National Commentary

The Peak Oil Crisis: Summer in Wonderland

As July wears on, the gap between America and reality continues to widen. Our financial press declares that the longest recession since the 1930’s is over — or at least nearly so. News of lower corporate earnings is dismissed as irrelevant, while the normal June jump in house sales is hyped as a rebound of historic proportions.

In Washington, the Congress is engaged in a protracted debate over the future of healthcare and energy consumption. From the parameters of the debate which is being mostly argued across the tradition fault line of what will be good or bad for business, it is clear that 9 out of 10 or possibly 99 out of 100 of us haven’t the slightest clue about the dimensions of the multiple disasters that are about to befall the country.

Nearly all view our current economic difficulties as simply another cyclical recession that will soon end, leaving the country on the path to greater prosperity. The possibility that we might be in only the opening years of a multi-decade economic depression is dismissed as absurd. We are simply too smart nowadays to repeat the mistakes of the 1930’s.

Although the notion that worldwide production of crude oil has not grown for the last four years is being mentioned more frequently in the press, it is a meaningless abstraction for most so long as gasoline prices remain below $3 a gallon.

Here in Virginia we are electing a new governor this year. As there is little else in the way of November elections, except a scandal-dominated New Jersey race, the Virginia election has become a surrogate for judging the mood of the country and debating what are currently thought of as the issues.

Compared to many other states, Virginia is in relatively good shape, benefiting from considerable federal spending in the Washington suburbs and the Norfolk area. This coupled with the federal stimulus monies have allowed many hard financial decisions brought on by falling revenues to be deferred until after November. Most are left with the impression that a little belt tightening is all that will be needed until the good times return.

Nothing in fact is further from the truth. All important trends –unemployment, real estate values, credit extensions, foreclosures, and tax collections point to serious troubles ahead. It seems doubtful the federal government will comes to the states’ aid with massive financial assistance once again. ┬áTherefore, it is almost certain that a major overhaul of the services state and local governments provide and the sources and amount and kinds of revenue they collect and spend will be taking place in the next few years.

So far the discussion of this overhaul is not to be seen on the political landscape. The underlying and unstated assumption is that the decline in economic activity and revenue will soon end and will enter another period of growth as it has always been in living memory. Few from the era of the great depression are still around to cast doubt.

In this year’s Virginia election job creation seems to be the top issue closely followed by building and expanding roads to relieve traffic congestion. Both candidates for governor are touting their ability to ease unemployment by creating new jobs. It is difficult to see just how they will be able to do this, short of establishing taxpayer supported public works programs. In expansionary times, states can offer all sorts of incentives, such as tax breaks, loans, and grants to entice firms to locate new plants in their state. In the throes of a major economic contraction, it is doubtful this will work.

If the economy continues to shrink, and there is no reason to believe that it won’t, then more and more private and public sector jobs are going to be lost. There would seem to be little to nothing a state governor and his legislature can do about this other than raising taxes on those still working to support those who aren’t. This is a conversation that has yet to take place, but certainly will come up sooner or later.

The other top issue, building more roads to relieve traffic congestion, is a pure 20th century idea that will have a very short half life. Either the economic downturn will become so bad that people will reduce their driving or high gasoline prices brought on by worldwide oil shortages will accomplish the same thing. There is almost no conceivable way that automobile and truck traffic will not fall in the years ahead.

The real issue, of course, is to rapidly increase the size and scope of public transport – trains, buses, street cars, etc. — not add roads. Fortunately the economic downturn has largely emptied the state’s road building coffers so that little highway-related construction is taking place. As new road taxes, the only realistic solution, are no longer considered acceptable in boom times, much less in a recession, it is widely considered to be political suicide to mention tax increases while running for office.

Now, candidates for governor are not stupid and spend a lot of money assessing the mood and wants of their electorates. If the voters want more jobs, (why wouldn’t they?) then they will promise their best efforts to provide them. If the voters want less traffic congestion without paying for improvements, then candidates will conjure up seemingly plausible schemes to provide them.

The root of our problem is the enormity of the changes that are descending upon us. In the last 200 years, intensive exploitation of fossil fuels has brought us riches and life styles beyond those anywhere in recorded history. That era now is drawing to a close, a reality that few are willing to face.

The trends are firmly in place. Our fossil fuels are depleting, the ice is melting, and economic activity is contracting. These forces are so large and powerful that there is little that man or his governments can do other than adapt. Until a critical mass of us understand the problem, little useful will be done as we wait for things to get worse.