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Did the Oil Price Boom of 2008 Cause Crisis?
Justin Lahart, Real Time Economics (blog), Wall Street Journal
Reeling from the housing bust and the banking crisis, it’s hard to think that the energy shock — the one that carried the average price of gasoline to a peak of $4.11 a gallon last July — was much more than a minor player in the economic downturn. But there’s the uncomfortable fact previous oil shocks, like the ones that came with the 1973 oil embargo, the 1979 Iranian revolution and the 1990 invasion of Kuwait, were also associated with recessions. And the 2001 recession, too, came on the heels of a run-up in oil prices.
In a paper presented at the Brookings Panel on Economic Activity Thursday, University of Calif.-San Diego economist James Hamilton crunched some numbers on how consumer spending responds to rising energy prices and came to a surprising result: Nearly all of last year’s economic downturn could be attributed to the oil price shock.
As he writes on his blog, that’s a conclusion that he doesn’t quite believe in himself. We’d like to think that, say, the seizing up of the credit markets this fall had something to with the economy falling off the table in the fourth quarter.
(3 April 2009)
Resilience Economics: One Model for a New World Economy
Jamais Cascio, Open the Future
If the Industrial-Era economic system is, in fact, on its last legs, it would be useful to think through some of the possible post-capitalism models that might emerge.
… [Update: To clarify, as requested: this is written as a scenario set in the unspecified (but probably ~late 2020s) future, from the point of view of someone living in that future.]
… Traditional capitalism was, arguably, driven by the desire to increase wealth, even at the expense of other values. Traditional socialism, conversely, theoretically wanted to increase equality, even if that meant less wealth. But both 19th/20th century economic models had insufficient focus on increasing resilience, and would often actively undermine it. The economic rules we started to assemble in the early 2010s seek to change that.
Resilience economics continues to uphold the elements of previous economic models that offer continued value: freedom and openness from capitalism at its best; equality and a safety net from socialism’s intent. But it’s not just another form of “mixed economy” or “social democracy.” The focus is on something entirely new: decentralized diversity as a way of managing the unexpected.
Decentralized diversity (what we sometimes call the “polyculture” model) means setting the rules so that no one institution or approach to solving a problem/meeting a need ever becomes overwhelmingly dominant. This comes at a cost to efficiency, but efficiency only works when there are no bumps in the road. Redundancy works out better in times of chaos and uncertainty — backups and alternatives and slack in the system able to counter momentary failures.
(30 March 2009)
A New World Model Including Energy and Climate Change Data (based on ‘Limits to Growth’)
Dolores García, The Oil Drum: Europe
Dolores García, an independent researcher based in Brighton, UK. This paper was presented at the “Mission Earth” seminar, ETH, Zurich, January 2009. This seminar was reported on at The Oil Drum here.
– TOD editor Chris Vernon
Abstract:
An updated systems model of global climate, resources, and energy extending the original World3 (“Limits to Growth”) model by inclusion of climate change and it’s interaction with resources and energy. Outcomes are derived for total energy resources, human population, nutrition, consumption, economic activity and other parameters. Long-term outcomes are derived for a 1900 C.E. to 2100 C.E. time sequence, with human population decline.
1. Introduction
Perhaps the best known global model of all is World3, popularized in the book The Limits to Growth, A report to the Club of Rome, by Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, and William W. Behrens III. I have taken some of the equations in the latest version of the World3 model (World3-03) and I have added some more data and feedback loops to reflect some of our present knowledge of climate change and energy issues (there aren’t any energy variables in the model, the closest one is “non-renewable resources”). The aim is to have a model that is more useful for the purpose of testing in theory different policies that could be applied to resolve some of the current challenges our world is facing, that have all at the root the fact that we are reaching the limits to growth.
… 5. Conclusions
The main conclusion of the results of the New World Model is that, if the world continues behaving as we have so far, decline is inevitable in the long run. This isn’t a surprise and the fact that we are on an unsustainable path can be deduced from much simpler and reliable calculations. What this model provides is some slightly more refined ideas about how this could happen and, more importantly, it’s a tool where we can experiment with our ideas on how to solve this problem.
… Finally, I would like very much to receive input on possible policies to avoid decline and eventual collapse (when all fossil fuels are consumed) that could be included in this model to see what results they produce. The Transition Network has already expressed interest in using this model for the timeline they are writing for all Transition Towns to help them design their own Energy Descent Action Plans. Of course, this will only be useful if the model includes the policies that need to be implemented for a successful transition to a sustainable world.
(3 April 2009)
London G20 Meeting: The Last Chance?
Luis de Sousa, The Oil Drum: Europe
As the G20 meeting that is supposed to “rebuild the Global Economy” begins, this post presents a few reflections on the likely major problem the world leaders face today: the damaged state of the world reserve currency system.
On the 24th of March, Frank Biancheri, head of the European think tank LEAP2020, published in the Financial Times the following open letter directed to the G20 leaders gathering in London on the 2nd of April:
Ladies and Gentlemen, Your next summit takes place in a few days in London; but are you aware that you have less than half a year to prevent the world from plunging into a crisis that will take at least a decade to resolve, accompanied by a whole series of tragedies and ferment? Therefore, this open letter by LEAP/E2020, who saw the arrival of a « global systemic crisis » as early as three years ago, intends to briefly explain why it happened and how to limit further damage. […]
… What could happen then if a new coordinated reserve currency fails to emerge? The answer is simple: the US dollar will stop being the world trading benchmark. A period will then unfold during which trading nations won’t have a clear worldwide unit to value their goods, much less to store value for future trading. Possibly, some regional currencies might be tried on a limited geographical basis. Another alternative might emerge, using a currency for which there isn’t much policy required: gold. The consequences of such a transition will be immense;
… Enter the Khaleeji
There is still another possibility that might unfold if a new reserve currency system isn’t put in place. After several years of talks and on/off reports in the press about its arrival, the Gulf Cooperation Council states decided in the wake of the present crisis to create its own common currency, the Khaleeji. This is another sign of the break-down in confidence in the US dollar as a reserve currency, from countries that thus far have had their currencies pegged to it. It is shaping up to be something like the Euro, governed by a Middle East Central Bank. Interestingly, there’s only one country from this block attending the G20 meeting, Saudi Arabia.
… Beyond a new reserve currency system
The last paragraph contains an obvious caveat: if the Khaleeji comes to be a fiat currency, its backing by energy is purely abstract, shakily built on confidence. And that is the main problem world leaders face today, regardless of what role energy prices have had on the crisis unfolding, one thing is certain: if the energy flow to the world economy can’t grow anymore, then all abstract currencies are condemned as long term wealth storage media.
Without economic growth to support their expansion, abstract currencies lose their main advantage over commodities: a supply totally detached from economic activity allowing for monetary policies supporting employment, wealth or international relations. As expansionary measures are put forward to revive an economic growth that might no longer be possible, paper currencies will rapidly deteriorate in value, reducing public confidence invested on them.
A new world reserve currency, resembling the old Ecu for instance, could indeed reinstate balance in world trade, but it won’t be in any way a solution for the declining value of abstract currencies and the policies founded on them. But it would at least bind international players together to finding a way forward.
(2 April 2009)
Taking part in the discussion at the original is Chris Cook, who has been involved with the establishement of an Iranian bourse. Big Gav found a new slide presentation by Chris Cook. -BA
