet. In reality, we have largely ignored the environment and concentrated on glorious selfishness instead. We started an unnecessary and foolish war in Iraq that is bankrupting us. We have pretended to care about global climate change while doing almost nothing to address it. We have blithely ignored the consequences of our increased oil dependency. Public transportation, which is still inadequately funded, remains focused on highways and bridges. We have thrown mostly chump change at mass transit solutions.

It’s karmic payback time. In the years to come, we are going to get sticker shock at the cost of having ignoring these problems for so many decades. We may come to resemble Haiti in the sense that we will ask our leaders to deliver the impossible: address climate change, keep our taxes low but not allow our standard of living to change. If the 1980 election is any guide, when we discover our current leader cannot do it, we will elect someone else who will claim they can, but who will also fail.

Whether we like it or not, the times, they are a changing. We can choose to adapt to this new reality or, more likely, continue to try to have the same selfish lifestyle we always have had and take half measures. However, more of the same will only result in additional unnecessary pain. It is time to acknowledge that our future lives will be markedly more downscale than our current lives are. This transition is unlikely to be much fun. As a nation, we are in the initial phase of an extended high colonic.

Here are some likely outcomes that I see. Traditionally, the cost of living out in the country has been cheap. That is going to change. Life in the country may become a privilege for the rich. To live in the country you will have to pay the freight: ever-higher gas prices. As those living further out feel the gas squeeze, they will naturally choose to live closer in. By doing so, they will be less affected by the cost of oil. They will also be closer to jobs. By living closer in, they will have access to public transportation so they can get by with one or no cars. This will allow them to have a comparatively higher standard of living and more job security than if they live in the country or in a far-flung exurb.

This will work for a while. Of course, economic factors will make most who do not live around a city also want to move in closer too. This means land prices will rise the closer you are to urban areas. Which means the cost of living will go up around cities too. You will feel damned either way. As I suggested in a recent post, people watching these mega-trends are already making the smart choices. They are moving in now while housing prices and interest rates are down. Their houses are going to be smaller than they envisioned, but they will gladly pay this price for convenient access to jobs and transportation.

Energy costs will continue to rise, which will drive everything toward energy efficiency. Energy efficiency though will not come cheap. New houses will probably need more than just better insulation and highly energy efficient windows. They will need solar panels on the roof. It will be built into the building codes. Houses will be required to be built with LEED Silver or better standards. This will raise the cost of housing making it that much harder to afford to buy a house in the first place. Older houses are probably too hard to retrofit to be LEED compliant. Eventually they will become too expensive to inhabit, so they will have to be replaced with energy efficient houses. More likely, they will be replaced with condos and apartment communities. Demand will require it.

We will require readily accessible public transportation. This will mean heavy rail, light rail, trains, buses and bike trails everywhere and maybe even the return of trolleys. This cannot be done for free. It will require substantial tax increases. In short, we are all going to feel very squeezed which will have the consequence of us having lifestyles that will seem markedly poorer than our parents. We will probably resent this new reality.

What I have outlined is something of a best case. What actually happens is likely to be quite different and probably worse. Certain trends like people migrating from far-flung areas to closer in areas are inevitable. Most likely, we will try incentives like tax credits to ease the pain. Yet tax credits still have to be paid from somewhere. In short, to reinvent society takes incredible amounts of money. We will pay it one-way or the other. It can be intelligently accomplished through taxes and careful planning, or unintelligently through reaction to market forces. It is a road that we will have no choice but to traverse. However, we do have a choice on how painful it will be. As with most things, the sooner you start and the more intelligently it is accomplished, the less painful it will probably be.

I suspect that if a candidate today proposed a fifty cent a gallon tax on gasoline, he would get the same response at the voting booth that John Anderson received in 1980. Unfortunately, because we have dragged our feet for thirty years, the cost of procrastination has gone up dramatically.

So get ready. Our economic foundations are starting a seismic shift that will affect every one of us. Are you going to work with these natural forces? Or are you going to resist them? We all need to realize that to adjust to these new realities will require extraordinary sacrifice, akin to what our parents went through during World War II, but unfortunately lasting much longer. Over the next fifty years, we will have to reinvent ourselves as a society and as a world. I hope that this time we find the determination to do it intelligently. If government of the people, by the people and for the people is not to perish, we the people are going to have to come to terms with these costly changes that are already unfolding all around us.

Trapped in exurbia

The Thinker by Rodin

As a part time prognosticator, I sometimes get it wrong. Sometimes I get it right. When I get it right, it is not necessarily a reason for feeling smug. Today, I reread this post that I wrote back in 2005. I wrote it when the oil squeeze was just beginning. I remarked how uncomfortable I felt seeing new exurbias sprouting up in nearby Loudoun County, Virginia because virtually all of them are inaccessible to public transportation. I wondered what would happen to these communities with continued increases in price of oil or its unavailability.

Now we are finding out, and the answer is scary, as this NPR story reports. Ashburn, Virginia is in Loudon County, Virginia and part of the greater Washington D.C. metropolitan area. It is one of those newly built exurbias. What is happening in Ashburn is that home prices are tumbling much faster than the national average.

Realtor Danilo Bogdanovic surveyed two rows of neat, new, brick townhouses on Falkner’s Lane. “These were selling for about $550,000 at the peak, which was about August ’05, and they’re selling right now for about $350,000,” Bogdanovic said. “Fifty percent of this community has been ether foreclosed on or is facing foreclosure.”

Coincidentally, my hair stylist lives in Ashburn. Today while she was cutting my hair, we were chatting about high gas prices. If she and her husband had to do it over again, she said, they would have never moved to Ashburn. Their gas prices are driving a big dent in their budget. Yet, I learned, moving in closer was not an option. They would lose too much money, because their house was worth less than they paid for it. If her house is on Falkner’s Lane, I can understand why she would feel blue, since she might now own a house worth $200,000 less than what she paid for it.

What might turn things around? As I implied back in 2005, some public transportation might help. That is not to say that it doesn’t exist in Loudoun County, but it is very limited and assumes you commute to work in Washington, D.C. A resident of Ashburn could drive or bike to the Dulles North Transportation Center and from there take an express bus into Washington D.C. This bus is not cheap. It costs $6.00 each way with a smart card, or $7.00 if you pay cash.

