Star Phoenix Base

By David L. Brown

OK, anyone out there still think there isn’t something serious going on with oil? Today the price of the sticky stuff rose by an incredible $10.74 per barrel, causing the stock market to plunge nearly 400 points. That’s the kind of day that used to earn a permanent place in the history books, and perhaps this one will as well. Let’s see… I can think of no more appropriate name than Black Friday, like the Black Thursday of 1929. This day has all the potential to be an even bigger historic event than the day that brought down the curtain on the Jazz Age and ushered in something called The Great Depression.

This is Friday and oil is Black so let’s call it that, at least as a working model. I am sure history will come up with an appropriate moniker for this day in history, June 6, 2008.

But all of this comparison with history raises the really important question of our time: Can we now in the wake of Black Friday expect a reenactment of The Great Depression that followed Black Thursday?

Well, we probably can, as hinted by the Wall Street reaction to the spurt in oil prices today. The world economy has been built like a vast and intricate machine, but on the shaky foundation of cheap and abundant oil. These are simple and irreconcilable facts: The world runs on oil, and the world is running out of oil. What to do? Chicken Little would know how to act, but based on recent experience his frantic warnings would not be heeded. For too long, those in positions to change the course of the world have refused or at least failed to do so, until now it is, well, to say “too late” is perhaps a bit of British understatement.

Here is an image that captures the spirit of where the world economy finds itself today, on this very ominous Black Friday. Think of these troubled vessels as symbolic of Industry and Commerce.

Umm, yes, the world economy is falling off the edge of the Earth, figuratively speaking. This is the real thing, people. As we and a few others have been trying to tell you, things are going to be different from now on, and as those figurative ships that represent the world as we have known it plunge into the abyss, an abyss where dragons may dwell, how is it going to affect we humans who have collectively created this enormous mess?

Not too kindly I am afraid. The problem is that solutions should have been undertaken years ago, decades in fact. Now that the figurative ships of industry and commerce are falling over the edge, you can see that the words “too late” are pale but quite appropriate.

So now we are staring the post-Petroleum Age square in the face and we’re like the guy who came to a gunfight with a water pistol. If we were Little David armed with a sling it would be entirely too little, because we’re not just facing some big guy with a sword — this modern day Goliath is armed with a nuclear carrier task force, a strategic air command, and all the demons of Hell. But enough of the overdone analogies, for which I apologize.

Just a little while ago, umm, it was this morning in fact, the New York Times quoted an oil industry analyst who said that the price of petroleum would probably reach $150 by the Fourth of July. That is only a few weeks away and oil has already soared past the $100 mark as recently as January 2, so that seemed like it might be a bit of a stretch that the price of oil might rise by more than an additional 20 dollars or more in such a short period of time.

And yet, before this day was over, the price had jumped by nearly half that amount. Just one more day like this one would put us within less than a dollar of that $150 mark. And consider that just yesterday, Thursday, June 5, saw the largest single day rise in the price of oil in history, surging by $5.49. Incredible, and yet today, Black Friday smashed that record and brought the two-day increase to $16.23 per barrel.

Here are a few observations on what is going to happen:

1 — There will still be oil, but because the supply is dwindling instead of rising ever upward, it will be very, very expensive as long as the world economy demands it. There will be oil for those willing to pay the price, but the price will be steep and not everyone will be able to afford it.

2 — Those who have oil are reaping enormous and perhaps obscene profits — and I do not mean the oil companies who are the ones having to pay the obscene prices. It is the rulers of places like Iran, Russia, Saudi Arabia, Venezuela and Mexico that are the true beneficiaries.

3 — The First World will be able to cope better than you might think. Despite the American public’s horror at seeing gas prices soaring to $5 and probably beyond, we spend a smaller portion of our GNP for oil than we did in 1972 at the time of the first oil shock; about a quarter as much, in fact. We can and will adapt, but unlike in that earlier time there will be no easy end when oil will once again become cheap and abundant. This time we will have to make real changes, and since we have decided to go to this Cinderella party riding in a pumpkin coach and the clock is now striking twelve, those changes will have to be made on a very fast timetable. (Yes, I know I promised to knock off with the analogies, but it is so much fun!)

4 — The worst hit, and it is already taking place, will be the Third World, that bottom level of the economy that includes dozens of failing or already failed nations and which is home to at least a couple billion excess human beings. The price of oil quite directly relates to the price of food. Here at Star Phoenix Base we have discussed the soaring cost of food at length, and examined what a tragic event this is for people already living at the edge of existence.

