megalopolis

Blue Angel

F-16's shoot across the sky of the city.
Blue Angels on display for the crowds.
The thunder of the engines roar twisting
ropes of white cloud vapor contrails. Signatures.
The great birds of war careen like sparrows
in exuberant sorties for the gasping multitudes.
Sunday venues across the megalopolis.
Oh Great Bird of Zeus!
What is your message? Where is your father?

Game Over

H. Darger "Storm Gathering" 

Kunstler on Relocalization and Peak Oil

Click on title to link to streaming video of James Howard Kunstler's presentation on relocalization and peak oil given recently in Vancouver, B.C. I cannot underscore enough the tremendous importance of Kunstler's understanding of the situation.

Rigging for Steelhead

Master Guide T. Lynch of the Pere Marquette Lodge describes his steelhead rig in streaming video. Some good footage of steelies on line. Lynch's "superfruit grapefruit" is so roe-like, so aqueous, so deceptive, so simple. Good discussion on some of the aspects of fall and spring steelheading, and I imagine there is some overlap to west coast steelheading, though, this is Great Lakes steelheading to be sure. Enjoy.

Al Gore on Charlie Rose

Click on title to receive streaming video of Charlie Rose's interview of Al Gore on "An Inconvenient Truth". Gore discusses global warming, peak oil, the republican political machine and its connection with big oil, the refusal of the Bush Administration to participate in global warming discussions and their obstructionism of such efforts, the energy policy of war. A must see. *****

The Withering of the Humanities

Working in a shrinking industry is a cause of anxiety and depression. The ordinary motivations that drive human action no longer apply or, if they do, are generated out of a privation model rather than a fullness model. This is to say that the ordinary motivation for obtaining work is to obtain an income worthy of self and social respect, a sense of purpose and value to ones work, and a sense of pride in achieving these purposes skillfully and effectively. When an industry shrinks or begins to collapse, the first thing that goes is the income worthy of self and social respect. Management cuts back and prevents unnecessary expenditures on human capital. Also, because the industry is flagging, the social purpose of the industry becomes clouded and obscure. Lastly, the sense of pride in achieving these purposes disappears as well, for the individual goal of procuring a living and the social goal of providing a meaningful product or service has withered. The privation model replaces the fullness model. One works merely because one has to, because there is nothing else one can do with one's training, and one (should) expect diminishing marginal returns in all areas. The joy of work is sucked out of it, the soul gone, workers just go through the motions. Those who never figure out what is happening delude themselves into hoping that things will get better. But those who know understand that things are not going to get better make other arrangements.

Such is the state, it could be argued, of the humanities. If you look at the stagnant and declining wages of professors (of all grades) over the last ten years, the widescale employment of adjuncts (25-50% of the academic work force now), and the increasing demands for publishing (and thus the decreasing quality of much of this), and the decreasing or, in some cases, increasing enrollments in humanities, one gets a picture of a sick and blighted industry. But the question is, "how bad will it get?" and "will it improve?" A sinking tide sinks all boats. And the canary in the coal mine is the humanities...

My guess--and this is supported if you look at the bureau of labor statistics--is that the humanities will continue to be pinched off. New fields in health care will see an increase in demand for instructors, as will engineering, math, and science. But those professions, though slated to rise in the near term both in the demand for professors and in the practical work available for those trained by them, will eventually enjoy what is called "convergence" with the wages of their counterparts in India, China, and Russia.

It could very well be that ours is a society that has outgrown the use for reflection and self development. We very well may be a society that needs only entertainment, health care, and engineering. The fruit is rusted out on the vine, rotting on the vine even. Sp long humanities,your age is over (for now). After the collapse--and things will collapse-- people may once again have the leisure to study you, to think, to reflect. But that age is gone for now, eclipsed by the need to service consumer debt, to expand and accessorize the suburbs, provide expensive health care to the baby boomers,and fight on the eastern fronts for the last of the remaining oil. These are our social priorities. Lofty indeed.

The Merit of Student Reviews

The following essay by Stanley Fish (below) is concerned with the value of student reviews of teaching. Those who are not teachers in higher education may not know that student reviews of teaching form a substantial part of a professor's ability to maintain employment. The concern is not that teaching shouldn't be reviewed by students, but that students use the review as an opportunity to vent their spleen without having to answer publically to such accusations and, insodoing, are in a position to ruin the academic careers of many professors. If one looks on any of the professor rating sites such as ratemyprofessor.com or dogears.net one will get a sense of how this unfolds. Consider the following (representative) review of one of the members of my department:

He was more interested in hearing himself talk about philosophy than making sure that his students understood the material. Most of the time he would put things on the board and never explain it. Every time a student tried to answer a question he would knock down their answer and tell them they were wrong. He never used examples to try and explain things. He thought it would be important to memorize long passages out of books and recite them on quizzes. He also gets very annoyed if you go and see him during his office hours. He is a very critical grader, I would recommend talking to him about your paper 2 weeks in advance because he'll make you retype it at least 3 times before it's up to his expectation.

Now, clearly the tone in such a piece reveals that the student has had a bad time of it. If this kind of review were given a numerical basis (as if to impart a kind of "scientific" quality to the survey) , the numbers would be quite low. And low(er) numbers are a death sentence for a junior faculty member trying to advance his career or even get hired. But we might try to read between the lines on this particular review and really get the whole story. Putting things on the board without sufficient explanation, refuting students, long passages on quizzes, annoyed at you if you go and see him, requiring significant reworking of the students' work. Sounds to me like an overworked professor who demands a lot from his students. And, students should feel inferior and asked for a little too much. Their ignorance is just that deep and the task of education is to make as big an inroad on that ignorance as possible. But if the review is given a numerical basis, the reality of this would remain concealed.

Just as competence is often misconstrued by students as incompetence, it is to be observed that incompetence is often misconstrued by students as competence. Many professors truly do not understand their own disciplines, do not engage in high quality research, and thus teach by virtue of their own ignorance a watered down version of what is true. Students often gravitate to such a teacher, claiming him or her to be "awesome" not so much because the teacher actually is awesome, but because the teacher makes the student feel good about himself vis-a-vis the course on account of the underlying difference in understanding is not so great. Such impostors are often rewarded curiously enough by the process of student review. If objective measures of learning, relative to the standards of the discipline and the depth of its literature were imposed--instead of the current measures of customer service satisfaction--the results would show the reality and not the perversion thereof.

In a society that seeks to endlessly empower consumers ("the customer is always right"), one must wonder whether the empowerment of students as consumers may go too far. Education is, after all, disanalogous to shopping for shoes. The professor is not a salesman and education is not a trip to the mall. The fact that education is not always fun or interesting or pleasant should be nothing surprising to us. This is not to make it out to be some grim affair, like working in a coal mine or shoveling slag. But neither should we imagine it be an exercise in therapy or self-esteem building or shopping. But this is precisely what the management gurus who are running the modern university make it out to be, since for them the university is an economic institution that just happens to be in the business of reading, writing, and arithmetic. Teaching just is customer service, students just are consumers, and education just is the product that is being bought and, surpise, surprise, the administrators are the "upper management" and assume themselves to be entitled to the disproportionate wage scale between themselves and the workers that one sees in factories elsewhere. And, the management uses the customer service paradigm to hold faculty "accountable".