What would someone in Ashburn do if they needed to commute to some other job center like Tyson’s Corner? Perhaps they could catch another bus at the West Falls Church Metro Station, where the bus stops on its way into Washington. What if they need to take public transportation to go to a doctor’s office in Reston, Virginia? It might be technically possible at certain times of the day, if they can make it work with the commuter bus schedule and make their bus transfers on time. What if they need to take public transportation to go to the grocery store? As best I can tell, there are no such routes. Even if routes were put into place, given that Ashburn is such a sprawled out community they might have to walk a mile or more just to get to a bus stop.

For all practical purposes, residents of Ashburn are stuck. Owning a car is required to live there. Their lifestyle is held hostage by the price of oil. Oil prices may seem astronomical, but they are fortunate that gas is available at any price. Without it, Ashburn would become a gigantic modern ghost town. Combine rising oil prices with a falling dollar and the negative net worth of so many residents of Ashburn and you end up with houses that are worth $200,000 less than they were just three years ago. You have whole communities of people with negative equities in their houses, unable to move and who are one job loss away from financial catastrophe.

My own house is about three miles away from Reston. Reston is a major source of employment and has thousands of great jobs for knowledge workers. In the unlikely event that you lose your job at one company in Reston, you can probably pick another one like it somewhere else in Reston. A Fairfax Connector bus serves my neighborhood, but it operates during rush hours only. However, my house is just three to five miles away from thousands of jobs, not ten or fifteen miles away like in Ashburn. Where I live, you can probably get to your job without a car if needed. I bicycle to work, which is three miles away, three or four days a week. Consequently, gas prices affect me much less than most commuters. Yet even if I worked downtown, I still would not be too badly inconvenienced. I could bike to the Herndon Monroe Park and Ride, which is also three miles away, or grab the 929 bus, which runs by a road a few hundred feet from my door. Once at the Herndon Monroe Park and Ride there are plentiful express buses that will take me to the West Falls Church Metro station. From there I can get to any place on the Metro system. If I needed to take a bus to nearby Reston, Herndon, or even some of the local malls, I can transfer at the Herndon Monroe Park and Ride. Obviously, I could get to these places more quickly by car, but it is possible. The same cannot necessarily be said about communities like Ashburn.

My neighborhood is not immune to the real estate slowdown either. Our house has lost about $75,000 in value since its 2005 peak. However, that is $75,000 though, not $200,000. There are plenty of houses for sale on my street, virtually all in excellent condition. We live in a terrific family neighborhood where owners take pride in their houses. I suggested to my stylist that they should move to a house on my street. She would be two miles from work so the cost of gasoline would be insignificant. However, with the negative equity in her house, moving is out of the question. Where would she and her husband find the money to pay off their loan on closing?

I do not think these underlying dynamics are likely to change. We are at the beginning of a fundamental transformation of America. This means our love affair with the automobile is likely to change dramatically. At best, I expect oil prices will stay about where they are now. Therefore, for many homeowners out in exurbia the financial squeeze, already bad, is likely to get much more painful. The long-term trends though are clear. Unless you can work from your home or can find employment close by that pays your bills, do not buy in the exurbia. If you are in the exurbia and can move in close, this is the time to do it.

Housing prices are down substantially in good neighborhoods like mine that are close to jobs and public transportation. Because prices are down and mortgages are very affordable, now is an excellent time to buy in these neighborhoods. It may not be easy to sell your current house, but as I learned in 1993 if you lower the price enough you can sell any house. You can buy a better and closer house at a substantial discount and be primed for appreciation during this seismic realignment of society. In addition, selection is plentiful.

To the many residents of Ashburn and similar far-flung communities who are feeling the squeeze, you have my sympathy. If I lived in Ashburn, I would still move closer in if I could find a way. The long-term housing dynamics for Ashburn and places like it look dismal. You may find yourself inhabiting a modern ghost town.

Is mutual interdependence the solution?

The Thinker by Rodin

That is what I have been asking myself this evening. As often happens, I was getting dishpan hands this evening while listening to the radio. Tonight, C-SPAN Radio was featuring speakers at yesterday’s Republican Straw Poll in Ames, Iowa. I happened to tune into a speech given by candidate and former Arkansas Governor Mike Huckabee. He was winning kudos from the friendly crowd by speaking of the virtues of energy independence. He proposed a plan that within ten years would make our country energy independent. He also warned of an even bigger national security issue: food independence. A nation that cannot grow the crops to sustain itself could be blackmailed, he warned. He warned the crowd that we could not let this happen. He received warm rounds of applause for these points.

I too have made similar points in the past. When discussing illegal immigration, I pointed out the consequences to our nation if much of our agriculture disappeared because we could not find sufficient migrant labor to pick our crops. When discussing global warming, I pointed out that conservation and renewable fuels could help us become energy independent. Once we were energy independent, the consequences of another war in the Middle East would trouble us a lot less.

While I still think that both goals are laudable it occurred to me that there is a downside to all this independence. What we are really saying when we talk about energy or food independence is we want our nation to be completely self-reliant. If we can take care of ourselves, then, if necessary, we can seal our borders and live in relatively happy isolation from the world’s chaos.

In our interconnected world, we will never be isolated from the world’s problems again, if we ever were. It is still said that when Wall Street sneezes, the rest of the world catches a cold. This seems to be borne out by the turmoil the last few weeks in our risky sub-prime mortgage market. Now it is also true that when stock markets tank in South Korea or in China, Wall Street catches a cold. These effects of course simply reinforce my point that we are increasingly interdependent. There is no way to go back to our isolationist past. We need to accept this reality. That our economy is growing at all is largely a result of our interdependence. Imagine how you would feel as a shareholder of Microsoft if it could only sell inside the United States.

So what does this mean? It means, as I have suggested before, that nation-states are moving toward obsolescence. I see this in small ways in my own life. I earn a few bucks on the side installing software for clients. I have yet to meet any of my clients in person. There is one client twenty miles or so away, but even in his case, all of our interaction was accomplished through email. Most of my clients live in the United States, but I have had clients in Israel and Great Britain too. It is not hard to transact business. They send me money via PayPal. I do the work over the Internet. At least in my case I can state that the Internet has made such things that used to matter, like the country where someone lives, irrelevant. Their money may be in a different color when they go buy groceries, but it is green when it arrives in my PayPal account.

