Peak confirmed in spades
Mainstream economics hides behind the bush
The world is “effectively” in the throes of peak oil. Crude and refined product prices trend upwards while markets become increasingly sensitive to news and rumors.
Bad weather around ports, unrest in a third-world producer country or populist grandstanding by its leader with geopolitical flourishes, a pipeline accident, a closedown for repair, new worries about exchange rates – any of these would be sufficient for the financial media to report that “crude futures jump on supply concerns.”
But then a single credible opinion (even if it is shrewdly calculated and timed) can make the shadows vanish momentarily: “Crude prices tumble. Is the oil bear market rally over? Past data support pull-back.”
What we are witnessing is heightened awareness to availability combined with a growing potential to amplify small margins into major gains or losses. This is what being “effectively” at the peak means – the summary result of economic, business, technological, institutional, and political realities upstaging the squabble over geological uncertainties.
Economic dislocation (i.e., recession or worse) will not solve the problem.
As Keynes would remind us from beyond the grave, why would private capital make huge commitments to building and expanding the infrastructure for a more expensive substitute input (nonconventional oil products) when aggregate demand is sluggish?
Perhaps public authority could help. Yes, but where would industrialized country governments, already struggling with debt, get the wherewithal to supply the world economy with the coveted substitutes for conventional oil? New taxes could worsen growth prospects (threat of deflation) and “priming the pump” (create and spend money) could accelerate inflation. Sell national assets? (The unattractiveness of either of these approaches does not, of course, exclude their future application.)
The independent Energy Watch Group projects a major decline in global oil consumption from the current level of over 80 million barrels per day to 58 million by 2020 and 39 million by 2030 (not even half of current consumption). Since presently observed trends exclude filling the gap with nonexhaustible energy and green substitutes for refined oil products, the upbeat predictions about vigorous economic growth (accompanied by a slow but steady rise in oil consumption) during the coming decades appear to be unrealistic. Will the straining of Middle Eastern production capacities alter these projections, pushing out the time of reckoning by a few years?
There is no precise answer but it is clear that already the current generation will have to adapt to an oil-constrained world. Given all this, wouldn’t you expect to see the best and brightest of the economics profession out there where menacing winds blow on the hectic frontline of general human interest, fending for our civilization; analyzing, passionately arguing, advising national governments and international organizations, never letting the sense of urgency recede from public consciousness?
If you entertained such expectations you would be speechless upon looking at the Table of Contents of top journals in economics.
As robustly demonstrated by the latest editions of the American Economic Review, Econometrica, Journal of Political Economy, Journal of Economic Theory, Quarterly Journal of Economics, Journal of Econometrics, Econometric Theory, Review of Economic Studies, Journal of Business and Economic Statistics, Journal of Monetary Economics, Games and Economic Behavior, Journal of Economic Perspectives, Review of Economics and Statistics, European Economic Review, and International Economic Review, the looming oil emergency did not unfetter the wings of creativity in the highest echelons of the profession. (Ranking of journals was borrowed from Professor W.C. Horrace, University if Syracuse.)
Does the bulk of academe still believe in the simplistic myth that, thanks to the never-ceasing interaction between always-ready Mr. Backstop Technology and irresistible Ms. Unregulated Market, the world is already pregnant with a solution to its oil predicament, that the everlasting neediness of material goods will never ever meet unalterable physical constraints?
Dominant neo-classically (roughly neo-liberally) flavored core convictions in economics imply that preoccupation with “peak oil” is nothing more than fearing fear intensified into dreading dread. But if you insist on an answer you may get it in a form of reproach: “You don’t have enough faith in the invisible hand.” What young assistant professor aspiring for tenure would risk such an explicit reprimand from the department chairman?
Despite its ostensible diversity and seeming contentiousness, economics remains stuck uniformly in a Newtonian worldview of idealized cyclicality that shows the future as a symmetric reflection of the past. Roland Barthes’ “The Death of the Author” became applicable to the Economist. The bottom line is that if a poll were taken across mainstream professionals (a category that excludes the refreshingly awakened group of ecological economists), it would probably indicate an expected decline in crude prices to the vicinity of $45/b by 2010.
The explanation that economic science is an ideology in the service of vested interest does not hold. Encouraging policymakers in the belief that nibbling on the margins, moral suasion, and lofty goal setting can substitute for never-before-seen deep policy changes and drastic programs harms everybody, including vested interest.
The global oil issue is perhaps more imminent and directly threatening than the “environment.” But where is the “Al Gore” of peak oil? At least now we know where not to look.
