Click on the headline (link) for the full text.
Many more articles are available through the Energy Bulletin homepage
Dave Cohen: Let it burn
Dave Cohen, ASPO-USA
I have talked about the FIRE economy (Finance, Insurance and Real Estate) on several occasions in this column (Harpers, February 2008). iTulip’s Eric Janszen invented this apt acronym and metaphor. Today I will explain why such an economy is an aberration which must be dismantled if the United States is to have any chance of a sound recovery.
Last week I presented the Goldman Sachs/High Speed Rail scorecard, which showed that the capital funneled through AIG to its bank counter-parties far exceeds the capital that will be devoted to studying (not building) new high-speed rail systems.
I want those trains because I like trains and they would reduce our oil consumption. If we are to prevent such travesties in the future and build some actual trains, we need to understand the predicament we’re in and why we need to extricate ourselves from this mess as quickly as possible. So this article is really about answering the question when am I going to get my trains?
I also want to squash this “glimmers of hope” notion making the rounds. Here is The Economist talking about hope and the dangers of optimism.
The rays are diffuse, but the specks of light are unmistakable. Share prices are up sharply. Even after slipping early this week, two-thirds of the 42 stock markets that The Economist tracks have risen in the past six weeks by more than 20%…
But, welcome as it is, optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency. Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths.
Regarding the United States, even cautious talk of an economy returning to normal, let alone beginning a strong recovery, is utter nonsense. A return to “normal” conditions would recreate the same disaster that got us into this mess in the first place.
Let It Burn
When will I see those high-speed rail lines? And the answer is: not for a long, long time. When assets deflate, debt remains. I discussed this in my article The Kiss of Death referenced in Figure 3. And there’s no new bubble on the horizon to FIRE up.
In an interview back in September, Bill Moyers asked Kevin Phillips what he thought we should do about our predicament.
KEVIN PHILLIPS: … So I think what we’re looking at here is an attempt really like a drunk will feel better and get over his hangover better sometimes just by having more liquor. And I think what we’re seeing with the actions of the Federal Reserve Board is the people who are the arsonists, the people who pumped it all up, who blew up the bubble are now racing to show up in firemen’s hats and say, “We’re gonna solve it. We’re gonna take care of all this. Oh, and by the way, we’re gonna keep pumping in the gasoline that we pumped in before that made a good flame“…
BILL MOYERS: Are you suggesting that the best thing to do is let the house burn down and build it over again?
KEVIN PHILLIPS: I would say, first of all, you never should have blown the bubble this way. If we could invent a time machine and go back and cure it that would be the best economics of all. Having blown it up, I think the case is that they should have accepted more of the tough medicine beginning last year and not tried to rescue every stray tentacle of the financial octopus…
Janszen’s FIRE metaphor brings so much to mind—a conflagration, something burning out of control, too much smoke (and mirrors). The politicians and the technocrats have the hoses out, and they’re showering vast amounts of water (money) on the FIRE in a futile effort to put it out. This country needs good paying jobs in manufacturing again. So-called “consumers” should be encouraged to pay down debt and save. The Middle Class desperately needs a revival. Health care costs must be extended and brought under control. A college education must be affordable again. Accomplishing all of this will take at least a decade. As for the FIRE economy, I say Let It Burn.
(30 April 2009)
Oil shocks and recessions
James D. Hamilton, Econbrowser
Here I provide some more background on the relation between oil price increases and economic recessions.
When I first began working on my Ph.D. dissertation in 1980, I was intrigued by the fact that the oil embargo of 1973-74 and the collapse in Iranian oil production after the revolution in 1978 were both followed by global recessions. But when I called attention to the fact there had been a sharp increase in the price of oil prior to 6 of the 7 postwar U.S. recessions up to that point, the general response was one of skepticism.
By the time I was presenting evidence of this relation at various seminars in 1981-82, the Iran-Iraq War had produced yet another shock to world oil markets and the NBER declared that the U.S. experienced a new recession immediately on the heels of the previous downturn, meaning that the evidence had now become that 7 out of 8 recessions had followed oil price increases.
… For the record, my position has never been that oil prices were the sole cause of all of these recessions. But the evidence persuaded me that oil must have been a contributing factor in at least some postwar recessions.
… The fact that the biggest drop in output didn’t occur until well after the oil price went up, and resulted not from the oil price itself but instead from the interaction with other factors and the dynamic forces unleashed when the overall level of economic activity began to decline, is also exactly the same pattern we saw in each of the previous recessions.
Was the oil shock of 2007-08 the sole cause of the recession? Certainly not. But did it make a material contribution? In my opinion, the answer unquestionably is yes.
You can also find a lot more discussion over at theoildrum.com ([1], [2], [3]).
(25 April 2009)
This column by the UC San Diego energy economist James Hamilton cites articles by The Oil Drum and Dave Cohen of ASPO-USA. -BA
Energy efficiency: Beat the bust by going green
Jim Harris, Profit Magazine via Canadian Business
Spend money on energy efficiency during a recession? It’s a much brighter idea than you think.
—
They might not say it out loud. But many CEOs quietly believe that adopting eco-friendly business tools and practices is a luxury they simply can’t afford in today’s economy.
Here’s why they’re mistaken: an important aspect of going green is all about eliminating waste. And a recession is the ideal time to strip unnecessary costs out of your operations.
Energy-efficiency projects typically offer an impressive ROI that easily tops most other investments.
(May 2009)