It looks like before we ingloriously leave our debacle in Iraq will cost us at least a trillion dollars. Why did we do it? President Bush was quite candid about his rationalization before we invaded: because he perceived a real threat from Iraq to our national security. We thought that given more time Iraq could create atomic weapons that it might lob at us. Apparently, that was unacceptable to the cost of about one trillion dollars and hundreds of thousands of lives. Our ability to remain an independent nation apparently trumps all other needs including the need for all nations to peacefully coexist.

Most economists tout the virtues of free trade. They see it as a cure to the world’s economic ailments. Free trade, they intone, raises all boats. If it is cheaper to import vegetables from Mexico because the labor is cheaper there, this is ultimately good. Consumers benefit. Our farmers may be a bit put out but overall both the United States and Mexico would benefit. Our agriculture would change to be more efficient, or we would develop new industries to replace it. However, what free trade also does is that it promotes our world’s mutual interdependence.

From listening to politicians running for office, I am left to conclude that the world’s mutual interdependence is a bad thing. Is it? Maybe what we really need is to encourage our interdependence. Maybe nation-states are entities that are on their way out. Maybe what the world needs is world federalism instead. If this is where we need to go, from a world of autonomous states, to a world of federated nation-states then we need more interdependence, not less.

My firm conviction is that these dynamics are already well underway. Those who adapt to this new reality, like Europe, are likelier to prosper. The longer that the United States of America deludes itself into thinking that we will always be completely sovereign the more painful and costly our adjustment will be. Arguably, the debacle in Iraq is a one trillion dollar consequence of our delusion.

Imagine a different world where this is no my country vs. your country competition except in sports. I am not naïve enough to think that such a world will happen overnight. However, I do think that since the process is already well underway, the longer we delude ourselves then the more painful our transition will be. We need to discard ourselves of foolish notions like we can provide entirely for our country’s needs. While energy independence may help us find cleaner means of generating energy to reduce global warming, its ultimate goal is to find ways for the world to also do this. For global warming, like much of what ails us, can only be solved globally.

The more we rely on other countries, and other countries rely upon us, the more natural incentive there is for all of us to get along together in peace and harmony. These ties truly bind us together as a planet. We need to listen to the message. China, Russia, North Korea, Iran, Pakistan, India and many other countries need to listen too. The European Union has already heard the message and is prospering.

We cannot solve our national problems by being independent in all things, or even in areas that we consider critical to our sovereignty. This is delusion. However, the world can solve its problems by engaging in them together. Economic interdependence is the means by which a newer and saner world order could emerge. It is likely to be messy, as are most things in human affairs, but it offers a hopeful vision, and seems more viable than our current tactics.

Imagine there’s no countries
It isn’t hard to do
Nothing to kill or die for
And no religion too
Imagine all the people
Living life in peace…

You may say I’m a dreamer
But I’m not the only one
I hope someday you’ll join us
And the world will be as one

– John Lennon, “Imagine”

No silver bullet

The Thinker by Rodin

Those of us of a certain age remember the presidency of Jimmy Carter. While Carter’s post presidency was far more successful than his actual presidency, Carter also had a bad habit of not telling us what we wanted to hear. In the midst of rampant high inflation, oil shocks and other systemic problems most of which were decades in the making he asked Americans to sacrifice. He told us we needed to change ingrained habits to ensure a brighter tomorrow. He talked about the urgent need for our country to establishing energy independence from the Middle East. He told us to turn down the thermostats in the winter and turn them up in the summer.

Americans did not cope well with these suggestions. I cannot remember a time when my fellow citizens were in a sourer mood. It was no wonder then that when Ronald Reagan proclaimed that it was Morning in America, his message fell on receptive years. Living with the reality of the energy crisis and the fundamental changes underway in our economy at that time was no fun at all. Our politicians were convenient targets at whom we could vent our rage. Out went Jimmy, in came Ronnie. Out went fiscal discipline, in came Voodoo Economics. We would grow our way to prosperity by charging it to the U.S. Treasury. We would delude ourselves that we were prosperous the same way that Blondie deluded herself that she could afford all those shoes because there were still checks in the checkbook.

Reagan exploited a fundamental truth about Americans: in peacetime, the electorate can tolerate a few servings of spinach only. For the eight years of his administration, the spinach diet disappeared and was replaced by the jellybean diet. (Ronnie loved those jellybeans.) To ensure we would not be eating spinach, he strengthened our relationship with Middle East oil suppliers, i.e. Saudi Arabia. All that cheap oil did help grow our economy, which in time perked up the national mood. The Saudis seemed very happy with their new fleet of American fighter jets, not to mention our growing military presence in the region, even though we were technically infidels. It is now clear that this strategy to keep America growing through access to cheap oil had a downside. It tied us intimately to the intractable problems in the Middle East.

In case you have not noticed, the Middle East, never a calm region of the world, is hardly a more secure place than it was twenty-five years ago. In fact, it is arguably in more turmoil than it has ever been. The umbilical cord between the Middle East and us, driven by our insistence on its oil, is now so big and so thick that cutting it is unthinkable. Moreover, the fundamental issues in the Middle East have not been resolved either. In fact, we have exacerbated the Middle East’s problems. We have given oppressive and authoritarian states (Egypt and Saudi Arabia in particular) the means to keep their people oppressed. I strongly suspect that there is a direct connection between the continued oppression in these states and the rise of Islamic Jihadist movements. Osama bin Laden, after all, is a Saudi who had no sanctioned outlet for his grievances. He was told to stuff it or go to prison or possibly be executed.

And so we get in higher and deeper, to the point where we make ghastly half trillion dollar mistakes in hellholes like Iraq trying to undo our mistakes. As if the carnage in the Middle East were not enough to distract us, there are these other problems that make issues like terrorism seem rather trivial. Global warming and its consequence, overpopulation and a ravaged environment, is probably the biggest problem that humanity will ever face. We recognize the need to do something serious to address it, but we are not sure what should be done. Whatever solutions are required, what we have done so far clearly has not worked. It looks like we need a long-term strategy to really address global warming, we need it now, and it must be dramatic. In many ways, these issues are the same issues we tried to address a quarter century ago. Only now having spent twenty five years ignoring the problem, the cost and pain involved in fixing the problem has mushroomed, much like the costs of occupying Iraq.

Americans are beginning to understand, grudgingly, that it is time to eat the spinach again. Since Republicans seem incapable of it, the Democrats will have the unenviable task of leading on these issues. It remains to be seen though whether Americans are willing to accept the pain and sacrifice necessary for genuine energy independence and real solutions to global warming. Thinking back to the Carter years, I am not hopeful. In fact, in our SUV addicted nation, I think we will give up our guns before we will give up our Hummers. Instead, we will look feverishly for that silver bullet that will allow us to live our first world lifestyles without actually having to pay for it.