Food is not only going to remain expensive, it is going to continue to be in scarce supply because the ability of the Earth to yield its plenty has come to an end. Food, like oil, has reached a peak and supplies are falling even as human numbers continue to rise, especially in those poor nations least able to support the extra souls. The Third World is doomed, and though it seems cruel and heartless to say it, I do not see any alternative but for it to be cut off and allowed to sink.

Tough decisions lie ahead as the Third World sinks into a new Dark Age, but there just isn’t enough room here on Planet Earth for the extra two or three billion people that were added during the Green Revolution, so-called Globalization, and the frenzied period leading up to the Oil Peak that we have now passed. In medicine they call it “triage,” the process of setting aside the vitally injured to die so as to help those who might survive, and while that also seems cruel at first glance, it assures the most good in times of crisis.

5 — Next we come to those nations that are in between, the so-called emerging economies such as China and India. They do not have mature economies such as we do in America. They are, with myopic lack of foresight, in the very midst of attempting to create industrialized economies modeled on the very one that is now coming to an end in the world, that is to say, economies built on the foundation of cheap and abundant oil. What is to become of them?

It will depend on how they react, but it seems to me that the only sound course will be for them to make a rapid retreat from their programs of industrialization and seek to find another path. That will certainly not be easy, and quite likely impossible, but one thing is plain and that is that the Earth cannot sustain a billion and a half Chinese and an equal number of Indians driving around in gasoline powered automobiles and living the imagined Life of Riley like some 1950s television series. It is not going to happen because it cannot happen; there are not enough resources even to feed all those people, much less let them increase their standards of living to equal that of the West, as their leaders have promised them.

China today is continuing to buy oil in vast quantities, even though the government subsidizes the cost of gasoline and diesel fuel and must pay the widening gap between the real cost and the price their citizens are used to paying. How long this can go on we cannot guess, but I have a suspicion that there will be no let-up until after the 2008 Olympics. If China were to suddenly let gas prices rise now, there would be panic and blood in the streets and they could kiss goodbye the dream of showcasing their nation to the world with a splendid Olympic Games. My prediction is that China will provide an excellent example of the overshoot-and-collapse model about which we have written so much here: They will keep feeding the insatiable economic dragon until the games are over, then the collapse will follow. A rather pointless exercise in futility, pride, and idiocy, but there you have it.

6 — The momentum to develop alternative energy sources, alternative lifestyles, and different ways of producing and distributing food will exhibit a tremendous spurt. For years OPEC has always stifled any movement toward changes that would make the West less dependent upon oil, by turning on the pumps and forcing prices down to unrealistic levels. Now that supplies are dwindling, they no longer have that power. Sure, they are still in the catbird seat with still vast supplies of oil that are now worth far more than they were only a few years ago. But now the alternatives can blossom, and they will in places like America where the possibility exists. This could be a tremendous opportunity for American technology and economic power to create a new industrial era that is sustainable, “green,” and profitable. It will take drastic and ruthless dedication to casting off the old and creating the new, but it can be done and it can be much to our advantage.

7 — Finally, as can be glimpsed from the comments above, we cannot any longer expect our economy to be driven by cheap commodities and products transported by sea and air from those faraway Third World places with their cheap labor and willingness to be exploited. Those low-cost laborers will not show up for work when they are starving, when there is rioting in the streets, and when the factories have been shut down anyway because it costs too much to ship their products around the globe. In the future, if we want fresh strawberries in February we shall have to raise them in greenhouses, not fly them in from New Zealand or Chile on 747 transport planes.

America has become a nation of service providers, and here is a tip for economists: Services, no matter how nice they are or how conveniently they are defined as contributors to the GNP, do not actually add anything real or concrete to our nation’s output. Services are merely a necessary adjunct to the serious business of making and building and erecting actual “stuff,” and by sending the true productive core of our economy off to places such as Taiwan, South Korea, Thailand, and most especially China we have placed ourselves in serious jeopardy, and twice so because now we are not only indebted to the oil sheiks and dictators for their petroleum but also to the low cost labor force of the Third World for a large proportion of the products we consume.

Globalization will be seen as an aberration in the stream of history, for it was nothing more than a new and final phase of Colonialism. All the posturing about bringing the Third World up to par with the rest of us was nothing but a cover story for continued exploitation, and look what it has gotten us? It has placed the poor of the planet in an absolutely untenable position, facing famine and death, while stripping the First World of the ability to produce many of its products.

The future will be quite different and it is not a matter of choice, not at all. This is change that will be forced upon us like the Hammer of Hell. Welcome to the new world.

This entry was posted on Friday, June 6th, 2008 at 7:37 pm and is filed under Age of Oil, Economics, Essays and Opinion, Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.