Monday, March 27, 2006

Getting kooky 'round here

Jim Kunstler, in pitch-perfect apocalypso tone, posts anew on the downfall of happy motoring nation:
The plain truth is, if anything happens to upset the current management and allocation system of the the global oil markets, the industrial economies of the world will collapse, and America's will collapse hardest and worst because of the way we have arranged things for ourselves. The global oil markets currently revolve around Middle East oil production. If the region is overcome by instability, than it's simply GAME OVER.
Compare/contrast with this recent article sent to me by friend Catherine.
Rainwater is something of a behind-the-scenes type--at least as far as alpha-male billionaires go. He counts President Bush as a personal friend but dislikes politics, and frankly, when he gets worked up, he says some pretty far-out things that could easily be taken out of context. Such as: An economic tsunami is about to hit the global economy as the world runs out of oil. Or a coalition of communist and Islamic states may decide to stop selling their precious crude to Americans any day now. Or food shortages may soon hit the U.S. Or he read on a blog last night that there's this one gargantuan chunk of ice sitting on a precipice in Antarctica that, if it falls off, will raise sea levels worldwide by two feet--and it's getting closer to the edge.... And then he'll interrupt himself: "Look, I'm not predicting anything," he'll say. "That's when you get a little kooky-sounding."...

The next blowup, however, looms so large that it scares and confuses him. For the past few months he's been holed up in hard-core research mode--reading books, academic studies, and, yes, blogs. Every morning he rises before dawn at one of his houses in Texas or South Carolina or California (he actually owns a piece of Pebble Beach Resorts) and spends four or five hours reading sites like LifeAftertheOilCrash.net or DieOff.org, obsessively following links and sifting through data. How worried is he? He has some $500 million of his $2.5 billion fortune in cash, more than ever before. "I'm long oil and I'm liquid," he says. "I've put myself in a position that if the end of the world came tomorrow I'd kind of be prepared." He's also ready to move fast if he spots an opening.

His instincts tell him that another enormous moneymaking opportunity is about to present itself, what he calls a "slow pitch down the middle." But, at 61, wealthier and happier than ever before, Rainwater finds himself reacting differently this time. He's focused more on staying rich than on getting richer. But there's something else too: a sort of billionaire-style civic duty he feels to get a conversation started. Why couldn't energy prices skyrocket, with grave repercussions, not just economic but political? As industry analysts debate whether the world's oil production is destined to decline, the prospect makes him itchy...

What concerns him most is the conflict that he thinks an oil shortage will precipitate. What happens when people get blindsided by prices rocketing past any level they have contemplated--especially when you factor in other challenges America faces? "We've got a lot of things going on simultaneously," he says. "The world as we know it is unwinding with respect to Social Security, pensions, Medicare. We're going to have dramatically increased taxes in the U.S. I believe we're going into a world where there's going to be more hostility. More people are going to be asking, 'Why did God do this to us?' Whatever God they worship. Alfred Sloan said it a long time ago at General Motors, that we're giving these things during good times. What happens in bad times? We're going to have to take them back, and then everybody will riot.' And he's right."

Part of Rainwater's routine when he's down on the farm is to go for gizzards at Allison's, a no-frills truck stop up the road. Driving in a red BMW SUV on the Tuesday before Thanksgiving, he points out who lives where: the local doctor, the Taiwanese Nan Ya workers....
I'm a little distracted by the $500 million under his mattress (dude, invite me for dinner sometime), and the red SUV. But... a world of dew is a world of dew. Or something or another that sounds profoundly death-knell-like.

3 comments:

Anonymous said...

I'm no economist....I don't even play one on television, but let me toss this out from small town, red-state USA.

I'm assuming that our cheap-stuff, Wal-mart economy is based on something like FL(foreign labor) + OT (overseas transportation cost) < DL (Domestic labor) + DT (domestic transportation cost).

I'm also assuming that OT includes DT to the extent that goods shipped from Singapore to Los Angeles will then have to be shipped from Los Angeles to Indianapolis, or Grand Rapids, or Amarillo, etc. To the extent that OT includes DT, OT will always cost more than DT (given nationwide distribution), and to the extent that both are dependent on the price of oil, both will rise and fall more or less in unison.

Now, since OT always costs more than DT, FL must be sufficiently lower than DL to mitigate the higher cost of OT.

It seems fair to assume that FL costs will rise, if for no other reason than to support local economies in the new manufacturing countries. By the same token, it seems fair to assume that DL costs will fall, as the same or greater number of workers chase a shrinking number of jobs. (In other words the supply of labor will exceed the demand for labor.)

Let's assume that whatever Congress does regarding immigration, it will not result in a net decrease in the supply of labor.

If you're still with me, here's my question:

What happens when the lines cross?

In other words, what happens if FL + OT > DL + DT?

In other words, what if oil prices or other barriers to oil consumption become so great that it becomes cheaper to make goods for American consumption in America?

Do we get our jobs back? Do we pay more with less income? Are we totally and utterly fucked? Will all the Wal-Marts become soup kitchens and homeless shelters? The double whammy of peak oil and immigration policy seem to be hanging over us like Damocles' sword, but I'm not hearing much about it. We could soon be in a world of vzebp. Your thoughts are appreciated.

helmut said...

Sorry about the slow response. I've been out of town for a couple of days.

I imagine there are all sorts of qualifications an economist would make - such as the nature of the commodity (take, for example, software or information). But it seems sound to me. It's late here. Me sleepy after a day of travel and an evening seminar. More tomorrow.

helmut said...

I would imagine, given the way the economy is organized, that peak oil - if an accurate thesis - would radically alter production throughout the economy. I don't know if immigrants would want to come to the US given the increasingly hostile environment and a collapse of production jobs. The over-consumptive lifestyle wouldn't exist either or, if it did, it would be based on a radical opening of the maw between lower and upper classes. You'd have to immigrate into the upper class to make it attractive.

I'd also imagine a number of contradictions becoming glaringly obvious - like the need to completely restructure cities, but nothing to pay the labor to do it.

Remember Vonnegut's Player Piano? Maybe that would be the scenario - at the end when people return to little skilled tasks simply because they're bored and find some vaqlue in work.