In today’s USA Today, I read that Honda will release a limited edition hydrogen powered car next year. Great news: it will not pollute the air at all! You will refill your tank at special gas stations equipped with hydrogen pumps. While hydrogen powered cars will not emit any pollution, all that hydrogen is going to have to be manufactured and transported from somewhere. Ideally, it would come from a nonpolluting sources such as hydroelectric plants and wind farms. To make a long story short, hydrogen powered cars probably are not a silver bullet either. At least in the short term producing the hydrogen to run them would probably contribute to global warming. If we use renewable sources of energy, like feedstocks, to produce hydrogen, we may drive up the cost of food, and cause people to starve. We are already seeing the effect from using corn for energy. Corn is being used to create ethanol. As more corn is used, demand for corn increased, and prices rise. As a direct result, rising corn flour prices in Mexico are deepening the poverty of many Mexicans and causing more Mexicans to go hungry. With hydrogen powered cars, our urban skies may eventually be cleaner, but it will not solve the global warming problem. Instead, trying to solve one problem will likely cause additional unforeseen problems. Someone will probably pay a price for every clever strategy we concoct to solve these problems.

There are unlikely to be any silver bullets for us on the global warming issue. Technologies like hydrogen-powered cars, while better than doing nothing, are merely tinkering around the edges. Real solutions are likely to be too painful to adopt. To address it we must consume much less energy than we do now. We must stop our population growth and eventually reduce our population to levels that the earth can handle. We must live in denser neighborhoods. In short, a few servings of spinach will not suffice just like a couple week on the Atkins Diet won’t make you a thin person for life.

I expect that Democrats have learned from the Carter years. I think they will give these issues attention, but not enough to alter the dynamics between the needs of people and the needs of the planet. Instead, they will choose a middle ground. Arguably, it may be the better of two bad choices. Turn the screws too tightly, and the Republicans get back in charge, which if their history holds true suggests we will go back to giving lip service to the global warming problem. That will be toxic to our species and to our planet.

Hillary Clinton epitomizes this middle ground. She is expressing hope and optimism that we can address global warming, energy independence and all the other issues our nation is grappling with. To me it sounds like a new version of Morning in America. Hope is a necessary ingredient to drive change, but more than hope is needed. These actions, however much hope they may inspire, are doomed and fall short of what is needed.

What is needed is massive and painful societal change. I have some ideas that are unlikely to go anywhere. However, if they were enacted they would demonstrate to the world that we are serious about global warming. Mind you that these are only first steps. How many of these would you personally commit to in order to address global warming?

  • Limit tax deductions for dependents to two dependents per household.
  • Tax homes that exceed a reasonable square footage, say 2000 square feet.
  • Limit trash collection to once a week.
  • Prohibit the use of power mowers. If we must have power mowers, ensure they use catalytic converters like our cars use.
  • Require all houses to undergo annual energy audits. Fine those that do not meet strict efficiency standards.
  • Limit power consumption from carbon producing sources to a given number of kilowatt-hours per household per month. Exempt households that receive their energy from clean power sources.
  • Put a surcharge on energy use to be used for the development of more clean forms of power.
  • Prohibit new development on undeveloped land.
  • Limit the number of automobiles to one per household.
  • Pay per pound of garbage collected.
  • Provide tax credits for households that have certified systems that keeps temperatures at 65 or below in the winter and 80 or above in the summer.

Yeah, I know. Most if not all of these ideas are dead on arrival in Congress, even if my party, the Democratic Party wins control of all branches of government. As President Carter found out, this will be too much spinach for the national stomach to digest. While other actions show good intent, only actions like these will lead to meaningful change.

The reality is that our golden era of energy gluttony has passed. This new era in which we will arrive either sooner or later will not be as comfortable, but we and/or our grandchildren will have to get used to it. It is either that, or as is suggested in the movie The Last Mimzy, the future of the human race and of the planet looks unimaginably bleak.

It’s time to prepare for the end of the oil era

The Thinker by Rodin

I have written before about America’s dependence on oil. In July 2004, I wrote about the end of cheap oil. At the time, the $40 price for a barrel of oil seemed outrageous. Two years later, we look back at those prices with nostalgia. A year later, I wrote that America was a country in decline, in part due to the many emerging economies driving up demand for oil. A month later, I wrote about how surreal and scary it was to drive through the rapidly growing exurbs, knowing that their existence was predicated on the automobile and consequently the ready availability of gasoline.

Like most Americans, I too cannot help but be fixated on the price of gas. I reached an unfortunate milestone this week when I filled up my fuel efficient Honda Civic Hybrid. It is just a compact car, but it still cost $36.50 to fill its tank. I do not recall ever spending more than $30 to fill it up. My wife drives a larger car (a 1997 Honda Odyssey). I filled it up for her on Monday and it cost $41, another record high. I am sure others with larger cars and gas tanks are paying much more. I heard on the news this week of a woman who paid over $100 to fill the tank of her Ford Explorer SUV. That has to hurt.

Naturally, with these kinds of prices it is hard to keep hybrid cars in the showrooms. SUV sales are way down. Many Americans are making big changes in their driving choices. Even our Republican congress is thinking the previously unthinkable: raising automobile fuel efficiency standards, even for SUVs and light trucks.

These are steps in the right direction. Yet I also think most Americans understand intuitively now that an era has passed. We can no longer take for granted that we can get from point A to point B at an affordable price and at a time of our choosing. Prudent Americans should be preparing for what comes next.

Of course, it is hard to know what will come next or how soon it will arrive. I do think we can take as a given that our transportation costs are going to keep going up, largely due to increases in the price of oil. I think we can also count on our oil supply system becoming more vulnerable to supply fluctuations. We are like a hypochondriac. We watch our oil supply system with the greatest concern. The smallest problems are greatly magnified and cause oil dependent economies to keep bidding up the price of oil. While there are still likely undiscovered oil fields out there, they are fewer. Extracting oil from them will be increasingly more expensive.

Those of us who lived through the 1970s remember the two oil shocks. We remember gas lines. We remember only being allowed to buy gas only on odd or even days. I remember waiting for more than an hour to have the opportunity to fill up my car’s tank. We are likely to see those days again.