I am not suggesting that an unaccountable professorate, insulated from the institutional need to educate, is desirable. Rather, I am arguing that our students nowadays have been raised in a culture that empowers them to be materialistic crybabies, shallow in their interests, and demanding instant gratification. These crybabies are poor judges of the meaning, texture, and value of learning and do not immediately understand that real learning is difficult and takes many, many years to master and, further, that one must humble oneself before the human burden of this task. This point needs to be emphasized. Academics who teach at the university level are not fakes. They aren't typically losers who slipped through the system. The phd process is generally very burdensome and sifts a lot of insincerity and incompetence out along the way. Survivors of this herd-thinning are generally fit. What they are often not fit to do is to be a customer service clown. The competition has made them far too serious for this. When the administrators that solicit reviews from these students overemphasize them in the process of hiring or determining faculty advancement, they do so to the detriment of the public mission of the university. By allowing administrators to impose these criteria upon us, we align ourselves with them in the process of destroying the culture of mature, rigorous learning in the university--a culture that is our very lifeblood-- and replacing it with a culture of consumerism with all the dumbing down that that implies. By artificially selecting for traits that are inessential to the task of real education, we are going to end up with Paris Hilton and Jay-Z teaching our students in the classroom. This is, in part, what Stanley Fish is getting at.

The Chronicle of Higher Education
Friday, February 4, 2005

Who's In Charge Here?
By Stanley Fish

Well, I'd gone and done it again. My intentions were good (or so it seemed to me at the time). I had brought the student-evaluation forms with me on the appointed day, but when the class was over, and the students had filed out for the last time, there was the large envelope, unopened.
I threw it in the trash and walked back to my office. In my heart I knew that this behavior of 2004 had its source in 1965, when I was teaching at the University of California at Berkeley and first saw The Slate Supplement, a student-run review of teacher performance on sale at the campus bookstore.
At the time I was struck by the casual cruelty of the entries, especially with respect to younger faculty members whose teaching skills were in the process of being developed. Not long afterward, negative comments from the supplement on the performance of a third-year assistant professor were referred to in the course of his midcareer review.
I protested, saying that if we allowed those unofficial (and unscientific) judgments into our discussions, in time they would become part of the official process. And decisions affecting the career and livelihood of countless junior scholars would be inflected by the ill-informed opinions of transient students with little or no stake in the enterprise who would be free (because they would be anonymous) to indulge any sense of grievance they happened to harbor in the full knowledge that nothing they said would ever be questioned or challenged.
Nothing like that, a senior colleague assured me solemnly, could ever happen. Faculty members would always be able to distinguish between anecdotal evidence from a questionable source and the hard evidence of publication and research.
The rest, as they say, is history.
It has not been a good history. True, the evaluation forms have been revised and supposedly refined, but in general the revisions have followed political and sociological trends rather than any advance in our understanding of what is and is not good teaching.
In my university, students respond to 27 statements/questions, of which perhaps five or six are obviously and importantly pertinent to the assessment of pedagogical responsibility: "Were examinations and other graded materials returned on a timely basis? Were students tested on materials covered in the course? Was there sufficient feedback on tests and papers? Were course materials well prepared? Did the course unfold as promised in the catalog and syllabus? Was the instructor accessible to students during office hours?"
Other questions might be relevant in some teaching situations, but not in others. "Did the instructor give lectures that facilitated note taking?" (Even in lecture courses this might not be a suitable measure; note taking is not what some lecturers, for reasons they could articulate, wish to provoke.)
Still other questions conflate student and teaching performance, and imply that the latter is always responsible for the former. "Have you learned and understood the subject materials of this course?" You might answer no, but you might also give the same answer to questions like, Did you attend class regularly? Did you read the assignments? Did you spend much time doing research for your final paper?
The majority of the questions encourage and reward behavior that is at best questionable. Were students invited to share their ideas and knowledge? Given that the point of a course is to improve student knowledge, it makes some sense to gauge the extent (or lack) of it at the outset of instruction; but surely one doesn't want student knowledge to be a major ingredient in a course, and as for "sharing" it, that is an activity that belongs in the coffee shop or dorm room, not in a classroom.
And that of course is the issue: Exactly what kind of activity is teaching, after all? Is it therapy? If so, no teacher is licensed to practice it. Is it retail merchandising (in which case it would be appropriate to cater to the consumer's ignorance)? Let's hope not.
Is it civic or democratic conversation? Not if it's done right, although at least one question in the evaluation form suggests otherwise: "Were students encouraged to question and/or challenge the course material?" Imagine the scene: You have spent some time constructing a syllabus and choosing the readings and arranging them in an order that supports or leads to an overarching thesis. But early on, and regularly thereafter, you pause to take a vote -- in effect asking, Is this the material you want to study and is this the approach you want me to take? Or, to speak in the vernacular, Are you OK with this?
Well, I guess you could do that, and then adjust your behavior accordingly, but I can't for the life of me see why you would call that teaching.
So there in brief is my brief (not only mine; the points have been made before by many) against student evaluations: They are randomly collected. They are invitations to grind axes without any fear of challenge or discovery. They are based on assumptions that have more to do with pop psychology or self-help or customer satisfaction than with the soundness of one's pedagogy. A whole lot of machinery with a very small and dubious yield.
But don't students have a right to competent and responsible instruction? You bet they do (and this is the only sense I can give to the phrase "student rights"), and that is why I approve of those questions that go right to the heart of what responsible instruction is -- course planning, reasonable and rewarding assignments, up-to-date and pertinent readings, generous and helpful feedback, the meeting of curricular expectations, and so on.
Not only are the concerns raised by those questions legitimate, they are too important to be left to the hit-or-miss nonprocedure of the present system.
It would be better if, rather than making complaints anonymously and after the fact, students could report problems to a university office that would assure confidentiality while complaints were being considered by a standing committee. If, in the judgment of that committee, further investigation was warranted, all parties could be informed and invited to a hearing in which everyone would be given an opportunity to speak and respond.
Such procedures already exist to deal with any number of grievances (sexual harassment, discrimination of various kinds), and it would not be that difficult to extend them so that the grievances of those students who feel that an instructor is not doing his or her job could be heard.
No doubt in many colleges and universities a grievance process is already in place, and if it is, there is absolutely no need for the waste of paper and time that now goes into preparing, printing, distributing, collecting, and tabulating forms that report the unfiltered opinions of those who, for whatever reason, decided to express them.
To be sure, there would still be a need for teaching evaluations that could legitimately play a role in promotion and tenure decisions. Those evaluations, however, could be provided by the system of peer visitation already used by most departments. It is, after all, a matter of judging professional competence, and who better to do that than a professional, someone who visits your class and assesses what you're doing (or trying to do) in the context of a career-long effort to do the same thing.
Of course you will be more than handicapped if the class your senior colleague visits has a floating population made up of some students who have been there from day one and others who showed up just yesterday, not to mention the absence of those who occupied a seat and a place in your plan of instruction for some weeks before disappearing without notice or explanation.
If those in the room have not been together from the beginning, they will not share an experience and a sustained exploration of issues, and it may be difficult, if not impossible, to generate the kind of discussion that provides evidence that something educationally valuable is going on. The villain in this piece is the period for adding or dropping a course, which in some universities is extended to the last day of the semester and in many universities is extended through the first six weeks.
I can understand why students, behaving as consumers always do, would want the right to move in and out of classes almost at will, but I cannot understand why faculty members and administrators would grant it to them.
My idea of a good drop-and-add period would be about 20 minutes, but I concede that a week of sampling and shopping might be reasonable. If at the beginning of the second week you know who it is that you're supposed to teach, you have at least a fighting chance of teaching them something.
I am aware of the standard arguments supporting extended drop-and-add periods -- students need time to determine whether they have made the right decision, students should be allowed to withdraw from courses for which they feel insufficiently prepared, students should not be forced to continue in a course if the grade they anticipate receiving would negatively impact their grade-point average and therefore jeopardize admission to graduate school -- but as far as I can see what they add up to is the desire for a fail-safe education, again a desire I understand, but not one we should gratify.
A colleague who has had much more experience with these matters than I have reports (without endorsing) the question he hears most often when this issue comes up: If students are not doing well in a course, why should we penalize them? If you don't know the answer to that question, you might want to consider another line of work.
Stanley Fish, dean emeritus of the College of Liberal Arts and Sciences at the University of Illinois at Chicago, writes a monthly column on campus politics and academic careers.

