What Happens to an America Built on Cheap Energy?
What happens to an America built on cheap energy when energy is no longer cheap? It’s a question that most Americans do not want to confront. Especially the slick talking politicians.
The fact is most of the way America was built depends upon cheap energy supplies. The love for the automobile, the vast suburbs that surround America’s majors cities, the neglect of a high speed railway system, huge suburban shopping malls and office parks, American agriculture with its dependence upon fertilizers, pesticides, and massive diesel fuel driven combines and tractors, the aviation industry, and the trucking industry, all were constructed on the back of cheap energy.
Now that energy is not cheap what will happen to the American lifestyle? Optimists look towards the development of alternative energy sources. Some of these possible aids to the energy crisis will be helpful, such as solar and wind power, and some will be counterproductive, like ethanol production using corn as the energy source. However, in time the optimists will learn that we are nowhere near to replacing a significant percentage of our total energy needs with alternative energy sources. Time is already up. We are going to have an energy shortfall and the energy that we do have will be very expensive.
We live in a world designed for cheap energy inputs and energy is no longer cheap. We are already transferring hundreds of billions of Dollars a year to oil producing nations with no end in sight. America is going broke. American citizens will be feeling the pain of this fact for a long time to come, perhaps from now on as the American standard of living drops as expensive energy pricing takes its toll.
Byron King writing for The Daily Reckoning picks up this point…
“The returns are coming in from the distant precincts of the oil patch, and the winner is… Oil!
“The price for oil has barely budged based on the Saudi Summit. There has been no summer sell-off, and I’d be surprised to see a significant pullback as the summer driving season kicks into gear. (Followed by hurricane season, and then the buildup for winter heating stocks, followed by winter.)
“What’s going on? Well, what the Saudis give – in proposed, future increased production…the Nigerians take away – with ongoing oil patch carnage that forces the likes of Shell and Chevron to close vast pipeline systems. Apparently the present trumps the future, even in the futures markets. Everything is connected to everything else, isn’t it?
“Here is my take on the exit polls from the Saudi Summit…
“Consumers and their representative governments are desperate for an oil pullback. This $135 oil is draining budgets. The poor and working poor are already marginalized in this cruel world of ours. Now it’s the turn of the middle classes to get kicked into the cellar of the modern age. People are working time-and-a-half just to put food on the table and gas in the car. Retirees and others on more-or-less ‘fixed’ incomes are impoverishing slowly. Unless they are impoverishing fast. Bankruptcy filings among the older and elderly demographics in the U.S. are soaring. The bottom line is that the conventional image of a ‘decent standard of living’ is rapidly receding for many tens of millions of households. The 20th Century is truly over. (I think this has much to do with the meteoric rise of Senator Obama as well… He offers nothing new – mostly just classic, populist Democratic Party bromides – but he offers it in such a sweet and beguiling, Teflon-coated manner…)
“And it will get worse before it gets better. To be perfectly blunt, it might not even get better. Over the next year, and into the foreseeable future, in the developed world people will go broke buying motor-fuel, heating oil and natural gas. (Wait until next winter… Sweet Jeeeezus!) In the less-developed world, people will go broke buying bread. And then the poorest amongst us will starve. Any way you look at it, it’s bad for business.
“Fast-rising energy prices are decapitalizing entire nations. Energy prices are destroying wealth faster than people can re-create it. Entire segments of the world economy have hit the iceberg and are filling with cold seawater. Some industries are becoming obsolete in a matter of months. Much of the airline industry is drowning in red ink before our eyes – almost every flight in the sky is losing money, no matter how much they charge to check your suitcase or how few peanuts they put in the small package.
“And down on the ground, most motor transport is just plain uneconomic any more… ‘Dead Rigs Driving.’ Farewell to the ‘Warehouse on Wheels.’ Sic Semper Globalization.
“Large swaths of the auto & truck building industry have become capital-wastelands. For example, GM is closing SUV factories and planning to ditch the Hummer brand. This cascades down to firms that make everything that goes into a set of gas-guzzling wheels. You name it: hot-coiled strip, axles & tires, wire bundles, paints & coatings, window glass and seat belts, and so much more. Billions of dollars worth of past investment is just gone…bye-bye, poof! And the good-jobs-at-good-wages? History.
“So, is there room for optimism here? Yes, in the sense that high prices are concentrating many minds on energy. ‘Energy’ is the most important issue of our time, bar none. That is, people are finally beginning to understand the centrality of energy to our collective existence. Take away the cheap energy, and it becomes clear that mankind has spent the past century building the wrong kind of world.
“Another way of saying it is that we’ve collectively built ‘tomorrow’s ruins’ today. And I don’t mean just the physical structures, the bad architecture and stranded infrastructure that is worthless when energy is expensive. Think as well about the social structures that are beyond worthless when energy gets expensive. Tell me when you start to get worried…
“Much of what happens in our time only happens because energy is relatively cheap and abundant. So when energy gets expensive, a lot of what happens is going to stop happening.
“I leave the rest to your imagination.”
Unfortunately, your imagination will not have to be active for very long. The unpleasant changes that are coming will happen will stunning speed. Food shortages and the collapse of the America trucking and transportation industries may occur by the end of 2008. The next American president will likely began his term with a full blown crisis on his hands.
The end of a lifestyle based upon cheap energy resources is likely over. The adjustment to a lifestyle of serious energy conversation and reduced expectations will not be easy. American leadership has been weak for a long time. Leadership will be severely tested in the near future as will the strength of the American people. I’m confident that America and Americans will survive but it is impossible to predict the coming transformation of America as it adjusts to a world of expensive energy and decreasing resources.
However, one thing is very clear. The sooner that America comes out of denial and addresses the problem the better off we will be.
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