Our government is asleep at the wheel as oil skyrockets and consumers reel. Despite lofty expectations from the Federal Reserve for 2011 Gross Domestic Product (GDP) growth, agencies such as the International Monetary Fund are now stinting GDP growth for this year due to soaring oil prices. Since the beginning of the year oil prices have risen some 40 percent to average $3.84 nationwide.
In 1956, University of Chicago geoscientist Marion King Hubbert made the bold prediction that U.S. oil output would peak in 1970. He was right, but his prediction for a global production peak in 1995 was delayed by 10 years due to the 1970s oil shocks which destroyed demand. According to Hubbert’s thesis, we won’t run out of oil, but we will run out of the cheap kind.
That argument is echoed by New College of California Professor Richard Heinberg, whose new book, “The End of Growth,” is due out this summer. His argument is an interesting one because he states that every time the economy gets on its feet, it will hit an energy price ceiling that kills demand and chokes economic growth.
The International Energy Agency states world oil production hit its height in 2006. Perhaps due to governmental pressure, they assume that those in the Organization of the Petroleum Exporting Countries will be able to increase production levels for years by substituting lost crude oil through other sources. Yet here is concrete documentation that for the past several years global oil production has been stagnant, while demand has increased. According to a recent Forbes article, the argument for price speculation isn’t borne by the fact that actual oil reserves aren’t increasing.
President Barack Obama’s proclamations to cut our energy dependence on foreign oil by two-thirds by 2025 are unrealistic. According to Heinberg, alternative energies will be helpful at the fringes, but they don’t provide anywhere near the energy return on investment oil affords. Heinberg states that biofuels and shale gas require almost as much energy to extract as one gets from using them. There is no economic or resource gain. He believes that wind and solar energy are useful intermittently, yet the sun doesn’t always shine nor is there always wind. Economic recessions are also known for reducing alternative energy investment.
There’s a good case for the oil price spike in summer 2008 being a catalyst for worsening the economic recession. Today our hyper-mediated capitalist culture demands growth, but we may be living in an infinite growth paradigm that is colliding with finite energy.
Our economy now runs with debt that we will never be able to pay off. This is one reason why the Federal Reserve has interest rates at zero, because anything higher is destabilizing to the markets. To forestall rising interest rates, all they can do is continue a self-manufactured recovery of printing money out of thin air or quantitative easing. If the Feds don’t stop printing money one wonders the risk of hyperinflation down the road as gold soars and the dollar becomes devalued. Local agriculture may become more important than ever.
Commodity prices and stagnant economic growth are creating a wave of debt defaults and revolutions. A look at Ireland, Greece and Portugal or the recent events in MENA (Middle East and North Africa) wakes one up to this coming new normal. Energy has changed the political narrative, and may change our societies beyond recognition. No politician will be able to contrive a fix.
– Tom Scully
Junior public relations major