The Thirty Theses of Jason Godesky

Jason Godesky of the Anthropik network has offered thirty theses on the nature of the collapse of civilization: http://anthropik.com/thirty A remarkable piece of work. I have to admit, however, that there is something a little creepy about this guy. His neo paganism is a little odd. He calls himself "technoshaman" and seems to support some weird ideas about "diversity" as the chief good that seem just plain funky. But the central theses about social complexity and collapse are really well written and important reflections on the work of Joseph Tainter. Clearly Godesky has training in anthropology and has done a great deal of independent thinking, generating a deeply worked out understanding of the nature of civilizations. It is a good read, though, to be sure, guys like this tend to hold court at places like the "Rainbow Gathering" pontificating to bands of dreadlocked, patchouli reeking, corduroy pant wearing youths. Regardless, there is some good thinking going on in the central theses that are worthy of consideration.

The Twilight of Mechanized Lumpenleisure

The following essay by Kunstler was lifted from his website, www.kunstler.com. It is, as almost all of Kunstler's writing, superb. Utterly superb. Thank you, Kunstler. You have given us so much.

The Twilight of Mechanized Lumpenleisure
By James Howard Kunstler

Among the many wonders and marvels of American life in the twentieth century, especially after World War Two, when our country ruled much of the world economically, was the astounding rise in standards of living among social classes who had hardly known leisure or had a dollar to spare on the accoutrements of it from time immemorial. The subject of class itself in America has been so sore, that we can barely acknowledge its existence as a fact of life, despite the workings of whole industries devoted to exploiting the envy of the lower orders. The very term I have just used – lower orders – would be considered grounds for sacking if I had the misfortune of teaching at a college, and will certainly be seized on by critics of this book as evidence of my intellectual unfittedness. In short, any discourse on class consciousness is regarded in America these days as an obscenity, far worse than yelling “fuck” onstage in a Broadway theater, or stealing $100 million from the shareholders of a telecom corporation. I write this, by the way, as someone who does not have a Marxist bone in his body – in the sense that I am devoid of the impulse to reform the social class system per se, precisely because I regard it as an implacable fact of life. The universe is organized hierarchically and that’s all there is to it. All of the subcategories of things in it tend to be organized hierarchically, too, especially the social life of animals, including human beings. It might be argued that the hunter-gatherers of pre-history enjoyed more pure equality in their little bands and tribes, but that was only because they possessed next to nothing in material wealth. The rest, literally, is history. Once civilization got up and running the story was nothing but class, since our complex societies required many layers of organization in the making, moving, and caretaking of things, and some persons enjoyed more favorable roles than others.
Industrial civilization enlarged the middle class without necessarily relieving the misery of the lower classes, which also grew, shifting their labors from the farm to the factory. Marxism was, of course, an effort to reform industrial society by inciting the lower orders to make war on all the orders above them. It failed because it eliminated the necessary incentives for producing industrial wealth in the first place – namely, the legal right of persons to accumulate it – while it failed additionally to abolish privilege among the politically-connected. So privileged persons in places like the Soviet Union simply worked around the artificial impediments to a superior lifestyle, while the masses toiled in squalid and resigned futility.
Now, the high tide of industrial society, the twentieth century, also happened to be an era of tremendously destructive industrial warfare. By mid-century, after two World Wars, the industrial nations of Europe had exhausted and bankrupted themselves, and lay physical shattered, and the same was true of Asia’s only industrial power, Japan. The situation in the United States, on the other hand, was favorable to the extreme. The US continental homeland went unscathed in both world wars, and at the end of the second one, our factories, mines, oil fields, harbors, and railroads stood completely intact while everyone else’s was devastated. We set out immediately to supply the rest of the shattered world with the necessary manufactured goods to resume civilized life, and lent them money liberally to buy our stuff. Once this program got underway in earnest, one of the side effects was a fabulous enrichment of America’s laboring classes.
These classes – the assembly-line workers, the road-builders, the house-framers, masons, auto mechanics, truck drivers, et cetera – entered this miraculous new age straight from the lengthy sequential traumas of the Great Depression and the Second World War. Their expectations following the war were modest. Many were glad to have simply made it home alive from the canebrakes of the Solomon Islands and the beaches of Normandy. There was widespread anxiety that without the artificial stimulus of war production, America would sink into economic depression again. This worked out otherwise. The factories easily converted back to car-making from tank-building, William Levitt figured out how to mass produce the suburban house, starting a boom, and the American oil industry got the world’s motors up-and-running again to get the big cleanup of Europe and Asia underway. As an added benefit, the American managing classes had returned from their stints as officers in the Armed Forces with equally modest expectations for the rewards of being in charge of things in civilian life. The Army had conditioned them into a subculture assembled by rank, but careful in the allocation of privilege, so as to keep up morale through the ranks for the greater good of winning the war. The officers-turned-executives brought these values into post-war corporate life for the greater good of winning a durable prosperity. By the same token, the lower ranks came out of the war with a fund of respect for the authority that had engineered their victory.
And so, by 1956, say, the president of a toaster company might be paid several multiples more than the guy on the assembly line, but not obscenely more. In 1956, both would certainly be owners of American cars (a Cadillac versus a Ford Fairlane), and might well have owned their own homes in greater or lesser suburbs. But their standards of living would seem, from today’s standpoint, startlingly similar. Both families would have had TV, perhaps one versus several, but both families also went to the movies at the Loews Theater, and democratically took their seats first-come-first serve. Ditto the ballparks and football stadiums in the days before luxury boxes. Both upper and working class families ate the standard supermarket victuals of the day, because the gourmet stratification of America had not yet happened. Both families might well have sent their children to public schools. Both fathers may have been Sunday golfers, though on different public and private courses. And so on. By the early 1960s, with America at the height of its manufacturing dominance, General Motors assembly line workers made as much money as tenured college professors.
Now, politically, the situation I describe would seem to be very desirable, perhaps ideal, considering all the unjust rotten systems that had existed before and elsewhere. The American system in those years was fairly equitable and appeared to be stable. But like all good things deriving from industrial civilization, this social leveling process had some strange diminishing returns. One was that the lower ranks of American society became so affluent by historical terms that they were able to impose their tastes on everybody else, if only because there were so many of them, with so much money to spend. They begin to occupy and modify the terrain of America in a way that lower classes never had been able to before – using the prime artifact of industrial civilization to accomplish that takeover, namely the car. They bought homes in the new subdivisions that were obliterating the rural hinterlands of the cities, and before long all the commercial accessories followed: the strip malls, the department stores, the fried food huts, the cinemaplexes, the office parks, the Big Box stores – in effect, an entire alternate infrastructure to the tired, old, bleak, nauseating downtowns of the industrial cities, which had begun to sicken in the Great Depression and with a very few special exceptions would never return to health again. The new stuff built all over America in the late 20th century was analogous to the content of the television programming to which the lower classes insidiously became addicted – a cartoon simulacrum of a real world that was systematically being obliterated. Instead of a real countryside outside the hated cities, we now had suburbia, a cartoon of country living. Instead of towns, shopping malls. Eventually the theme park, as represented by developments of the Walt Disney corporation and their clones, became both the embodiment of the destruction wreaked across the land and paradoxically the last refuge from it. Americans would flock to Walt Disney World in Orlando to put themselves in a saccharine replica of the authentic Main Street environments that they had thoroughly trashed in their own home places. Another diminishing return of the American post-war industrial fiesta was that thanks to our exertions, our salesmanship, and our generosity, the other industrial nations were back on their feet making things again, and before too long they were making things better than we were and less expensively, too. Thus, beginning in the 1970s, and coincident with our all-time peak in oil production, America began to hemorrhage blue collar factory jobs. Families that had grown comfortable in high-paying assembly-line jobs, who had motor boats and second homes on little lakes, and took vacations at the Disneyplexes, and expected life to get ever better were clobbered by the stagflation and other economic disorders of the day. Meanwhile, the labor unions that had guarded their interests for decades rapidly lost their power to negotiate for workers whose jobs increasingly no longer even existed.
At this point – let’s say, the ascension of Ronald Reagan, America’s first purely TV President – something curious happened. A new economy began to replace the old smokestack manufacturing economy. But the new one was not the one that was advertised in politics or the news media. It was not the information economy based on the spread of computers. Neither information nor computer-aided “efficiency” had any net social value when jobs and standards of living were being destroyed. Nor was this new economy the vaunted “service economy,” a perpetual-motion fantasy akin to the proverbial village whose denizens supported themselves by taking in each other’s laundry. No, all that was mendacious balderdash. The real new economy was the final blowout of the cheap oil era: the hypertrophic build-out of suburban sprawl and the furnishing and final accessorizing of it. In other words, our living arrangement essentially became the remaining basis of our economy, in the absence of any other purposeful creation of value or wealth, such as manufacturing things. And because it was a racket devoted to a way of life with no future, it spawned enormous cynicism. Just as the immersive ugliness of the suburban highway strip was economic entropy made visible, so the cynicism of the public was entropy applied to human values, a force propelling things into disorder. When nothing was sacred, everything became profane.
The demoralization of the American public, and especially of the economic lower orders proceeded remorselessly from the 1980s on and became focused on two very pernicious ideas: first the belief that it was possible to get something for nothing, and second the belief that when you wish upon a star your dreams come true. The first derived from the fact that Americans still appeared to generate wealth without really producing anything of value. This was achieved, by one means or another, through the accumulation of debt. This debt was represented by the false collateral of suburban real estate – the infrastructure of a living arrangement with no future. Meanwhile, this debt, or credit (hallucinated surplus wealth), was cleverly converted into huge batches of tradable financial instruments and used to drive both bond and derivatives markets. Since finance is ultimately predicated on the expectation that the wealth of societies will ever increase, this economy was the greatest shuck and jive the world had ever seen. Hence, the most important monument in American life moving into the 21st century was Las Vegas, a shrine to the now universally accepted creed that it was possible to get something for nothing. The second idea, that when you wish upon a star your dreams come true, was its perfect accompaniment. It derived from the mental bombardments of advertising and Hollywood movies, and it provoked the American masses to believe that sooner or later the time would come when their individual big payoff would arrive, their ship would come in, their lottery number would hit the jackpot, they would break the house at the blackjack table of the Mirage Hotel.
Now, the trouble with this kind of demoralizing belief system is that most adult human beings realize at some level that it is at odds with the way the universe works, that it is an edifice of lies – just as the suburban housing developments were an edifice of lies about an enduring way of life, and a maxed-out collection of credit cards was a lie about one’s personal finances. Their own sensed moral failures aroused in Americans a welter of negative emotion including guilt, shame, unworthiness, powerlessness, terror, and ultimately anger over having to feel these unpleasant emotions, and they expressed their anger by striking out against nature, employing the very machines that defined the terms of their existence, the automobile and its spawn: monster trucks, motorcycles, dune buggies, snowmobiles, all-terrain vehicles, and gigantic motorboats whose chief attractions were their power to negate the scale of the average freshwater lake while making enormous amounts of noise. These were people who no longer felt comfortable, or even ontologically present in the world, unless engines of some kind were ringing in their ears. Their assault on the landscape of America completed the destruction that suburbia had left unfinished. And as the cheap oil, which made the whole exercise possible, fades into history with the global oil production peak upon us, America was reduced to a nation of tattooed, overfed clowns in paramilitary drag, pretending to be powerful and good.

