By Evelyn Black, on July 18th, 2008
In 2005, the U.S. Department of Energy published a report entitled Peaking of World Oil Production: Impacts, Mitigation, & Risk Management. Called “The Hirsch Report” after its lead author, Robert Hirsch, its purpose was to lay out a governmental strategy for softening the effects of peak oil and its aftermath: that is, the chaos and economic crises sure to follow the point at which the world’s oil reserves would begin to fall.
The Hirsch Report laid out three possible scenarios for mitigation and risk management. In the first scenario, alternative energy sources, redesign of U.S. infrastructure, and other extraordinary measures are taken 20 years in advance of peak oil, with significant negative impact on the economy but a good chance at a positive outcome after a period of adjustment.
In the second scenario, extraordinary coordinated emergency measures are taken at all levels of government 10 years in advance of peak oil, with a period of severe shortages and social stress in the immediate 5-10 years after peak oil.
In the final and scariest scenario, nothing is done until after worldwide peak oil production occurs. In this scenario, severe shortages, widespread social upheaval, the collapse of financial markets, and violence are predicted, with an uncertain and painful adjustment period that could take decades.
What is alarming is that the U.S. government and the oil industry have known since the mid-1950s that peak oil would occur sometime between the year 2000 and 2010 if not earlier. Shell Oil itself commissioned the original study, done in 1956 by geophysicist M. King Hubbert. Hubbert predicted that after the peak, reserves would drop off very sharply, creating an environment in which social upheaval, famine, violence, and general chaos could occur if other energy sources were not in place. The first chart at the top of this post shows M. King Hubbert’s original 1956 peak oil curve.
Ever since Hubbert’s peak oil curve became the touchstone for oil supplies and the mitigation of their depletion, very little has been done in terms of preparing for what both the U.S. government and big oil have known would happen all along. I think it is disturbing and revealing that, even though the Hirsch report was commissioned in 2005, the U.S. is still basically doing nothing to mitigate the effects of peak oil.
 Why would that be? Is it because the U.S. Department of Energy thinks peak oil is still 20 years off in the future or more? Or is it because it is already too late and the U.S. is being run by a pack of oil executives like George W. Bush, Dick Cheney, and Condoleezza Rice? I mean, it’s not like they personally are going to suffer when the worst consequences hit. On their way out, to very wealthy established lives, they have little to lose at this point.
Houston, I think we have a problem.
I think we had a problem back in the seventies, and we should have dealt with it then by instituting a sane longterm energy policy. We didn’t. By general agreement, we passed our own peak oil production point during that same time period and for the past 30 years have been relying heavily on imports (as shown by the chart at the bottom; the middle chart shows all the competing current theories on when peak oil will occur worldwide). By all the best estimates, globally, we are now at or just past peak oil, and we’ve done basically nothing to mitigate its effects. This has happened just as global demand for oil in developing industrial nations like China and India has spiked and continues to climb rapidly.
Yes, commodities speculators are driving up prices right now, including oil prices, but trading in oil commodities is tightly regulated. Speculation is a very small part of the total picture. What is happening right now with oil (and by default gas prices) is more consistent with increased demand in the face of limited or even decreasing supply.
If in fact we have passed peak oil production, we will know it very quickly because things will get very, very bad very, very fast.
 But let’s say the optimists are right and peak oil will not hit until 2020 or 2030. (I think they’re wrong, but for the sake of argument, let’s say they’re right.) Even then, by our own government’s study on mitigation, we know that right now we need to be taking extraordinary measures toward alternative energy and energy independence just to soften the blow. Where are these measures? Why are we not taking them?
Think about that for awhile, and while you’re thinking about it, think about planting some food in your backyard and getting to know your neighbors.
I think we’re in for quite a ride.
By Jennifer Bunn, on July 18th, 2008
Multi-national food chains are cropping up in poor countries, but no one is buying.
It sounds like a good idea in theory. Poor people require cheap food, and giant food chains can provide them. So why aren’t the poor lined up outside the doors to buy the goods?
In developed countries, consumers flock to these chains to buy their groceries at cheaper prices than they might get at the neighborhood store. One would think that the same would be true in poorer countries. It seems this is not the case.
In a study by Bart Minten, a Senior Research Fellow at the New Delhi office of the International Food Policy Research Institute, Minten concludes that even at very low prices, “food prices in the global retail chains are 40-90% higher than those in traditional retail markets.” His study found that shoppers were still not willing to pay the prices of the large global retail chains, instead preferring to do their shopping at the local markets “who operate at very low margins and carry local foods of widely varying quality largely untouched by modern agriculture, both of which would be unacceptable to a multinational company.”
