Thursday, March 5, 2009

Is there a silver lining to the bad world economy?

While others might dispute my claim here, I think the answer to the above question can be "yes." Why you ask - when so many people are suffering?

In summary, the reason might be that because of the downturn, we as a world now have a chance to correct not only an imbalanced economic system that benefited the few corporate heads at the expense of the corporate team and middle-class. Even more importantly we have a chance to balance our world energy and resource policies to protect the human existence on the planet from growing dangers of climate change. Finally, we might have the ability to resolve the nuclear conflict with Iran and the military uncertainty with Russia - since both countries are hurt by the fall in energy prices.

As Donald Trump mentioned recently on "Morning Joe" on MSNBC, a precipitating factor in the economic collapse was the energy speculation that spiked prices in the Spring-Summer 2008, causing rapid inflation in many areas of the economy world-wide. I had long believed this, as well. Much of the run up of oil prices was due to speculators who were fleeing the Mortgage/CDO (collateralized debt obligations) collapse, but wanting to maintain high rates of returns. Even as the demand dropped for oil in 2008 world-wide because of the increasing prices, the energy sector prevented price corrections (drops) by cutting back on refining because of the slumping demand. Oil companies wanted to keep prices inflated to near $4 a gallon gas in the US in September 2008, blaming the hurricanes in public documents, but in internal energy sector publications recognizing that refining had been taken off line because of falling demand. Rather than the oil companies being content with $3 a gallon, they struggled to keep the price near $4 a gallon. With food, travel, and many other commodities experiencing inflation through 2008, for families in the US who had frankly cut their budgets too close with credit, many could not keep up and failed, defaulting on mortgages that were poorly conceived and tenuous at best in good times.

In the height of the energy crisis, while there became a market for new technology such as Prius vehicles, the ability to retool in such an energy crisis would have been difficult if not impossible. Even as demand fell in 2008, it could not keep up with the speculators, who drove up the price of a barrel despite dropping demand, and oil companies that simply cut supply to prop prices as high as possible to make up for the falling demand. With only a few large, consolidated oil companies and countries controlling a large percentage of the world's oil, competition had failed. However, with the worldwide economic collapse, many of those speculators did not fair well when the price per barrel fell to a third of what it had been, and when demand dropped throw the floor. Speculation has minimized for now. We now can retool the energy sector and give our species a shot at the 21st Century.

While often the thought is we must "save the planet," as many environmentalists note the planet will do fine without us (albeit taking 1000s to 10,000s of years to recover) but our species might not be there when it does recover. As President Obama correctly advocates, we must use this calm in the energy storm to retool our economy to green/clean technology.

The failure of the energy sector also has the benefit of hurting Iran and Russia, who were using their energy surplus as a means to hurt the rest of the world. Iran and Russia were becoming leading strategic threats with Iran being close to having nuclear weapons and Russia showing its return to old "KGB" ways in Georgia during the summer. Both Iran and Russia were making huge profits on exporting oil and using those profits for the detriment of world stability. Both Putin and the radical portions of Iran are now diminished because they are no longer flush with cash. We now have some ability to try to reengage diplomatic solutions in both countries, with the hope of empowering the moderate elements of their populations. This is true on our side of the equation, as well, with the change in the US Administration to one that favors diplomacy. What Iraq should have taught us is that military intervention that is not broadly supported (Iraq vs. Afghanistan) is a bad way to resolve WMDs since our Iraqi invasion destabilized many countries in the region, where "democracy" simply brought in the extreme elements by popular demand in Lebanon, Palestine and Iran, and weakened those more favorable to the US like Jordan. If the nuclear threat of Iran can be contained diplomatically, then the world really does have a greater hope in the future. Much of this weakening of Iran can be attributed to the fall in oil prices, which is a consequence of the world economic collapse.

For the above two areas of concern, it is actually fortunate that we can much more easily correct the world economy from the CDOs, as BAD as that is given the sheer scope of the problem, then it would be to correct a complete collapse of the world ecology from the complete melting of the polar ice caps. What most people don't appreciate is that the polar caps are not just an issue of world water levels, but reflect a substantial amount of sun and heat because of the ice-albedo effect of white snow. About 600-700 million years ago, the planet was 100% ice covered and know as "Snowball Earth."