é

The tendency for symbolic behavior in human beings is impressive. We are naturally and unselfconsciously metaphorical beings, especially as our technological culture has evolved and we have developed more prosthetic extensions of our powers. By the 1960s, when America’s industrial “smokestack” economy was at its zenith, cigarette smoking was at its peak, too. Forty percent of the adult population smoked, each smoker behaving like a little factory, expelling the byproducts of combustion at all hours of the day and night. It was practically required as a mark of adulthood. It was at least an entitlement. You could smoke on the job and in the college classroom. You could smoke in the doctor’s waiting room. You could smoke in your seat on an airplane — a little ashtray was provided right there in the armrest — and nobody was allowed to complain about it. Every middle-class household had ashtrays deployed on the coffee table, even if they were themselves non-smokers. In those days, smoking was more central to socializing than sharing food. TV broadcasting was largely supported by tobacco advertising. Smoking defined the character of movie stars: Humphrey Bogart expressed the entire range of human emotion in the way he handled his beloved Chesterfields, and eventually it killed him. In the middle of Times Square, a mechanized billboard with a hole in it blew “smoke rings” of steam out over the masses on the sidewalk. The adult population had plumes of smoke coming out of its collective mouths and nostrils the way that our society had smoke coming out of its cities and mill valleys. Notice how cigarette smoking has waned in lockstep with the decline of American smokestack industry.
Along similar lines today, it’s compelling to see how NASCAR auto racing has risen to the level of a mania in early twenty-first century America, as the nation has reached its absolute zenith of automobile use. Even as the world approached the all-time global oil production peak – with its ominous portents for social relations in this country – Americans rallied obliviously to the weekend proving grounds of the stock car gods. NASCAR eclipsed baseball, football, and basketball in popularity among spectator sports. Of course, in real life, such as it was in America, driving automobiles had come to occupy a huge amount of the public’s time, day-in and day-out. Many adults were spending a good two hours a day commuting to work and back. They were spending more time alone in their cars than with their spouses and children. NASCAR was the apotheosis of the same kind of cars that Americans drove to work. The competition vehicles were called stock cars, after all, because they were, theoretically, just souped-up versions of the same models that anyone could find in stock at an ordinary car dealership: Fords, Pontiacs, Chryslers, and so on — unlike the Formula One racecars favored in Europe, which were specially designed just for sport (hence the quaint term, sports car from the twentieth century). What’s more, the American economy was now mostly based on creating and maintaining the enormous infrastructures of motoring, i.e. suburbia, just as it had previously been centered on the infrastructures of industrial production. So the masses had merely shifted their symbolic behavior focus from an emphasis on expelling smoke to an emphasis on watching souped-up ordinary cars move symbolically around in circles.
Or more precisely, ovals, which, from the grandstand, was sort of like sitting on a freeway overpass for five hours watching traffic. The NASCAR racetracks had evolved from county fair dirt tracks with a few rickety bleachers to gargantuan stadiums accommodating more than a hundred thousand spectators. It was significant, too, that the NASCAR subculture arose in the south, the old Dixie states, where the automobile had had tremendous social transformative power in the previous half century. Prior to the Second World War, Dixie had been an agricultural backwater with few cities of consequence, peopled by (among other groups) a dominant Caucasian peasantry, called “rednecks” (because of the effects of the sun on exposed pale skim in the dusty crop rows).
States like Georgia, North Carolina, and Alabama, were huge. You could fit eleven Connecticuts in Alabama and have room for Rhode Island Delaware. Unless they lived right along the railroad line, the folks down on the farm were pretty much stuck in place. The automobile liberated the redneck peasantry from the oppression of geography as emancipation had liberated the black peasantry from the legalities of chattel ownership. In fact, the effect of the car was arguably much greater, since blacks continued to exist in economic quasi-serfdom despite the putative change in their legal status. The car and all its manifold benefits hoisted poor rednecks into a middle class existence that had seemed like a distant fairy tale previously, something only seen in the magazine pages they had used to wallpaper the rooms of their cracker cottages (their own typological term for such a dwelling). They became truckers and car dealers and car repairmen and the owners of fried food franchise shacks out on the highway. They made good wages and some became rich. Once a broad money base was established, they excelled at suburban development because rural land was so cheap and there was so much of it. They worshipped the car more than they worshipped Jesus.
The economy of the South was utterly transformed after the Second World War and the new economy was mostly about the car. Cheap gasoline along with cheap air-conditioning made the South livable for people who had a choice about where to make their homes. Cheap air conditioning in particular made city life possible in a region that had lagged hopelessly behind the states of the Old Union – to the degree that Dixie had not a single city substantial enough for a major league baseball team prior to the 1960s. But the cities that arose in Dixie after the war were not like cities elsewhere in physical form. Orlando, Houston, Charlotte, and places like them had gone from being smaller than Buffalo, New York, to becoming immense crypto-urbations of ring freeways, radial commercial highway strips, and far-flung housing subdivisions around tiny withered peanuts of pre-war traditional downtown cores. Houston by the year 2000 was not a city in the traditional sense of being composed of neighborhoods and districts; rather it was an assemblage of single-use-zoning wastelands: the shopping wasteland, the medical services wasteland, the university wasteland, the cul-de-sac house wasteland, and so on, dominated by massive overlayments of automobile infrastructure.
