free html hit counter Peak Oil Debunked: 290. THE PEAK OILER ARGUMENT FOR RECESSION

Wednesday, April 19, 2006

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

7 Comments:

At Wednesday, April 19, 2006 at 9:13:00 PM PDT, Blogger Jon said...

I realize that not everyone can take transit to work everyday, but the reality is that there is a incredibly large percentage of people who COULD take transit to work everyday but don't due to various excuses.

Living in Calgary, we have a rather small transit system, yet it has gotten me to school and work everyday for the last 4 years or so. Some days it really sucked, but looking back, I am happy to say that I was able to do that.

What blows my mind are the people who drive large trucks, SUVs and Hummers (after all, we are a cowboy town) to work downtown by themselves only to pay 250+ a month to park.

I think the best part of taking transit however is that with my 'flex-time' (meaning, work overtime) job, I can say: 'Well, I can't stay because I have to catch a bus!'

 
At Wednesday, April 19, 2006 at 11:46:00 PM PDT, Blogger BlackSun said...

Very well reasoned argument, JD.

You are essentially battling a doomer religion, and thus are condemned to make the same basic points over and over again.

It's pretty clear that posters such as diemos, patrick david, nukeengineer (are you really an engineer?? coulda fooled me) and others aren't interested in facts. Only their perceptions and beliefs that they seem to hope will be a self-fulfilling prophecy. They also lack creativity and any trust whatsoever in the human race.

I'm tired of these same arguments being made over and over. It's like every new person who wakes up one day and realizes we've got an energy problem has to go through the entire 5 stages of grieving the old way of life.

Wake up! It's going to be a better world, not a worse one. Things suck NOW. We're trashing the planet for no good reason. We've got the technology to change to renewables, and in fact we've had it for decades. We're spoiled rotten, and all the whining is because we might have to make a few changes. Well good. I look forward to it. Even if I lost my house, car, job, and had to cut my calorie intake in half, I'd still be happy that the world was finally done with fossil fuels.

Bring it on!!!!!

Oh, and the poor are disadvantaged in good times as well as bad. That they may suffer disproportionately from the energy transition is not a policy argument.

Fact is, none of this will probably happen. But even if it did, it would still be worth it to make the world sustainable.

Oil use keeps us chained to a treadmill of corporate externalities and geopolitical nightmares that never end. Though they've spurred great progress, fossil fuels have been the biggest curse the human race has ever endured.

Except, of course, religion. Which includes the doomer religion.

 
At Thursday, April 20, 2006 at 2:00:00 AM PDT, Blogger JD said...

When the ‘conservation’ comes from consuming less energy services (rather than just less energy) that’s when you have recession.

chris, I'm having trouble understanding you clearly. Can you explain what you're describing with a specific example so I can see what you mean by "consuming less energy services" vs. "consuming less energy"? What do you mean by "energy services"?

 
At Thursday, April 20, 2006 at 5:01:00 AM PDT, Blogger Patrick David said...

Hydrocarbons used for more than commuting. Ex: plastics, pharmaceuticals, shipping. How will THEY save money when oil is $100 / barrel?

Consumer prices will go up and those that can car pool will and great for them, but those that cannot will be hit hard.

 
At Thursday, April 20, 2006 at 7:05:00 AM PDT, Blogger El Gato con Bolas said...

I tend to disagree.

Recessions hit harder to already low income people.

Resourceful people have more options. You give an example of someone who has a car (in an rich society) that switchs to van-pooling.

What about poor people?

And regarding switching careers, that's easy when you're young or well educated. Tell that to a 55 years old low-class worker.

Fernando

 
At Thursday, April 20, 2006 at 9:34:00 AM PDT, Blogger Patrick David said...

Thomas, I think you missed the point. It doesn't matter how much oil we use for transportation relative to feed stock. What matters is that for plastics manufacturers and others, spiking oil prices will erode profits and / or push prices of consumer goods up. Besides, factor in transportation cost to deliver goods to markets and all bets are off. What about Walmart's 10,000 supply chain?

No data necessary to understand that spiking oil prices will result in higher prices for food and consumer goods.

 
At Thursday, April 20, 2006 at 11:31:00 PM PDT, Blogger JD said...

Nice one, dc. But shouldn't that be John "Shadow Government Statistics,
P.O. Box 1251, Only $9.95!!!" Williams?

 

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