Archive for February, 2010

I had two experiences yesterday touching directly and indirectly on the global warming/climate change discussion. I’ve been an advocate of the preventative and responsive solution for/to global warming (and peak oil) for decades, but am not an advocate for either of the reasons.

The over-arching reality is that climate change is natural, necessary, real, unavoidable. The truthful conclusions of the scientific concensus on the effects of increased carbon in the atmosphere miss the point socially and economically.

The observation that the carbon levels in the atmosphere are higher than at any other observable time in ice and soil stratifying history is true. It is also likely true that that will result in some global warming, that will melt more of the planet’s glaciars than would otherwise occur.

But, relative to the enormous natural glaciation that has occurred historically and will nearly certainly again over the next 100,000 year cycle (probably starting to net increase in a few thousand years only) the human induced effects on global climate is paltry. The incremental difference of five or ten feet swing in ocean levels is a statistical blip compared to the cyclical 300 – 350 foot swing in ocean levels due to glaciation.

Our impact will be immaterial and short-lived.

Similarly, all the other expected consequences of human induced global warming, forced species migration and increased extinction rate, disease from changes in precipitation patterns, moderately more extreme storm activity are natural, necessary, real, unavoidable. 

In the scheme of things, the affects of human induced climate change is again relatively small.  (The rate of extinction of species is material in the scheme of things, but does not result from increased CO2 in the atmosphere, as much as restrictions to habitat.)

The other primary motivating “fact” that drives modern disaster theory is of “peak oil”. The thesis of peak oil is that the supply of oil and other fossil fuels on the planet are finite, which is a truth. Further, that the majority of existing oil, natural gas, and coal reserves have already been discovered, that there are no likely game changing discoveries coming, also nearly certainly true. Further, that the cost of drilling for existing oil and other fossil fuels is increasing, also true. Those facts add up to the conclusion that the consumption of oil now exceeds the rate of discovery, that we are in a state of net depletion, also true.

The faulty conclusion though is that peak oil (that we have already reached the point of net depletion) will be the driver of significant increases in fossil fuel prices, which will devastate the economy. Both elements of that conclusion are untrue, at least for the next 40 years or more.

The drivers of the price of oil are nearly entirely defined by short-term relations of demand to bottlenecks in the supply chain. Oil is a commodity with currently very few alternatives, so its price is considered inelastic. Oil based fuel products are unique for their high volatility and relative ease of transport. Those joint characteristics do not exist in any other current fuel/conversion source, not ethanol which is not as volatile as gasoline and cannot be refined to be as volatile as airplane fuel for example. Hydrogen is/can be highly volatile but is difficult to transport. For any socially necessary commodity that has few alternatives, minor changes in demand or disruptions of the supply chain will cause a large swing in price. Speculation in commodity futures, exacerbate already economic based price swings.

These are all short-term supply chain effects, with very minor effects caused by wellhead limitations.

Historically, in the US, the most that gasoline has cost at the pump near my home has been $4.50/gallon, just less than double the current stable price. Even if the price of gasoline double again to $9.00/gallon, it would unlikely cause a major shift in personal behavior or social well-being.

It would definitely cause hardship among those that that increase would be the last straw, either for transportation or home heating.

But, the reality is that gasoline costs are 15-20% of the costs of transportation for most. The cost to own, insure, tax vehicles (fixed ownership costs) are the lion’s share. We would all have to drive cars that retail for $5000 – 6000, for gasoline to be the largest expense.

There is significant increase recently in the demand for electricity, which will likely exacerbate as people move to use electric powered cars that are powered by the grid. And, that will cause a partial increase in demand for fuel. (That is a substitution of use from gasoline for private vehicles, to oil for electricity generation.)

But, no immanent giant price swings (excepting war), no immanent oil or ecological driven collapse in economy.

Peak oil is real in the long-term. Assuming that people will continue to transport, to communicate, to heat, to manufacture, there will be demands for energy, and in the life of capital investments (buildings, factories, energy generation, etc.), energy issues are critical.