The reason was largely the albedo effect of the ice - no heat came through. Without polar ice caps at all in the summer, the reverse becomes the problem. The albedo of the ocean or land is very low and absorbs heat, rather than the ice in those parts that would have a high albedo and reflect the heat. The problem with albedo issues is that they accelerate on a curve, not on a straight line, and must be kept in balance. What does that mean? If we are not careful, we can start a cycle in the ecology that is irreversible. However, at least at the current time we might still have a chance to stop this train from running away, since world energy demand has fallen substantially ... at least until the economy returns.

Lastly, we can understand that economic mechanisms that overly reward the top 1% of the population at the expense of the economic middle-class are bad politically. Democracies survive by the security and contentment of the middle-class, not the wealthy. The poor are cared for best with a vibrant middle-class. The reason why many Latin American countries have struggled with maintaining democracy has been the lack of a vibrant middle-class. The hope of China long-term is the 300 million middle-class they have established in their country in the last decade. For the last 8 years, the Bush Administration and extreme Republicans just didn't get how limited the use of supply-side economic theories must be. Focusing on tax cuts for the wealthy, dereguation at the expense of the less powerful, and the falling of real wages for the middle-class while executive excesses were extreme, the Bush Administration put the middle-class into crisis. In this downturn, companies that simply provide bonuses to their failed management and cut employees will also fail as companies. Those companies that cut executive pay for such failures and maintain the most employees on the payroll as possible, while finding other ways to cut expenses short of layoffs, will succeed and help the economy return. We need middle-class consumers spending for the economy to return, and we need those consumers to spend wisely for the economy to be stable. History proves that.

The economy may be bad, no doubt about it, but we have a chance now to retool our energy and resource consumption/conservation and the rework how our economy functions. We have a shot at avoiding a nuclear disaster from Iranian supplied terrorists. If we as a world can come together in this crisis and rebuild diplomacy to solve global problems, while avoiding the grave dangers in our future, this time can become the best of times. I am hopeful.


Brandi said...

James, I think you are right on. What do you propose we do in Central Texas to retool our energy economy. Our City Council passed the solar farm project this afternoon and the Pecan Street Project (smart grid, distributed energy, and more) shows a lot of promise. It still feels like a long shot, unless we generate massive consumer support for it, since it threatens the status quo of our municipally-owned (read monopoly) utility. Don't get me wrong, a LOT of my friends work there, are very green people, and Austin Energy is responsible for a huge transfer to the City's general fund that supports park and libraries and safety and such. BUT, it will take political will, and citizen willpower to really effect a big shift.
Peace, Brandi

James T. Parsons said...

Hey Brandi,

I heard coverage of the solar farm today. While the number of consumers supported by the farm is currently limited as I understand (5000?), and the cost per kilowatt hour might be slightly higher, I think it is a start to new energy technology. I hope that Austinites that are willing to support this cause (with a greater guaranty on their energy prices) will opt to be a customer. Such can build demand. This is not unlike those consumers who wanted flat-screen TV's in the beginning, which slowly created a large enough demand and supply system that the cost has come down. With solar power, the initial investment is the greatest, and the more citizens are supportive of solar (or wind) power, the startup costs can be covered.

For other areas, I think Lynn and your concern about water conservation is correct. As you both have noted to me, Austin Energy is the largest consumer of water. The likelihood of long-term water shortages real in both Texas and many other parts of the US is real because of warmer temperatures and more irregular and flood/draught cycles of rain. The more we can create demand for wind/solar energy, I think (you can correct me) we also gain in water conservation, when we go away from fossil fuel/nuclear generation plants and their use of water.

Lastly, water conservation in other ways must occur. The age when we plant tropical plants in Texas in outdoor gardens probably needs to be left in the 20th Century. Native plants and grasses, such as buffalo grass or other ground covers, probably need to be the norm. Maybe the water system can take some plays from Austin Energy and give water rebates for those that install xeroscapic plants and have them inspected by the city for compliance. AE has done similar efforts with energy efficiency and that is a great tool.

The City and County also need to take similar steps for public parks. Instead of using extreme amounts of water to fight to keep non-native grasses in Zilker and elsewhere, maybe seeding buffalo grass is the way to go. While the government may or may not be "charged" for water in the same way, all of the community need to find ways to conserve.

If that isn't a softball down the center of the plate for you to smack, I don't know what I can say? ;-) Thanks for contributing and doing ALL you do, Brandi.


James T. Parsons said...

One interesting thing to watch over time - is the impact of loss of polar ice and the effect that has in the summer time for each pole, when there is 24 hour days. Unlike more equatorial latitudes, which have nighttime, the poles are exposed to constant daylight in the summers. That means that the impact without any ice - might be greater than one might normally assume. I kinda wonder if climatologists have generally factored this issue in?