It is possible that Saudi Arabia will fully open its spigots, thereby increasing supply and lowering prices. However, they are already pumping at close to their capacity. Moreover, it is not necessarily in their interests to increase the supply. Even if they do so, there is more demand. China, India and Indonesia are but some of the emerging new economies whose continued growth is predicated on oil.

What does the average American do? Is it enough to buy a hybrid? As with all things it depends on what actually happens and how much risk that you are comfortable assuming. It may also depend on your financial situation. Oil price increases are easier to endure if you make $100,000 a year instead of $40,000 a year. However, if there are large disruptions in the supply of oil all of us automobile owners will have to wait in gas lines.

I am more of the paranoid type. I do not necessarily prepare for the worst case, but I am prepared for the next to worse case. I think gas prices will keep going up. I think we will see occasional gas lines. I think our lifestyles will get a lot more expensive and risky, and I want to minimize both of these likelihoods. So yes, while SUVs were still flying out of dealers’ lots I bought a hybrid. Today, as I listen to my wife’s car idling at traffic lights, I also wonder if it is time to trade in her car for a hybrid. These are sound strategies, providing there is an adequate oil supply.

Long ago I realized my family also needed to be in a position where we could live without a car if necessary. I am fortunate because I can bike to work when the weather allows. Work is three miles each way and biking is an easy and fun way to get the exercise my body needs anyhow. If biking is out of the question, walking is not. I also have a bus I can jump on a quarter mile down the road if necessary. My wife is in a more difficult spot. Her job is 15 miles away. It is theoretically possible for her to get there by public transportation, but unless the bus routes changed, it would likely be at least a 90-minute trip each way to work and she would still have to do considerable walking. We also have two grocery stores about a mile away from us. Life would not be pleasant but assuming that public transportation was available, we could get by.

If your income depends on having an automobile, I suggest that it is time to rethink your lifestyle. I am not saying it would be easy, but I do think that this is the time to do it. It is better to be on the leading rather than the trailing edge of this change. For example, if you have a house in the exurbs, it is time to think about selling it and moving in closer. I would recommend settling somewhere no more than a mile from public transportation. Ideally, the public transportation should take you expeditiously to convenient major centers of employment.

Clearly, this is not an easy thing to do. One of the reasons people moved to the exurbs in the first place was that it was expensive living near the city. However, if it is expensive now, it is only going to get more expensive. What might your life look like in ten years if gas costs $20 a gallon and you still had to commute by car? Now suppose you could not even get to your job because you could not buy gas for your car. Could you telecommute indefinitely? Could you buy your groceries from a nearby farmer’s market?

I fear that there will be many hard and unpopular choices like these in the years ahead. The good news is that in many communities the housing market is soft. Here in Northern Virginia there is an abundance of unsold condominiums. Even houses are languishing in the market and prices are coming down. This may be the time to make that difficult lifestyle transition, even though in the short term it may cost you considerably more to move in closer to the city.

I feel fortunate. While there are no guarantees in life, I have a reasonable buffer should a sustained oil shock occur. The good news is that the sooner we come to grips with our new reality, the better prepared and less vulnerable our society will be when it arrives. If more of us realize, for example, that we need to live closer to places where there are plentiful job opportunities, it will encourage denser housing developments closer to urban areas. With the return of far-flung suburbanites, these communities will probably be transformed in a positive way. While we may not like having more neighbors closer to us, we will still carry our values with us. We will insist on safe neighborhoods and quality schools.

As part of this transformation, we will also be consuming less oil, simplifying our lives, improving the environment and helping the planet. In addition, if you begin this transition now it will cost you a lot less and be a lot less painful than it will be for the procrastinators.

As the late Ann Landers so often put it, it is time for Americans to “wake up and smell the coffee”.

The end of the best of times

The Thinker by Rodin

Some time ago, I wrote about the end of cheap oil. The oil economy is definitely on my mind today because we are in transit. As I write this, we are snaking into Ohio from Pennsylvania on the turnpike. I am wondering how much longer Americans can take for granted simply getting into your car and taking it anywhere you want to go.

There are scary signs out there for us drivers. If they are causing jitters on Wall Street, they should at least make our hearts skip a beat.

– Crude oil prices spiked past $67 a barrel in open trading on Friday
Gasoline prices hovering near $2.50 a gallon
– The markets are nervous about our ability to refine all the oil we are importing. Refineries do not have much excess capacity. Moreover, it is difficult to finance and locate new refineries.
– General uncertainty about our foreign oil supply

It may be that these oil spikes will be a passing phase. Frankly, when I first wrote about the end of cheap oil, I did not imagine it would get this expensive this quickly. I wrote about $150 a barrel oil prices as being something fantastic. Now it seems quite plausible. After all a year ago, the price of a barrel of crude oil was $40. Now it is at $67 a barrel, an increase of more than 50% in one year. You would think that with such high prices that demand would be dropping, but that is not the case.

Economists tell us that there are few better ways to stimulate the supply of a commodity than a sustained high price. One expert on the talk show circuit assures us that there are large new untapped oil reserves out there. He says that they will add much more new oil onto the market the within the next decade, bringing down prices. Perhaps these new supplies will buy us another decade or two of the status quo. Perhaps the increased cost of oil will make it economically viable to mine oil from shale, or to use synthetic fuels like ethanol. Nevertheless, as National Geographic points out in its most recent issue, these new approaches will help but is no silver bullet. More people are coming and they will demand more energy.

Demand shows little sign of slacking. In addition, it is not just emerging economies like China and India are driving new demand. The United States needs more and more oil too. Our population keeps expanding. Moreover, the way we are growing is fueling even more demand. People tend to live where they think they will get the best value for their money. Not surprisingly then they prefer the outer suburbs where land is relatively cheap. However, by making the choice they also exacerbate our nation’s oil dependency.

Today, for example, we were trying to wend our way from Northern Virginia to Frederick, Maryland. I could not help but be astounded by all the growth in Loudoun Country, Virginia. Reputedly, it is currently the fastest growing county in the country. My memories, only a few years old, recall the area of U.S. Route 15 north of Leesburg being only a two-lane road. Now it is four or six lanes as necessary. Townhouses, condominiums and ubiquitous shopping centers crowd along the edges of the road. Frankly, I find this kind of crazy growth disturbing and more than a little frightening.