The BIG concerns are social at a capital scale – Where and how settlement and land use is organized and controlled? And, individual – Where and how building internal climate and transportation needs are met?

In companies for whom I’ve worked, we often took a position of upgrading whenever a capital item needed major repair or reached its end of useful life. So, when a piece of equipment failed, we replaced it with a more functional and energy efficient one. As every piece of equipment or building fails or requires major improvement at some point, “if everyone did it”, that comprises an opportunity in the relevant time range to accomplish significant energy savings through capital improvements.

In the case of energy, “society” should both require and guarantee that every time a roof or siding is replaced, that the building add 4 inches of insulation. Or everytime an appliance breaks, that it be replaced by one that requires 1/2 of the energy of the prior.

We have to find a way that money is not a limiting factor in this regard, really at any scale – appliance, building, region even considering mass transit. Currently, MANY economically justifiable decisions to improve energy efficiency at rational decision points, are not being done for lack of access to capital for the purpose.

The redefinition of settlement patterns is a much bigger question, a necessary and difficult one. People dislike intervention. The personal disruption, loss of liberty as to where to live, and potential even social loss of invested capital, strikes most Americans as violations, un-American. We are the nation of rugged individualists, with liberty for all (dollar votes).

Somehow continuing addictions to oil, with the resulting enormous waste (with social consequences) while limiting future prospective owners’ options is considered more free.

Disaster is not imminent (yet).

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The horrible consequence of the predominance of global scale business (manufacture, logistics and retailing) is that regional marketplaces have been utterly destroyed. When advocates for global trade speak of the new markets created by globalism, they neglect to describe the market scales destroyed in the process.

Global Economy encourages specialization and bigness. It is a marketplace really primarily for the interests of large agglomerations of capital. There are  functioning marketplaces in the relationship of consented transactions, though with many qualifications as the parties to the transactions aren’t really peers.

There clearly are regional businesses, but the norm is of national and global scale.

I drove through Littleton, NH yesterday. It is a northern New Hampshire formerly industrial, partially tourist hub. Twenty years ago, there were a couple regional department stores, and many local stores. Now, there is still a busy  boutiquey downtown, but most of the retail in the town occurs at the global chains that you see in ANY locale in the US, Canada, Europe. Home Depot, Kohl’s, Wal-Mart, Staples, etc. The large global chains sell the same brands from store to store, purchased in mass volume, made in remote concentrated locations.

With the globalization of business, the formerly thriving regional timber and paper industries in northern New England are dead. Trees are being cut for a song in Russia, Canada, Southeast Asia, and the New England paper and timber processing plants are closing or closed. No other industry or commerce is replacing them.

Maybe thats as it should be, that communities thrive, then reach the end of their usefulness, and break up. Or maybe, thats NOT as it should be, that communities themselves should be the nucleus and economy should serve communities, rather than the oppossite.

Products are made far away, in highly capital intensive  processes that require proportionally little labor, little human value addition.

At the time when the global retailers became prominent, they superceded (killed) regional marketplaces. The regional retailers, regional wholesalers, and largely regional manufacturers, all vanished in the 1980’s and 90’s.

The institutional structure of the regional manufacturers and the networks of wholesalers is now destroyed. Walmart for example is known as a competitive retailer, but they accomplish that by successfully competing at multiple stages in the supply chain: aggressive negotiation with suppliers, efficient and information-intensive logistics and warehousing supporting just-in-time retailing, concentrated strategic siting of retail stores, and aggressive pricing.

There is no warehousing and middle-men structure to support regional retailers, and those that would try would face financially compromised customers (paying late, going bankrupt). Its a remote prospect at this point.

Why bother? Regional scale would be reinventing the wheel, and possibly not as well.

A regional scale marketplace is the scale that optimizes the dual characteristics of economies of scale with accountability of manufacturer/retailer to customer and community.

A regional economy REALIZES most of the economies of scale of manufacturing. For example, there are modular manufacturing facility designs for most products that realize efficiencies at a regional scale. The incremental fixed costs of building 9 plants, rather than 2, are proportional. Transportation costs are optimized. It makes sense.

