National Commentary

The Peak Oil Crisis: The Stimulus

As the economy spirals deeper and deeper into an economic morass, Washington’s attention this week is focused on the $900 billion economic stimulus package that is making its way through the Congress.

Opinions as to the efficacy of this effort are all over the map. The President, his allies and advisors knowing they cannot just sit by hoping for better times, have put together a package that is intended to do something for nearly everybody – tax cuts for the middle class, aid to state and local governments to sustain essential services, and above all, funding for projects that it is hoped will create or at least save jobs. They firmly believe that to do anything else would be irresponsible governance.

Critics of the stimulus plan abound. Republicans, who are no longer in charge of much, but can still filibuster the Senate, are calling the stimulus a big Democratic giveaway of borrowed dollars that will bankrupt the government. They, as usual, favor more and bigger tax cuts to deal with the problem. Others, who believe the era of economic growth and prosperity is over, see the plan as a futile effort to revive an un-revivable way of life. They see this plan as a holding action that will spend what may be the last money America can borrow on trying to turn back the clock.

So where does peak oil fit into all this? Let’s start with the words of our new President earlier this week. “At a time of such great challenge for America, no single issue is as fundamental to our future as energy. America’s dependence on oil is one of the most serious threats that our nation has faced. It bankrolls dictators, pays for nuclear proliferation and funds both sides of our struggle against terrorism. It puts the American people at the mercy of shifting gas prices, stifles innovation, and sets back our ability to compete. These urgent dangers to our national and economic security are compounded by the long-term threat of climate change, which, if left unchecked, could result in violent conflict, terrible storms, shrinking coastlines, and irreversible catastrophe.”

This would seem to leave little doubt that the President understands what could turn out to be the two biggest problems of coming decades – dependence on oil and global warming. There is much in the current stimulus plan and other administration initiatives that seem to make sense – increasing renewable fuels, $31 billion towards improving the electric grid, $37 billion to weatherize government buildings and low-income homes, $10 billion to improve public transit and railroads. All this of course is only a small fraction of the $900 billion proposal. The rest seems to be directed towards offsetting the effects of the economic down turn, helping the unemployed and hopefully stimulating what some believe will be an economic rebound. Some parts of the bill, however, such as the $31 billion for repairing and building roads seem downright wasteful given that vehicular traffic has no place to go but down.

We are back to the old conundrum of the urgent and the important. While it is clear that oil depletion will overwhelm our economies and global warming may overwhelm much more, for people who are newly unemployed, impoverished, homeless and don’t have enough to eat, the President and Congress must hold out the promise of near-term help. A great irony in all this is that the Congressional Budget office is saying only about $25 billion of the $900 billion is likely to be spent in this fiscal year and only $110 billion by the end of 2010. If these numbers are close to reality, it is clear that we are going to have to endure the trials of the next two years with very little aid from the proposed stimulus. If the stimulus passes, at least Congress and the President will be given credit for having tried to do all they can.

It is unfortunate, but a fact of life that the economic downturn of the last two years sent oil prices tumbling by an unexpectedly large amount. If we have learned nothing else in the last six months, it is that prices are highly susceptible to what seem to be relatively small changes in demand. Although prices seem to be clawing their way higher, there is still a race going on between OPEC production cuts and the sagging global economy. Just at the time when all attention should be focused on preparing for a future with less oil – while there is still time and resources left — the markets are sending signals all is well for now on the energy front and that “drastic” measures such as higher gas taxes and speed limits are not needed as yet, if ever.

A prime example of this occurred this week when President Obama took action to reverse President Bush’s decision and directed the EPA to look into the implications of coordinating California and federal emission standards which would markedly speed up fuel efficiency standards for automakers. If gas prices were still at $4 or $5 a gallon higher fuel efficiency would likely be embraced by all sides, but at a $1.86 a gallon it seems as if we are going to back to rehash the same old arguments about more efficient cars hurting autoworkers and forcing up car prices to unaffordable levels.

Until there are clearer signals, likely in the form of much higher gasoline prices, the American public and their elected representatives are not likely to accept any really painful measures for dealing with peak oil, energy independence, global warming or the like. Such is the nature of democracy and politics will remain the art of the possible.