The economy of the New South, as it liked to call itself in the late twentieth century, was more about the making of suburban sprawl than of the corporations that were lured down from the north to the Carolinas, Tennessee, and Georgia for their cheap labor. After all, the factories themselves eventually closed up shop as globalism made even cheaper labor in distant nations more attractive to corporate enterprise – but the sprawl remained, along with the office parks where obscenely-paid top executives now ran things, while the once-mighty working classes slid into a new kind of trailer-trash penury. And that is where things stand today, with the region, and the nation it is still attached to, sleepwalking into the early years of a permanent global fossil fuel crises that will once again transform the nation in ways we can only sketchily imagine. Into the first decade of the new century, the New South was viewed as being so successful compared to failing regions like the Midwest rust belt, coastal New England, and even California (in its latter stages of being America’s all-purpose shit-magnet), that the behavior emanating from Dixie became paradigmatic for the nation as a whole. It was infectious. These days, the working and sub-working classes from Maine to Minnesota followed country music as avidly as the homefolks down in Spartanburg, South Carolina. They favored the kind of military leisure-wear – especially camouflage gear, with patches and insignia – that came straight from a region demographically over-represented in the armed forces, and which set the styles for all of lumpen America. They adopted locutions originating in the southland – e.g., the “y-offglide”(or “the confederate a) in which words like my became mah; they put “Git ‘er Done” decals on their pickup bumpers, named their sons Buddy, and cried “booyah” when overcome by excitement. They reveled in the romance of firearms to such a pathological degree that hardly a year goes by when some disgruntled employee in the US doesn’t lug a duffel bag with his own arsenal into a place of business and blow away two or three annoying co-workers in a rapture of scripted conditioning straight out of the Hollywood studios.
Some lumpen motoring activities obviously have regional characteristics of their own that don’t migrate well. Snowmobile culture arose in the northern states around 1970, when the take-home pay of people performing low-skill jobs reached its all-time high, and a machine formerly used as a rescue vehicle at ski areas and a maintenance tool on ranches was marketed as a winter toy for grownups in its own right. This was clearly something that was not going to be as popular in Arkansas as in Minnesota. In fact, as this relatively new snowmobile subculture evolved, it became less about the machines themselves and more about drinking with friends in the outdoors – an unfortunate combination as anyone who reads the newspaper in what’s left of small town America can see in the Monday police blotters when snowmobilers with six Budweisers under their belts decapitate themselves running through fence lines at fifty miles an hour. When they are actually on board the vehicles, usually en train with buddies, and not running into unforgiving objects or rolling fatally down ravines, the disturbance to the peace of the rural places they traverse is self-evident and horrible.
All-terrain vehicles, those clumsy three and four-wheeled motorbikes, were most popular proportionately in the American west, where hunters were able to extend to their range to the vast backcountry of federal lands, and get their meat home with the assistance of a gasoline engine. Likewise, the dune-buggy originated in California for the simple reason that desert terrain was adjacent to the populous Los Angeles basin. While it has persisted in its limited milieu, dune-buggy culture never quite recovered socially from its association with the murderous doings of Charles Manson and his “family.” The dirt bike phenomenon also came out of California, but evolved quickly from an off-road work and play vehicle to the dirt-bike tracks of competitive racing, where it gave young men a way to channel surplus testosterone by winning trophies (and cash). Ironically, wilderness trail areas around the suburbs have lately been taken over by non-motorized mountain bikes, which are causing plenty of destruction in their own right.
The Jet-ski, or personal watercraft (in the military lingo beloved by the lower orders because it makes things seem more technically complex and hence magical), is perhaps the most baroque and arguably the last in the line of such dedicated leisure vehicles, being in essence a boat with hardly any storage capacity on which one can do little else besides move at great speed over water while soaking wet. Fishing from such craft is awkward. Even drinking on them presents problems, especially where the bulky favored beverage of the sporting masses, beer, is concerned.
The abuse of public lands during this long fiesta of off-roading has led to a crisis of ethics and law. Of the 262 million acres under the federal Bureau of Land Management, 93 percent is open to off-road riding machines. Of 155 national forests, only two are off limits to off-roaders. Regulation of snowmobiles, ATVs, and dirt bikes on public lands has consistently failed in the face of lobbying by corporations who make these toys and of the peremptory claims of rights by those who use them. Whenever attempted – for instance an effort to limit access to snowmobiles in Yellowstone by the Clinton administration – the rules have been defeated in short order. In a nation of outsourced blue collar jobs, shrinking incomes, vanishing medical insurance, rising fuel and heating costs, and net-zero personal savings, the anxiety level of the struggling classes has to be appeased politically, and one way to minimize the current cost of that is to charge it off to posterity and the public interest.
Where does this leave us as we enter the new period of history I have several times alluded to: the post-cheap-oil world, and eventually a world altogether without recoverable fossil fuels? You could say up a cul-de-sac in a rusted GMC Denali without a fill-up. Or you could say more to the point, in a society that will have to get its thrills and satisfactions in other ways, involving fewer prosthetic projections of our will-to-power. The will-to-power itself will probably be subdued by something more elemental: a will to stay warm, clean, and well-nourished in the era of post-oil-and-gas hardship and turbulence we are entering, which I have taken to calling the Long Emergency. In this new era, coming soon to a twenty-first century region near you, the formerly industrial nations will have a great deal of trouble keeping the lights on, getting around, and feeding their people. Vocational niches by the hundreds will vanish, while the need to make up for a failing industrial agriculture, with all its oil-and-gas inputs, will require a revived agricultural working class in substantial numbers. This is in effect, a peasantry, and the word itself obviously carries unappetizing overtones, especially among those who used to be certain that the perfectibility of both human nature and human society were at hand. It all seemed that way, I suppose, in the early 1960s, when the United Auto Workers Union was setting up vacation camps along the Michigan lakes, and President Kennedy promised to put a man on the moon before the decade ended, and the doctrine of mutually assured destruction kept a sort of peace among the great military powers, and Dad drove home from the Pontiac showroom with a new GTO, which his son, Buddy, used to cruise the strip on Friday nights while Born to Be Wild rang out of the radio and out into the warm, soporific San Fernando night.
All over. All over but the keening for our soon-to-be-lost machine world. We’ll have to find new satisfactions now looking inward and reaching out with our limbs to those around us to discover what they are finding inward and outward about themselves. We’ll certainly find music there, and dancing, and perhaps some fighting, and we will still have the means to make bases and balls and sticks for hitting them and gloves for catching them and twilight evenings in the meadow to play in. Amid a great stillness. With the moon rising.
End