If Minten’s conclusions are correct, multinational food chains will have a hard time enjoying the huge profit margins that they can enjoy in more developed countries. The surge in percentages of food retail that supermarkets have enjoyed in recent years may become a flop in some developing countries. As Minten remarks, “If the chains do survive in poorer countries, they will likely remain exclusively the domain of the middle classes, especially so in the poorest African nations.”
Apart from grocery chains, fast-food chains are also opening across poorer countries. These chains, however, are more cognizant that the average consumer in these countries cannot afford fast food, and deliberately target the middle class.
Although the idea of supplying food cheaply to consumers in poorer countries would seem to be a wonderful idea at first glance, those considering such a move might reconsider.
Source: Rudy Faust, University of Chicago Press Journals http://www.medicalnewstoday.com/articles/112137.php
By Cheryl Grey, on July 18th, 2008
A Brief History of (Fake) Time
The original idea of daylight saving time (DST) is often credited to—or blamed upon, depending on one’s perspective—Benjamin Franklin. While it’s true the creator of Poor Richard’s Almanack did write a satirical essay on how much candle wax Parisians could save by rising and retiring with the sun, his impish solution was not to shift the clocks but to enforce his penny-pinching via such means as rationing candles, taxing shutters on windows, forbidding carriage movements after dark and firing cannon and ringing church bells at sunrise.
No, it was Englishman William Willett in 1907 who first conceived the idea of shifting everyone’s clocks so they arose earlier in April than they did in September, saving the money that would otherwise be spent on artificial lighting and extending the long lazy hours of recreation into summer’s evenings. (He was an avid golfer.) So struck was he by his genius that he spent much of his own fortune in publicizing the idea and lobbying Parliament.
But it wasn’t until 1916, a year after Willett’s death, that “Summer Time” was officially enacted—and then only because the Germans had already done so to increase factory production and save coal as part of their First World War effort. Refusing to give their enemies the advantage of time, England hastily followed suit and the remainder of the combatants joined in, with the United States last to adopt the policy in 1918.
The program was considered so successful that it was reinstated and even doubled for World War II, with the English adoption of “double Summer Time” which sprang forward two hours in April and fell back only one in September. The U.S., not to be outdone, left DST in effect for over three years. It became federal law in 1966, and we’ve enjoyed it, or been stuck with it, ever since.
The Farming Fallacy
Many individuals seem to be of the opinion that DST was adopted to assist farmers, but this is a truly urban myth. Plants, cows, tractors and other farm features aren’t particularly concerned with the hour of the day unless it’s feeding time, and therefore farmers aren’t too psyched by it, either. In fact, farmers tend to oppose DST as a needless complication in their sun-dominated lives.
The original goal of DST was to reduce the need for artificial lighting and therefore the amount of energy consumed by urban workers during evening hours. Some corroboration for the theory was finally offered in 1975 by the U.S. Department of Transportation, which oversees DST as part of interstate commerce. The results of their study concluded that DST might save 1% of electricity usage in March and April, but nobody was really certain, and studies on other fuel usage were not attempted.
A more recent study was performed in Indiana, which didn’t entirely adopt DST until 2005. University of California, Santa Barbara, scientists studied power usage changes in those areas springing forward for the first time and found that, instead of conserving energy and saving money, DST actually costs area residents an additional $8.6 million each year in utility bills, as well as increasing power station and automotive emissions.
The Dirty Little Secret
The reason’s simple. Although electric lights may not be used during those long summer evenings, the air conditioner will be, and it gobbles far more electricity than a few bulbs. So do the television, the stereo, the computer, the microwave and all those other modern high-tech gadgets that weren’t in such common usage at the time of the 1975 study. In addition, having those extra hours of summer daylight tempts many people to go driving after work—to the mall, the ballpark, the golf course, the park, the beach—racking up summer gasoline usage with gallons that might otherwise have been saved.
Sporting goods manufacturers, the leisure industry, gasoline stations, retailers and convenience stores all love DST. Every time Congress extends summer another month, it’s estimated to earn an extra $200 million in sales for the golf industry and another $100 million for BBQ grills and charcoal.
But it doesn’t save energy. And for the U.S. government to make DST a mandatory part of our energy policy is ironic at best.
