290. THE PEAK OILER ARGUMENT FOR RECESSION

In responding to the previous article, diemos trotted out the usual peak oiler argument for recession, and because it is so pervasive, let's give it a closer look.

diemos writes:

Assume prices double but you still have the same amount of money. You and everyone else are now buying half of what you were buying before. Your standard of living goes down.

This assumption is simplistic and has nothing to do with the real world. The current annual inflation rate in the U.S. is about 3.4%, and that's fairly high by recent standards. At that rate, it would take about 20 years for prices to double. In fact, the CPI-U currently stands at 199.8 against a basis number of 100 for 1984 (Source). Which means it has taken 22 years for prices to double. So diemos is essentially asking us to assume that wages and salaries remain constant over the course of decades. That's a bad assumption which we shouldn't grant.

Another important point: Even assuming that things work as diemos says they do above, it's not clear why this would be a problem for, say, oil companies. If the price of oil doubles, and you buy half as much, it has no net effect at all on the oil companies. You're still paying them the same amount of money, which means that their revenues are unaffected by your behavior.

So let's talk about the real situation instead of a fairy tale. I refer you again to the case of Stacey Harper in #180.

Stacey was not faced with a sudden doubling of all prices. She was, however, faced with a doubling of gasoline prices, which she deftly handled by van pooling. This enabled Stacy to reduce her monthly commuting costs from about $190/month to $20/month. Now, it's true that Stacey is buying less gasoline and automobile services than before. But has her standard of living gone down? Let's see what she has to say:

Harper, the South Hill resident, decided to leave her car for a van pool – much to her own surprise.

"I was really resistant to it," she says. "It was going to be a big hassle."

Prices at the pump changed her mind.

She got on a waiting list for a van pool offered by Pierce Transit. She took a driving course. Now she pays $22 a month to van-pool as opposed to the $180 to $200 a month she paid to commute alone.

Even if the price of gas drops below $2, she says, she's not going back.

Part of her reasoning is that she likes to shed the day's stress by talking with her co-workers during the ride home. Part of it is helping the environment by taking a few more cars off the road.

And there's another reason. A big one. "I have extra money," she says.

Isn't that astounding? She actually enjoys van pooling. So how is this a drop in her standard of living? She's getting the exact same functionality (transport from A to B), paying less, and enjoying it more. Where's the "drop"?

You could say the same thing about telecommuting. Gas prices double, so you negotiate a telecommuting contract with your employer to commute half the time. You're getting the same functionality (commuting to work) for half the cost, saving hours and hours of wasted, braindead driving time, and you get to work in the comfort of your own home. You can sleep later. So where's the "drop"?

Same goes for moving closer to your job/shopping. You get from point A to B by bike or foot, so the functionality hasn't changed. You're saving time and money. You're healthier because you're getting exercise. Where's the "drop"?

diemos continues:

The people who made their living providing the stuff that you used to buy but don't any more now have no job and thus no money. They stop buying things and their standard of living REALLY goes down. This is a recession.

There is some truth in this. As Stacey Harper and people like her improve their standard of living by shifting away from car dependence, this does put stress on those employed in car related industries. And it does lead to people being laid off. However, this is a temporary situation, which is largely (if not totally) compensated by rising employment in growing sectors -- i.e. the sectors where Stacey spends her new monthly surplus of $160-180. The people who lose their jobs get a new one. The autoworkers laid off by GM get new jobs, like commissioning wind turbines for GE. The key questions are how smoothly this transition can be achieved, and how many new jobs are created relative to those that are lost.

-- by JD