Bernanke's comments on Energy and the Economy

I couldn't sleep the other night and was kept awake watched the following address of Ben Bernanke the new Federal Reserve Chairman on Energy and the Economy. I enjoyed his clear presentation of the case. Of course, one must read between the lines, pause, rewind, think through what is being said, for no Fed chairman is going to want to drop bombs that will have adverse effects upon markets. And there is no greater buzz-kill than the thought that your job may not be there next year, your sector may dry up altogether in a few years, that your savings will be eviscerated, the value of the dollar slashed, inflation in double digits, interest rates sky high to guarantee lending institutions don't go under, and the industrial base seizing up in dysfunctional contortions. His report states several points that are common knowledge for those who understand peak oil and its implications, but it is good to hear them from a credible, official source, and you can get no higher than this. And he gives a hopeful spin to it: in the long run, through conservation and new energy sources, we may be able to survive. What is not included here, unfortunately, is the Q and A period in which the questioning focused mainly on the implications energy shortages and price spikes would have in the climate of the trade deficit and the 8.4 trillion dollar Federal Debt.

Remarks by Chairman Ben S. BernankeBefore the Economic Club of Chicago, Chicago, IllinoisJune 15, 2006
Energy and the Economy
In my remarks today, I would like to discuss the relationship between energy markets and the economy. As I am certain all of you are aware, the steep increases in energy prices over the past several years have had significant consequences for households, businesses, and economic policy. At least since the time of the first oil shock in October 1973, economists have struggled to understand the ways that disturbances to the supply and demand balance in energy markets influence economic growth and inflation. At the most basic level, oil and natural gas are just primary commodities, like tin, rubber, or iron ore. Yet energy commodities are special, in part because they are critical inputs to a very wide variety of production processes of modern economies. They provide the fuel that drives our transportation system, heats our homes and offices, and powers our factories. Moreover, energy has an influence that is disproportionate to its share in real gross domestic product (GDP) largely because of our limited ability to adjust the amount of energy we use per unit of output over short periods of time. Over longer periods, energy consumption can be altered more easily by, for example, adjusting the types of vehicles that we drive, the kind of homes that we build, and the variety of machines that we buy. Those decisions, in turn, influence the growth and composition of the stock of capital and the productive capacity of the economy.
Over the past thirty-five years, the U.S. economy has experienced some wide swings in energy prices. The oil price increases of the 1970s were followed by price declines in the mid-1980s and then a price spike in 1990, with numerous fluctuations since then. From the mid-1980s until fairly recently, market participants tended to look through these price cycles and did not allow their longer-term expectations for oil prices to be greatly affected by short-run swings in spot prices. But beginning around 2003, futures prices began moving up roughly in line with the rise in spot prices. Thus, unlike in earlier episodes, the significantly higher relative price of energy that we are now experiencing is expected to be relatively long lasting and thus will likely prompt more-significant adjustments by households and businesses over time.
This higher relative price of energy poses many important questions for economists and policymakers. Why have the prices of oil and natural gas risen so much? What is the outlook for energy supplies and prices in the medium term and in the long term? And what implications does the behavior of energy prices have for the ongoing economic expansion and inflation? I will touch briefly on each of these questions.
Developments in Oil Markets
Let me begin with the market for crude oil. What accounts for the behavior of the current and expected future prices of petroleum? Supply and demand are among the most valuable concepts in the economist's toolkit, and I believe they are the key to understanding recent and prospective developments in oil markets. For the most part, high oil prices reflect high and growing demand for oil and limited and uncertain supplies.
On the demand side, world oil consumption surged 4 percent in 2004 after rising a solid 2 percent in 2003. The rise in 2004 was much larger than had been expected and was, in fact, the largest yearly increase in a quarter-century. A significant part of the unexpected increase in oil consumption that year reflected rapidly growing oil use in the United States and East Asia, notably China. In 2005, growth of world oil consumption slowed to 1.3 percent, partly reflecting the restraining effects of higher prices. Nonetheless, the level of oil consumption was still high relative to earlier expectations. Thus far this year, underlying demand pressures have remained strong in the context of a global economy that has continued to expand robustly.
On the supply side, the production of oil has been constrained by available capacity, hurricanes, and geopolitical developments. In 2003 and 2004, as oil consumption and prices rose briskly, Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries (OPEC) pumped more oil. OPEC was able to boost production relatively quickly in response to changing market conditions by utilizing productive capacity that had been idle. By the end of 2004, however, OPEC's spare production capacity was greatly diminished. As a consequence, OPEC's oil production flattened out over the past year even as oil prices continued to soar.
Oil production outside OPEC also leveled off last year, contrary to earlier expectations for continued growth. This development in part reflected the devastating effects of last year's hurricanes. Katrina and Rita were enormously disruptive for our nation's production of energy. At the worst point, 1.5 million barrels per day of crude oil were shut in, virtually all of the U.S. production in the Gulf of Mexico and nearly 2 percent of global oil production. Recovery of oil production in the Gulf has been slow, and the disruptions from last year's storms linger even as we enter this year's hurricane season. The cumulative loss in oil production attributable to Katrina and Rita amounts to more than 160 million barrels of oil, a figure equivalent to nearly half the present level of commercial crude oil inventories in the United States.
With the background of strong demand and limited spare capacity, both actual production disruptions and concerns about the reliability and security of future oil supplies have contributed to the volatility in oil prices. The oil-rich Middle East remains an especially unsettled region of the world, but political risks to the oil supply have also emerged in nations outside the Middle East, including Russia, Venezuela, and Nigeria.
Compounding these difficulties in markets for crude oil have been constraints and disruptions in the refining sector of the energy industry. In the wake of Hurricane Rita, one-quarter of domestic refining capacity was offline, and here, too, the period of recovery has been protracted. Even before last year's hurricanes, however, a mismatch appeared to be emerging between the incremental supply of crude oil, which tended to be heavy and sulfurous, and the demand by refiners for light, sweet crude, which can be converted more easily into clean-burning transportation fuels. These developments have highlighted the need for additional investments in refining capacity to bridge the gap between upstream supply and final demand.
