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Countdown to $200 oil (4) - It's scheduled for January 2009

by Jerome a Paris Fri May 9th, 2008 at 12:25:31 PM EST

Part of the irregular Countdown to $200 oil series.


Oil price breaks through $126 a barrel

Crude oil prices surged on Friday, breaching $126 a barrel for the first time and putting pressure on Opec, the oil producers' cartel, to increase output in an effort to lower global energy costs and prevent further inflationary pressures.

The new record came a day after Abdalla El-Badri, Opec's secretary general, suggested the cartel would not increase its output in spite of a 100 per cent jump in oil prices in the last 12 months and warnings it could hit $200 a barrel.

Since hitting $100 in early January, the oil is up 26% in 4 months. Coincidentally, another 2 increases of 26% in 4 months will bring us to mid-January 2009 and almost exactly to $200 oil.


Of course, there is no particular reason for oil prices to continue to increase at the exact same rythm as before.

In fact, given that über-optimist Daniel Yergin of CERA (no peak, but a long "undulating plateau" fame) has finally given in and is now predicting $150 oil in the near future (after years of claiming loudly that oil prices would go down each single year), one might argue that it is a good time to bet on them actually going down this time.... (or maybe he's optimistic again and prices will go a lot higher than that!)

But the fact is, the next president will come to power at a time, in all likelihood, of really high oil prices. While the list of urgent priorities to be tackled is sadly already very long, I don't think that oil (or, more generally, energy) policy can fail to be near the top of that list, especially given the fundamental, if implicit, links with the foreign policy morass of Iraq as well as the tensions with Iran, Russia and Venezuela.

In addition, the economy will be in full meltdown mode by then, and oil and other commodity price increases are a large contributing factor - whether they are seen as a consequence of global world growth, or of the loose monetary policies of the past few years, they reflect inflationary pressures that have long been visible in asset prices and made tolerable to our policy makers because they did not translate into wage increases, thanks to global corpocratic/kleptocratic neoliberal economic policies. (In turn, wage stagnation was made tolerable by turning houses into ATMs and making everybody believe they could turn into a millionaire one day).

Oil price increases are just a real life manifestation of the precept that you cannot have your cake and eat it - real wealth - for the whole economy - needs to be created, not just shuffled around or looted (that only works for a few, and only for some time). Oil, and commodities, represent real wealth, and their price increases suggest that the rest of the economy is no longer producing as much actual value as it used to - a general depreciation of money.

I've already said that we're actually lucky to have a recipe that can take care of both the economy and the energy crisis at the same time:

  • launch a massive plan to subsidize home energy efficiency improvements - that will help the devastated construction sector, create lots of jobs, and help reduce the energy bill massively;
  • reinforce efforts to build renewable energy plants. The current support system works, and needs not be changed, but massive investment in the grid, and in working but still-too-expensive technologies like solar power should be done or supported by government. Again, this will create plenty of jobs locally, and will help move away from oil and climate-deadly coal.

  • massive investment in infrastructure - in particular focusing on intercity rail and local transit networks and a large scale would also appear to provide excellent bang for the buck.

In addition to that, targetted tax increases to fund all this should be considered, and rigorous re-regulation of financial institutions (to limit their leverage and make bankng boring once again) ditto.

But whatever ideas are mooted, it is urgent to actually start debating them beyond the awfully-populist gas tax holiday, which means that it's urgent for the current campaigns to instill a sense of urgency about the issue. Tinkering will not work.

Or, rather, it will work only until January 2009. Then the shit will hit the fan and a new president that has not prepared the ground for serious action will be blamed for everythign that transpires then.

Display:
http://www.dailykos.com/storyonly/2008/5/9/114946/4807/1003/512592

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri May 9th, 2008 at 12:25:56 PM EST
European Tribune - Countdown to $200 oil (5) - It's scheduled for January 2009
I've already said that we're actually lucky to have a recipe

I totally agree with your recipe. But not the way you plan to cook it... ;-)

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 9th, 2008 at 12:54:33 PM EST
A more neoliberal/conservative way to implement energy efficiency:

Instead of [launch a massive plan to subsidize ...]
- implement a serious taxation of oil in any form of use except food (maybe beef is no food for this issue)

Instead of [reinforce efforts to build renewable energy plants...]
- put a carbon cap and trade system into place. The market can then determine the most efficient balance of alternative energy use, energy efficiency and sufficiency. The last one often seems to not be seen as a serious possibility when there is talk about real politics, only when wimping around why the world is so bad. But it can help, really.

Investment in rails is great. But be aware that proposing massive infrastructure spending can result in more streets. I like that you propose the best things to do, even when they are politically difficult to realise, so this is not meant as discouraging your advocation of railways. But a warning seems to me appropriate.