The lack of accountability of global scale manufacturers and retailers to locales, counties, states, nations, is legend. In the US, a state cannot legally restrict interstate commerce per the US constitution and interpretations. The international trade agreements of GATT compel similar norms of lack of accountability. So, absent customers demaning quality, fair wage, LOCUS, the character of society declines.

The only means of accountability are competition, driven by consumers being informed about products, services and organizations, and acting on that.

Some objective concerns are legislated, on product safety for example. Concerns about quality, consumer relations, and social concerns in the supply chain are driven largely  by consumers’ discrimmination.

A state has very limited powers relative to the supply chain of labor standards (slave and child labor), environmental (toxins, deforestation), monopoly practices, etc. There is no regional scale governance.

A large consequence of the shift to a regional scale economy would a great increase in the distribution of employment. If manufacturing, distribution, and retailing is relatively local, then jobs will be as well.

An economy is not of things, but of people. People working, people as citizens, people making purchasing choices, people innovating in enterprise.

New England has changed since my youth. It is much more crowded now. I remember driving through wildlands between Worcestor, MA and Boston . Western Massachusetts, Vermont, and New Hampshire were definitively rural. There weren’t suburbs outside of Amherst, or Brattleboro. People didn’t drive 40 miles daily to work. There were jobs where people lived.

Jobs serving regional marketplaces, with thriving downtowns.

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The financial crisis of 2008/9 has been averted. The financial crisis of 2010/11 is in its infancy, growing, eating, soon eating us out of house and home.

Why do I say that? Because nothing has changed, when important things needed to.

There are tangible features that have been skillfully described by people like Paul Krugman, of the failure of the Obama administration and democratic Congress to enact sufficient and sufficiently timed legislation to employ millions, to remove systemic risk from banking institutions, to reinvest in re-formation of regional and local marketplaces (Krugman didn’t say anything about regional marketplaces, that was my idea).

No jobs program, only extended unemployment benefits (with no jobs at the tail end). No assertive public education investment in primary, high school and college education. No shared home equity program, only mediated foreclosures. No urgent and aggressive energy-efficiency programs. No bank regulation. No tax simplification. Not much, just fires.

So, right now we have a slow moving ship approaching rocks, already taking on water, facing a baby boom expecting full social security and medicare services without the prospect of job-holders paying as you go.

So, what will happen when? I’m guessing, and there are people that know much better than I. The mid-term is largely predictable.

Starting in February or March, unemployment benefits for many long-term unemployed will permanently stop. The states don’t have the ability to pay for extended benefits, nor does the federal government. When those that formerly had unemployment benefits run out, it won’t be the commonly emergency cases that get desparate, but the 5% of the population that have been unemployed for over six months. Accompanying that are health insurance benefits under federal subsidy currently, and a shift of federal support systems to food stamps, fuel assistance, section 8 housing subsidy, medicaid (all of which are and will be experiencing funding cuts).

The effect on the economy as a whole will be to increase mortgage foreclosures (still packaged in now government-backed packaged securitized bonds). The large banks and insurance companies have already written off what they considered to be the last generation of bad investments, but this will stimulate a new wave, a double dip.

Those that are very wealthy that see the writing on the wall, are holding their cash for the buying opportunity. (Real estate, land, companies). Aristocracy.

Because of the failure to restore regional marketplaces (in favor of global, that big capital finds easier), jobs for the decreasing amenities that people can still afford, will continue to migrate overseas. So, urban centers will experience continued stresses and job declines, and long-term.

The only option for community health is to develop and/or stimulate local and regional marketplaces. That includes f2f marketplaces and digital, business to business and business to consumer.

To reduce risk, EVERYONE should make the capital investments in their home and workplaces to realize confident significant energy savings to a level of $50 – 100/month obligation, wherever you live. (Its possible with super-insulation and south-facing passive solar greenhouses. Better yet, share a sound proof wall with a neighbor.)

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