What about the longer term? We can safely assume that world economic growth, together with the rapid pace of industrialization in China, India, and other emerging-market economies, will generate increasing demand for oil and other forms of energy. In all likelihood, growth in the demand for energy will be tempered to some extent by continued improvements in energy efficiency which, in turn, will be stimulated by higher prices and ongoing concerns about the security of oil supplies. Such improvements are possible even without technological breakthroughs. For example, Japan is an advanced industrial nation that uses only about one-half as much energy to produce a dollar's worth of real output as the United States does. Of course, the Japanese and U.S. economies differ in important ways, but the comparison nevertheless suggests that there is scope to boost energy efficiency in the United States and other parts of the industrialized world. Newly industrializing economies such as China appear to be quite inefficient in their use of energy; but as they modernize, they can adopt energy-saving techniques already in use elsewhere, and their energy efficiency will presumably improve as well.
Still, as the global economic expansion continues, substantial growth in the use of oil and other energy sources appears to be inevitable. How readily the supply side of the oil market will respond is difficult to predict. In a physical sense, the world is not in imminent danger of running out of oil. At the end of 2005, the world's proved reserves of conventional oil--that is, oil in the ground that is viewed as recoverable using existing technologies and under current economic conditions--stood at more than 1.2 trillion barrels, about 15 percent higher than the world's proved reserves a decade earlier and equal to about four decades of global consumption at current rates. These figures do not include Canada's vast deposits of oil sands, which are estimated to contain an additional 174 billion barrels of proved reserves. In addition, today's proved reserve figures ignore not only the potential for new discoveries but also the likelihood that improved technologies and higher oil prices will increase the amount of oil that can be economically recovered.
The oil is there, but whether substantial new sources of production can be made available over the next five years or so is in some doubt. Some important fields are in locations that are technically difficult and time-consuming to develop, such as deep-water fields off the coast of West Africa, in the Gulf of Mexico, or off the east coast of South America. In many cases, the development of new fields also faces the challenge of recovering the oil without damaging delicate ecosystems. Perhaps most troubling are the significant uncertainties generated by geopolitical instability, as I have already noted. Much of the world's oil reserves are located in areas where political turmoil and violence have restrained both production and investment.
In both the developed and the developing world, another factor holding back investment in oil infrastructure has been concern on the part of producers that oil prices might fall back as they did in the 1980s and 1990s. In light of that recognition, some oil producers have been reluctant to launch exploration projects even with today's high prices. Such concerns have been reinforced by the huge reserves of oil in several OPEC countries that could be extracted at very low cost if sufficient resources and expertise were directed toward doing so.
Developments in the Natural Gas Market
The story for natural gas shares some similarities with the story for oil, but there are important differences as well. In the 1990s, the U.S. spot price of natural gas at the Henry Hub averaged about $2 per million Btu. However, in recent years, the United States has seen a marked increase in the price of natural gas. The average spot price climbed to nearly $9 per million Btu in 2005, with the price spiking to $15 per million Btu following hurricanes Katrina and Rita. So far this year, natural gas prices have fallen back to around $7 per million Btu as an unusually warm winter curtailed consumption and boosted natural gas in storage to record levels. Futures markets currently anticipate that the price of natural gas will be about $9 per million Btu next year.
Why have natural gas prices risen so sharply over the past few years, and why are they expected to remain elevated? As with oil, high prices of natural gas reflect strong demand and diminished supplies. Unlike the globally integrated market for oil, however, natural gas markets are regional, primarily because of the difficulty in transporting gas by means other than pipelines. Although the world's capacity to trade liquefied natural gas, which is transported by ships, is growing, it is still a small fraction of world supply and is not yet sufficient to fully integrate natural gas markets across continents. Demand for natural gas in North America has remained strong in recent years, particularly as environmental concerns have led clean-burning natural gas to become the fuel of choice for new electricity generation. Moreover, increases in oil prices have boosted the demand for energy substitutes such as natural gas. However, domestic production of natural gas has not kept up. Last year, U.S. production was 7 percent below its 2001 level, with less than half of that decline reflecting the impact of hurricanes Katrina and Rita.
Increased trade can often mitigate price increases, but net imports of natural gas from Canada, which currently account for around 16 percent of U.S. consumption, have failed to increase in response to higher prices. Between 1988 and 2001, net imports from Canada tripled, but they have since flattened out. Both U.S. and Canadian gas fields have matured and are yielding smaller increases in output, despite the incentive of high prices and a substantial increase in the number of drilling rigs in operation.
Trade in liquefied natural gas, or LNG, is also likely to increase over time, but perhaps at a slower pace than once envisioned. LNG imports into the United States nearly tripled from 2002 to 2004, but they actually fell a bit last year as production disruptions in a number of countries limited supply and as consumers in other countries competed for available cargoes.
Thus, natural gas prices are likely to remain elevated for at least the coming few years. It is possible, however, that within a decade new supplies from previously untapped areas of North America could boost available output here, while imports of LNG will increase to more substantial levels as countries seek to bring their isolated natural gas reserves to market. Given time, these developments could serve to lower natural gas prices in the United States significantly. Nonetheless, because of the higher costs of producing these supplies relative to the traditional sources of natural gas, as well as the elevated cost of other energy sources such as oil, natural gas prices seem unlikely to return to the level of the 1990s.
Thus, the supply-demand fundamentals seem consistent with the view now taken by market participants that the days of persistently cheap oil and natural gas are likely behind us. The good news is that, in the longer run, we have options. I have already noted the scope for improvements in energy efficiency and increased conservation. Considerable potential exists as well for substituting other energy sources for oil and natural gas, including coal, nuclear energy, and renewable sources such as bio-fuels and wind power. Given enough time, market mechanisms are likely to increase energy supplies, including alternative energy sources, while simultaneously encouraging conservation and substitution away from oil and natural gas to other types of energy.
Economic and Policy Implications of Increased Energy Prices
What are the economic implications of the higher energy prices that we are experiencing? In the long run, higher energy prices are likely to reduce somewhat the productive capacity of the U.S. economy. That outcome would occur, for example, if high energy costs make businesses less willing to invest in new capital or cause some existing capital to become economically obsolete. All else being equal, these effects tend to restrain the growth of labor productivity, which in turn implies that real wages and profits will be lower than they otherwise would have been. Also, the higher cost of imported oil is likely to adversely affect our terms of trade; that is, Americans will have to sell more goods and services abroad to pay for a given quantity of oil and other imports. For the medium term at least, the higher bill for oil imports will increase the U.S. current account deficit, implying a greater need for foreign financing.