For the banking system: I think a Tobin Tax is the best regulation.
Making assets a bit more illiquid will help investors to look if the investment is fundamentally good. Otherwise it is like letting a million people estimating the length of the emperor's nose, who have never seen him. It gives a great statistical accuracy without real information and stabilises the system as hole without perfect regulation for every single market:
From naked capitalism:
From a complex systems theory standpoint, this [taking down all barriers between subsystems, Martin] is exactly what you would do if you wanted to take a stable system and destabilize it.

One of the things that helps to enable non-linear behavior in a complex system is promiscuity of information (i.e., feedback loops but in a more generalized sense) across a wide scope of the system.

One way you can attempt to stabilize a complex system through suppressing its non-linear behavior is to divide it up into little boxes and use them to compartmentalize information so signals cannot easily propagate quickly across the entire system.

This principle has been recognized in the design of software systems for several decades now, and is also a design principle recognizable in many other systems both natural and artificial (c.f. biology, architecture) which are very robust with regard to exogenous shocks. Stable systems tend to be built from structural hierarchies which do not share much information across structural boundaries, either laterally or vertically. That is why you don't die from a heart attack when you stub your toe, your house doesn't collapse when you break a window, and if your computer crashes it doesn't take down the entire internet with it.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Fri May 9th, 2008 at 04:47:03 PM EST
Rather than basing our economy upon deficit - ie claims over Value - I advocate basing it upon Value, such as land rental value, labour value, and particularly in this context, energy value.

Martin:

Instead of [launch a massive plan to subsidize ...]
- implement a serious taxation of oil in any form....

I agree that the energy value of non-renewables - particularly carbon-based fuels - should be subject to a massive levy - a compulsory investment - into Renewable Energy investment pools.

The reluctant investors would receive redeemable Units exchangeable for production of renewable energy from projects financed or the value of energy savings from investment in energy efficiency. This would soon become a de facto energy currency.

Martin:

Instead of [reinforce efforts to build renewable energy plants...]
- put a carbon cap and trade system into place.

The carbon in CO2 has no value in exchange other than that politically attributed and allocated.

The energy value of carbon is established millions of times a day in exchange transactions.

CO2 based schemes are "deficit-based" and most are supported - if not originated - by the very same people who brought us the "Credit Crunch".

Martin:

Investment in rails is great.

Agreed. But let's try new ways of actually "investing".

Martin:

For the banking system: I think a Tobin Tax is the best regulation.
Making assets a bit more illiquid will help investors to look if the investment is fundamentally good. Otherwise it is like letting a million people estimating the length of the emperor's nose, who have never seen him. It gives a great statistical accuracy without real information and stabilises the system as hole without perfect regulation for every single market:

I believe a "Value Transfer Tax" applied at the clearing level is part of the solution.

But it requires a new clearing system to have any chance of achieving it. I have always thought the Tobin "liquidity" argument to be fundamentally misconceived. For me, a VTT would operate to cover clearing system costs, provide for a mutual guarantee of bilateral credit for any necessary development, and allow universal access to credit.

Moreover, it addresses only value in circulation: not "wealth" such as property in land.

The other necessary taxes/ levies are IMHO taxes upon the privilege of exclusive private use of "Commons". We have already addressed the Commons of non-renewable energy. I would add to it a tax on land rental value (cf Henry George's "Single Tax"), through domestic investment giving rise to monetary units based on land rental values.

As for bank regulation, most of the problems would disappear if and when banks cease to create credit (having been dis-intermediated) and become service providers.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 9th, 2008 at 06:22:10 PM EST
[ Parent ]
"...basing it upon Value..."
Sorry, but I simply don't understand your comment.

With carbon based energy I have mostly problems because of climate change. Therefore I want taxation of it. Not because I would assume that energy is a more fundamental store of value than a Picasso picture.

"...and allow universal access to credit..."
How exactly is in your system decided for what you can take a credit and for what not?
Maybe you have written somewhere a diary, where you explain your system for people who are compeltely unfamiliar with your ideas. If so it would be nice you could point me to it.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Fri May 9th, 2008 at 07:37:29 PM EST
[ Parent ]
Well, this recent Diary on Peak Credit is a reasonable place to start.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri May 9th, 2008 at 07:58:38 PM EST
[ Parent ]
Come now, wind power works perfectly well, but solar electricity is just too expensive except on more of a populist hobby scale.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat May 10th, 2008 at 10:58:23 AM EST
At the moment and at our latitudes.

But my armchair guesstimate would say that the potential for extracting useful energy from it (at least at subtropical and tropical latitudes) should be greater than for wind - after all, it has one fewer conversions from incoming sunlight to electricity.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 14th, 2008 at 12:42:04 PM EST
[ Parent ]
It would still be several times as expensive as wind. Not acceptable. But with breakthroughs, who knows? The same goes for fusion...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri May 16th, 2008 at 05:39:17 PM EST
[ Parent ]


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