Of course that far out there is little resembling public transportation. The closest Washington Metro Station is probably twenty-five miles away. For the most part people who live in Leesburg work elsewhere. Typically, they work ten to forty miles from where they live. There might be a commuter bus or two that wends commuters from Leesburg into Washington D.C. every day. However, only a fraction of these commuters needs to go to the big city. Most are moving from an outer suburb to an inner one. With virtually no other choices, they get there by car.

Consequently, for these new homeowners a car is an absolute necessity of life. Of course their cars must have gasoline. This new growth has created an already amazing amount of congestion in the exurbia along roads like Leesburg Pike or Sully Road. Where will the oil come from to keep these commuters mobile? What if the oil is simply not available to sustain their lifestyles? What then?

It is a hard question whose consequences are hard to think through. If the situation were to last for any length of time, there would be huge economic problems. We would be fortunate if the situation merely instigated a recession. A depression seems much more likely, along with huge amounts of inflation. In the short term, some sort of gasoline rationing would be needed. Our experience during the oil shocks of the 1970s does not bode well for this decade. Those 1970s oil shocks might be relatively mild by comparison. Back in the 1970s, we pumped most of our own oil out of the ground. Now we import far more oil than we pump from our fields. Expecting new oil fields like the Arctic National Wildlife Refuge to solve our problem is naïve. Even if we could get at the oil, we could not draw it fast enough to make much difference in our oil dependency.

If we did not have enough oil it is not like these people living in exurbia could suddenly turn to public transportation. It could not begin to cope with the demand. It would take decades to rearrange our infrastructure to suit an oil-diminished reality. I am not sure if it is even possible. Our whole infrastructure is no longer arranged for public transportation. We live too far apart. Even if public transportation were available, getting from A to B would likely take much longer.

There was a time not too long ago when we lived in villages and life’s necessities were nearby. This became clear to me during our last vacation. We spent one night in Schenectady, New York, the city where I was born. I was amazed by how convenient everything was. You could easily walk to your church, to the store, to your school and to your job. The streets were narrow. The lots tended to be small. What happened? The automobile made the village less attractive. So there was little reason not to build your house out in the country where the land was cheap, since the cost (reasonable commuting time) was less than the benefits (cheaper land, privacy etc.) Cheaper land and cheaper labor elsewhere also drew jobs away from these villages and small cities. It was all predicated on a sustainable economy forever based on oil.

Moreover, our new economy has exacerbated the situation. It is often cheaper for me to order my medications from a mail order pharmacy than to patronize a local pharmacy. Some of our medications are shipped from Phoenix, Arizona to Northern Virginia packed in several pounds of ice. It is cheaper, yet it carries with it a hidden transportation surcharge: the oil that is needed to move it from there to here.

Yesterday our dryer stopped working. This gave me a good excuse to knock on our neighbor’s door. She was happy to let us use her dryer since we were in urgent need. On her kitchen table was a bucket full of tomatoes. Yes, it was tomato season and she was reduced to giving them away. She persuaded me to take a few with me, which I consumed with supper. They tasted delicious and were clearly better than anything I could purchase at the store. Tomatoes sold in stores, of course, are engineered for transportation, not taste. I marveled that I could eat something so delicious that did not cost me any money and was grown a couple hundred feet from my house. No petroleum products were needed to get it from the supplier to the consumer.

In our modern world, we are blessed with a seemingly infinite variety of products. However, the variety does come at a cost since almost all are transported to us using oil based products. Unless we can find a substitute for oil in our not too distant future, or unless there is a lot more oil out there than we think, our times will be a changing. The life you are living will likely seem nostalgic to your children. Perhaps your grandchildren yet unborn will be incredulous that you lived through such a marvelous time.

I sense that the transportation economy we have known may be coming to a rapid end. I suspect it will arrive sooner than we think.

The Virtues of Small Cars

The Thinker by Rodin

I’m wondering how much longer it will be before small cars became chic again. They were popular in the 1970s but only because gas cost so much. The current high cost of gasoline is now making many reconsider their love affair with their SUVs and consider the merits of smaller cars and hybrids. Perhaps in the process Americans will discover that small can be beautiful.

Why do I love small cars? I should first qualify what I mean by a small car. To me any compact or subcompact qualifies as a small car. I currently own a Honda Civic Hybrid, which would be considered a compact car. It’s a lovely car, and not just because it is friendlier to the environment than most cars. It is also a pleasure to drive. I buy new cars so rarely that every time I purchase one I realize what quantum leaps car technologies are being realized in just five to ten years. My Honda Civic may be a compact car but it is a pleasure to drive. It is amazingly quiet. When the engine is idling you have to listen carefully to hear it. Even at full throttle it is a hum, not a roar. This quietness comes despite an engine placed very close to the driver. It accelerates very briskly even though it has only four cylinders. (I assume this is because of the assist it gets from the battery.) It handles very well. I have yet to feel unconfident or not in control when I drive it, even when I need to come to a sudden stop. It lacks the hatchback feature of its non-hybrid cousin but otherwise it is as roomy as any compact car I’ve driven and roomier than most. In short it feels about as close to perfected engineering as a small car is likely to get.

Of course being a compact car it is not meant to haul much of anything. It’s really a commuter car. And that’s fine. That’s exactly what I need. I don’t know what your driving is like but I suspect you spend more time in traffic doing stop and go than cruising at high speeds on the freeway. Compact cars make excellent commuter cars and mine excels at it. There are times when I feel like I need a big car to haul something. But then I think again about it. Do I really need some huge honking SUV for the couple times a year I might want to move something large like a sofa? Is it really worth $15,000 more in price and hundreds of dollars a year more in gasoline for something that I need a couple times a year? To me it isn’t. That’s why I pay $30 or so to get the item delivered. And I’ve noticed stores like Loews and Home Depot offer trucks for rent by the hour. When I need a truck I can rent one very conveniently and inexpensively.

It is true that an SUV can probably get through snow better than my small car. I don’t have four-wheel drive, but I do have front wheel drive. It is pretty unusual to have any snowstorm in Northern Virginia that requires a four-wheel drive car. So I just don’t think this feature is something worth paying for. And if I did perhaps I would consider a compact Suburu wagon.

I personally like the way a small car hugs the pavement. Unlike the SUV owner, I don’t spend much time worrying about whether my car will rollover in an accident. For some people it might be a bit awkward to get into the car that is low to the ground. But I don’t find it an issue. I slide in smoothly.