Under the assumption that energy prices do not move sharply higher from their already high levels, these long-run effects, though clearly negative, appear to be manageable. The U.S. economy is remarkably flexible, and it seems to have absorbed the cost shocks of the past few years with only a few dislocations. And conservation and the development of alternative energy sources will, over the long term, ameliorate some of the effects of higher energy prices. Moreover, ongoing productivity gains arising from sources such as technological improvements are likely to exceed by a significant margin the productivity losses created by high energy prices.
In the short run, sharply higher energy prices create a rather different and, in some ways, a more difficult set of economic challenges. Indeed, a significant increase in energy prices can simultaneously slow economic growth while raising inflation.
An increase in oil prices slows economic growth in the short run primarily through its effects on consumer spending. Because the United States imports much of the oil that it consumes, an increase in oil prices is, as many economists have noted, broadly analogous to the imposition of a tax on U.S. residents, with the revenue from the tax going to oil producers abroad. In 2004 as a whole, the total cost of imported oil increased almost $50 billion relative to 2003. The imported oil bill jumped again last year by an additional $70 billion, and given the price increases we have experienced in 2006, it appears on track to increase $50 billion further at an annual rate in the first half of this year. Coupled with the rising cost of imported natural gas, the cumulative increase in imported energy costs since the end of 2003 is shaping up to be $185 billion--equal to almost 1-1/2 percent of GDP. All else being equal, this constitutes a noticeable drag on real household incomes and spending. It is a tribute to the underlying strength and resiliency of the U.S. economy that it has been able to perform well despite the drag from increased energy prices.
At the same time that higher oil prices slow economic growth, they also create inflationary pressures. Higher prices for crude oil are passed through to increased prices for the refined products used by consumers, such as gasoline and heating oil. When oil prices rise, people may try to substitute other forms of energy, such as natural gas, leading to price increases in those alternatives as well. The rise in prices paid by households for energy--for example for gasoline, heating oil, and natural gas--represent, of course, an increase in the cost of living and in price inflation. This direct effect of higher energy prices on the cost of living is sometimes called the first-round effect on inflation. In addition, higher energy costs may have indirect effects on the inflation rate--if, for example, firms pass on their increased costs of production in the form of higher consumer prices for non-energy goods or services or if workers respond to the increase in the cost of living by demanding higher nominal wages. A jump in energy costs could also increase the public's longer-term inflation expectations, a factor that would put additional upward pressure on inflation. These indirect effects of higher energy prices on the overall rate of inflation are called second-round effects.
The overall inflation rate reflects both first-round and second-round effects. Economists and policymakers also pay attention to the so-called core inflation rate, which excludes the direct effects of increases in the prices of energy (as well as of food). By stripping out the first-round inflation effects, core inflation provides a useful indicator of the second-round effects of increases in the price of energy.
In the past, notably during the 1970s and early 1980s, both the first-round and second-round effects of oil-price increases on inflation tended to be large, as firms freely passed on rising energy costs to consumers, workers reacted to the surging cost of living by ratcheting up their wage demands, and longer-run expectations of inflation moved up quickly. In this situation, monetary policymaking was extremely difficult because oil-price increases threatened to result in a large and persistent increase in the overall inflation rate. The Federal Reserve attempted to contain the inflationary effects of the oil-price shocks by engineering sharp increases in interest rates, actions which had the consequence of sharply slowing growth and raising unemployment, as in the recessions that began in 1973 and 1981.
Since about 1980, however, the Federal Reserve and most other central banks have worked hard to bring inflation and expectations of inflation down. An important benefit of these efforts is that the second-round inflation effect of a given increase in energy prices has been much reduced. To the extent that households and business owners expect that the Fed will keep inflation low, firms have both less incentive and less ability to pass on increased energy costs in the form of higher prices, and likewise workers have less incentive to demand compensating increases in their nominal wages.
As I noted in remarks last week, although the rate of pass-through of higher energy and other commodity prices to core consumer price inflation appears to have remained relatively low in the current episode--reflecting the inflation-fighting credibility built by the Fed in recent decades the cumulative increases in energy and commodity prices have been large enough that they could account for some of the recent pickup in core inflation. In addition, some survey-based measures of longer-term inflation expectations have edged up, on net, in recent months, as has the compensation for inflation and inflation risk implied by yields on nominal and inflation-indexed government debt. As yet, these expectations measures have remained within the ranges in which they have fluctuated in recent years and inflation compensation implied by yields on government debt has fallen back somewhat in the past month. Nevertheless, these developments bear watching.
In conclusion, energy prices have moved up considerably since the end of 2002, reflecting supply and demand factors. In the short run, prices are likely to remain high in an environment of strong world economic growth and a limited ability to increase energy supplies. Moreover, prices are likely to be volatile in the near term, given the small margins of excess capacity to produce crude oil or natural gas that traditionally have buffered short-run shifts in supply and demand.
However, in the long run, market forces will respond. The higher relative prices of energy will create incentives for businesses to create new, energy-saving technologies and for energy consumers to adopt them. The market for alternative fuels is growing rapidly and will help to shift consumption away from petroleum-based fuels. Government can contribute to these conservation efforts by working to create a regulatory environment that encourages the growth in energy supplies in a manner that is consistent with our nation's environmental and other objectives. Given the extraordinary resilience of the U.S. economy, I am confident our nation will be up to this challenge.

A Trip to the Boundary Waters Canoe Area Wilderness

M and I took a small canoe trip to the Boundary Waters this last week. It is a motorless wilderness area in northern Minnesota accessible only by canoe and kayak. It adjoins Quetico National Park to the north in Ontario. Here are some photographs. Enjoy.

Entry point, Moose Lake Boat Landing 

Bald Eagle (a bad photo) 

shoreline  

Go-lite Hex 3, mokka press, stove, etc. 

Missy, Tiger pose 

Woodsman, saw, and ax 

Sunset through birches 

One of two Northerns (possibly a little under scale) 

Two deep fried Northern Pike 

fish out of water 

Sunset, South Arm Knife Lake 

Drinking in the sunset 

Missy as woodcutter, South Arm Knife Lake 

Laurentian Granite, Lake Kekakabic 

180 rod portage, Lake Vera to Lake Ensign 

Lake Ensign, westerly wind