Unlike many of my bigger car brethren, my car slips through the atmosphere. I don’t create much drag because there is not much surface area for it to be much of a problem. I don’t usually hear or feel the wind.

Parking is never a problem with a small car. I watch SUV drivers creep into parking spaces, always careful not to be scraping the car next to them. Even if the SUV next to me in the parking lot is encroaching on my space, it’s still not a problem. I can get in and out with relative ease.

A smaller car is easier to access and maintain. I don’t require a stepladder to get the snow off my roof. Pity the fool with a Ford Expedition after a snowstorm. Since my compact car has less surface area it is easier and faster to wash and wax. Vacuuming it is quick. With four cylinders instead of eight, maintenance is markedly less expensive. A complete tune up can be done for a few hundred bucks. That everything is smaller usually means parts are less costly to replace. I bet the muffler on my car is at least $40 less than the muffler on an SUV.

I clearly don’t get the allure of an SUV. To me big is not better. Big is more hassle. They cost more money to buy and more money to maintain. You can buy two of my tires for the price of one of their behemoth’s. Me: I like quick. I like stealthy. I like being ubiquitous on the road. You can have none of these in an SUV.

And call me a militant environmental, but I like leaving a small footprint on this planet. My life is finite. I don’t feel I own anything. Instead, I feel like I need to be a steward of the planet so that those who come after me will be able to enjoy its natural wonders too. I suspect that despite my best efforts, and due to the many others who don’t seem to care about the consequences of their lifestyle choices that we will leave a pretty toxic environment for our children. But I’d like to be able to at least hold my head up high and said I did my part. I would hope that others would notice. Perhaps with gas prices so high large car owners will finally see the virtues in driving small again. Most will do so grudgingly for purely economic reasons. But perhaps in time they will discover the joys of small cars too.

The chickens are still coming home to roost

The Thinker by Rodin

Lost in their euphoria over their victory on November 2nd Republicans are likely missing the bigger picture. Systemic problems don’t go away just because an election is won. Bad policy wreaks bad results that can’t be swept under a rug. By reelecting Bush, Americans have put the onus back on Bush and Republicans to fix problems that they created.

The most visible problem will be the quagmire in Iraq. We can expect a new application of American force in insurgent strongholds like Fallujah in the near future. But I don’t believe the fundamental situation in Iraq will change. I bet in November 2008 the situation in Iraq will be about the same or worse than it is now. The Iraq conflict requires new thinking yet the Administration has no plans on changing course. The fight against insurgents in Iraq is still being fought with 20th century methods. With insurgents refusing to wear uniforms it becomes impossible to tell friend from foe. Insurgents can slip out of places like Fallujah by masquerading as civilians fleeing for their lives. We can kill whatever insurgents choose to stay and fight. But these tactics won’t make much of a difference. As soon as the civilians are let back into these cities the insurgents can trickle in unnoticed, pick up their rifles, reopen their secret stashes of mortars and other explosives and go at us again. As I’ve stated before Iraq is an unwinnable war. Kerry would have been no more successful at ending it to our satisfaction that Bush will have. For some of us Iraq sure looks like the 21st century’s version of Vietnam. Four more years should convince even the most die hard skeptic.

Energy will cost more in the next four years. We may see periods where prices drop below $2 a gallon for gasoline but in general the days of cheap energy are behind us due to emerging economies in India, China and Indonesia. Barring a worldwide recession demand will increase. And petroleum supplies will not improve very much. As a result prices will rise or stay high. The waves of higher energy costs will continue to be felt throughout the economy. While it may not drive us back into recession the higher energy costs will continue to put a damper on growth. Our nation must find better ways to cope with rising energy prices. There is little in the Bush Administration’s approach that suggests they have much of a clue on how to really solve the energy problem. Even tapping oil that may exist in the Arctic National Wildlife Refuge would only increase our supply of oil by a tiny amount. We need to find new technologies for a post oil era. But the Bushies still think the future will allow us to drive our SUVs at dollar a gallon prices.

The Bush Administration talks about reducing the deficit in half during the next four years. That’s all it is likely to be. The most likely scenario: deficits will continue to increase over their current levels. Neither the Republican controlled Congress nor the Bush Administration has demonstrated any fiscal discipline. There is already talk of more tax cuts. In addition Bush has a plan to allow younger workers to invest part of their social security withholdings in stocks and bonds. However this diversion of cash from the social security system simply exacerbates the deficit since the government is currently borrowing from the social security trust fund.

Of course this assumes that people and institutions continue to be willing to loan the U.S. government money. In August a Treasury bill sale attracted no international investors. While this may be a fluke it is worrisome if it recurs periodically. If foreign institutions are unwilling to lend our government money then interest rates for government bonds will have to go up. If they go up too high we’ll be perceived as a “junk bond” country and the flow of foreign capital might stop. But if government bonds need higher interest rates in order to attract investors then the private sector will have to match the rate increases to attract the capital it needs. If government and private industry cannot attract foreign capital then growth is likely to falter or stop.

Health care costs are likely to continue to outpace inflation. More Americans will be uninsured. Drug prices will continue to go through the roof. As usual the Bushies “solution” doesn’t really solve the problem. Their solution is medical savings accounts (MSAs). It fails the common sense test. Most Americans are already living beyond their means. Each year Americans put more debt on their credit cards. Americans simply don’t have money to squirrel away into MSAs. Try to imagine a middle class family earning $40,000 a year putting away thousands of dollars into these accounts. How likely is that? Instead this family will be trying to make their mortgage payments and keep up with the increases in energy costs. In addition even with MSAs people still need health insurance; only the very rich can afford to self insure. MSAs are a utopian Republican idea, not a serious solution to the health care problem.

Hopefully sometime in the next four years the economy will finally perk up enough so that all those who lost their jobs in the Bush recession will have found new ones. But currently wage increases are not keeping pace with inflation. Also there are millions of workers who have been outsourced (like my wife) or downsized. They are making a fraction of what they made before. Bush was the first president since Herbert Hoover to lose jobs in his first term in office. Between spiraling deficits, the war in Iraq, potential terrorist attacks inside the United States and possibly higher interest rates the sustained recovery creating tens of millions of new jobs such as we saw under Bill Clinton are unlikely.

I am a big believer in karma. I think it exists on the macro level too. As much as I don’t like the idea of another four years of Bush and Republican domination of Congress unless both show leadership hitherto undemonstrated it will be impossible to dodge accountability during the next four years. The silver lining to Kerry’s defeat is that Kerry cannot be held accountable for the Bush and Republican screw-ups. Given Bush’s mess Kerry would have likely been a one-term president anyhow. Trying to fix their massive problems in the next four years would defeat anyone. The Republicans have made their bed. Let them have their brief moments of gloating. My sense is that they have created problems beyond their control.

The End of Cheap Oil

The Thinker by Rodin

I subscribe to National Geographic. Generally I just flip through the magazine and let my eyes linger on their lush pictures. But occasionally I actually read an article. Their recent article The End of Cheap Oil got my attention. The author makes a convincing case that oil is going to get increasingly more expensive over time simply because of supply and demand. The world’s proven oil reserves are well known. It is unlikely we will discover any huge new oil reserves. If we do then with the world’s thirst for petroleum increasing every year any new reserves won’t last for long.

China, India and Indonesia are emerging as major industrial powers. They are greatly adding to demand for the world’s oil supply. Their demands will only increase. The increase in demand of course also leads to more incentive to find new sources of oil. While we are unlikely to find too many new sources of oil, we’ll find more expensive ways of extracting oil. The net effect will be the same: the era of cheap oil will end.

We may have already seen the beginning of the end when oil prices rose this spring to above $40 a barrel. They have since gone under $40 a barrel and then moved over $40 a barrel again. Certainly a major oil producer like Saudi Arabia can flood the market with oil and reduce the short-term cost of oil. But such tricks won’t last forever. Increasingly oil-exporting countries will have little reason to increase supply since it only cuts into their own revenues.

The United States is a very prosperous country. If oil becomes more expensive we are in a good position to simply pay the higher prices. This will be to the detriment of emerging economies like China. (China may decide it must have oil and invade countries like Indonesia to ensure a steady supply.) The effect worldwide could be very severe inflation. That in turn can cause recessions, depressions or more likely the bugaboo from the 1970s: stagflation. Stagflation is slowing growth in the economy accompanied by a general rise in prices.

Arguably we may already be experiencing stagflation. Currently our GDP is down from its somewhat feverish levels a couple quarters ago while prices have risen steadily. (Actually wages haven’t kept up with increased prices this year, which means that the average wage earner in America is effectively losing money.) Those of us who lived through the 1970s oil shock remember what stagflation was like: 18% interest rates, up to 14 percent annual inflation, an anemically growing economy and wages always lagging a few percentage points behind inflation. All this and gas lines too. It was not a fun time.

Most of us don’t really understand how our economy is tied up around oil. I think we understand that it takes oil to create the gasoline used to power our cars. But we don’t think much beyond that. We don’t understand the huge inflationary effect of a rise in oil prices. And yet gasoline powers the trucks that deliver our food. It delivers the fertilizers so farmers can grow crops in the volumes needed. It runs our tractors. It powers our airplanes. We don’t have coal-burning trains anymore: locomotives require lots of oil too to move freight. Plastics, packaging, many drugs, even a lot of our clothes are made from petroleum products. Petroleum is pervasive and it is everywhere. Our economies are totally geared around its plentiful access, ready availability and reasonable price.

This is why the end of cheap oil is so very scary: we have nothing with which to replace oil. Just think of the impact on the airline business alone. If a barrel of oil reached $150, would we have a commercial airline industry? Would we fly from coast to coast if it cost us $1500 each way? What would be the ripple effect to our economy? How many people would be unemployed if our commercial airline industry shrunk to 20 percent of its current size?

Clearly we have other sources of energy available, including coal (which produces most of our electricity) nuclear and hydroelectric. But as my friend Frank Pierce has pointed out, oil has some compelling advantages because it is so very portable. An airplane cannot be tethered to the ground to an electric cord. There are no alternatives for extracting so much energy in such a convenient and portable liquid form. Similarly, although hybrid cars offer some relief from an oil shock, eventually cars may become too expensive to drive.

Hopefully the end of the oil age will be a gradual process. But it appears to be coming nonetheless and we are not prepared. In fact except for a few in the know most people have no idea that a persistent long-term oil shock is in the horizon of our lifetime. Currently there is hardly any research into petroleum equivalents. (This looks interesting, but it is unlikely we could find enough biomass to satisfy our insatiable thirst for petroleum.) And our appetite for oil seems boundless. It doesn’t seem like any person alive prefers to live in a third world country. They’d much rather live in industrial economies. Millions cross borders annually just to eke out a slightly better lifestyle in a more developed country. Yet the only model we have for a modern economy is oil based.

Those of us living in modern economies would have no idea of how to survive in an agrarian economy. Indeed we really can’t. There are too many of us to feed now. We absolutely depend on oil to run our tractors and till our fields and fatten our cattle so that we can support 300 million plus people just here in the United States. Without it we can predict mass starvation, brutality, anarchy, perhaps war.

If we had enlightened leadership we would be have a well-funded Manhattan-like project. Its goals would be not just to reduce our dependence on foreign oil, but also to find ways to have an oil-less economy. And yet as always we seem to be clueless. The Republicans think that finding oil in the Arctic National Wildlife Refuge is part of the solution. If so it is a tiny part and buys us perhaps a few years of relief from the coming oil shock. Even if we had a huge oil field under the Arctic National Wildlife Refuge we’d still be importing most of our oil. We simply cannot sustain our economy with our own oil.

Hopefully the oil shock will be a tempered shock. Hopefully prices will rise slowly enough to avoid huge rounds of inflation. But there are no guarantees and it would be foolish to prepare for this rosiest of scenarios.

This National Geographic article makes me wonder what sort of retirement I will have, or if I could afford to retire at all. Will the coming oil shock reduce the value of my pension by 50 percent or more? Will I at age 70 be homeless somewhere because I cannot afford to keep a roof over my head?

I wish we had real leadership in Washington. Even the Democrats seem to have only a dim idea of this very likely future. It seems everyone in government is ill informed or living in denial. I wish I could shake them up. Research money spent now to develop ways to sustain a petroleum-less economy might well mean the survival of our nation in the 21st century. Petroleum equivalent tools and products that become available when this oil shock happens could make for some very rich inventors.

Maybe that’s what I need to do: become the Thomas Edison of the petroleum-less age. Like everyone else I don’t want this oil shock to happen in my lifetime. I like the way my life is ordered right now. I want to maintain this lifestyle until the day I die. But increasingly I see this freight train headed right toward us. I wish while there is still time that we were smart enough to prepare for this inevitable era.