By R. C. Anderson, on July 18th, 2008
For as long as humans have roamed the earth, they have tried to change it, squeeze something from it or manage it. In the last 50 years or so, the introduction of certain animals, insects or plants into new habitats has been seen as a way to either make money or prevent losing money. In the June 19 issue of Nature, an article entitled “Tierra del Fuego: The Beavers Must Die” highlighted the plight of beavers artificially introduced into the southern region of South America.
Beavers were brought to Argentina from Canada in the 1940s as a way of initiating a fur industry. At the time, beaver pelts were some of the most expensive in the world. However, when fur coats went out of fashion, the market for beaver fur crashed.
Since then, the beavers have increased in number from 50 to 100,000. Unfortunately, since the ecosystem had evolved independent of them, there weren’t any natural predators to restrict the population.
The government now faces a self-induced dilemma: how to stop the devastation wrought on their forests, rivers and ecosystems. This has become a serious problem since 16 million hectares of forest has been affected so far. Whereas North American trees grow back when felled by a beaver, South American trees don’t. This has left huge swaths of deforested land, unable to recover.
The fallen trees create dams which block water flow and turn rushing streams into static lakes. This has created new niches for undesirable species to fill. The foremost concern, however, is that the beavers will mobilize north, destroying forests outside Tierra del Fuego.
An All Out War
To combat this, scientists and government officials are planning to eradicate the beavers using fatal traps, trappers, dogs, boats and helicopters, according to an interview in Nature by Josh Donlan, director of Advanced Conservation Strategies. He states, “We’ve made huge progress over the past five years in removing invasive mammals,” referring to the eradication of goats from the Galapagos Islands.
In this same article, Guillermo Martinez Pastur, a forest engineer at the Austral Center for Scientific Investigation stated that the plan to drive the beavers into extinction “is impossible, or is of extremely high cost.” Regardless, Donlan, who is involved with the eradication project, seems confident it will work.
He might be right since it seemed to work for the Galapagos Islands. In a September 2006 article of Science, it was reported that the Charles Darwin Research Station had partnered with the Galapagos National Park to conduct a six year eradication project.
Funded with $18 million by the Global Environmental Effort (GEF) organization, 140,000 goats were killed in five years using hunting dogs. Rats are next since they are killing the few finches that are left. In 2007, a project to poison feral cats was to commence in order to protect the marine iguanas. The eradication plans continue as a $15 million fund was to be put in place by the national park and research station.
Species have come to reside in new habitats since the beginning of time. However, invasive species can now travel faster than ever before. Many people smuggle plants and animals across borders, introduce them by accident or release their pet into the wild.
In 2005, Pimentel estimated that terrestrial and aquatic invasive species cost the U.S. $120 billion per year in environmental damages and losses. According to the National Oceanic and Atmospheric Association (NOAA), 50,000 non-native species are found in the U.S. This has caused native species to be suppressed so dramatically that they constitute 42% of the species found on the threatened and endangered species lists.
Pimentel also estimated in 2000 that invasive species cost the U.S. $137 billion due to damage to the ecosystems and agriculture. The U.S. isn’t the only country affected. In New Zealand, the varroa mite was introduced and has become a problem for honeybee hives costing $267-$602 million in damages. Eradication is now impossible. Instead, $1.3 million has been earmarked for the first stage of a project to manage the problem. In 1992, the Weed Society of America reported that invasive weeds cost $4.5-6.3 billion while in South Africa, invasive tree species cost the Cape Floral Kingdom $40 million each year to control.
The Benefits
Not all the consequences of animal introductions are bad. The tourism in Tierra del Fuego, for instance, has been bolstered by the beavers. Tourists come to see the furry creatures and the National Park has established trails specifically for those who wish to see them. The beavers also benefit the travel agencies who structure trips to include visits to see the furry aquatic rodents.
The population, however, is simply too great for the environment to support without any natural predators. In 1998 the New York Times reported that Argentina had tried to convince Europe to open their doors to beaver fur, allowing them a financially beneficial solution. Europe refused, stating the inhumane traps were unacceptable.
Argentina acquiesced and spent $50,000 to buy humane traps and train hunters in Tierra del Fuego to use them. These traps killed the beavers immediately rather than breaking their back legs, causing them to suffer. Europe still refused citing inhumane traps were used elsewhere. Argentina rejected outlawing the traps completely since they were being used for fox and coypu which generated an income of $80 million each year in exports.
Although, there are uses for animal introductions, much more thought needs to be applied before starting a project that will be virtually impossible to reverse. This is especially important since introduced animals and plants tend to travel. Not only is the area itself under threat when populated by introduced species, but so are any neighboring ecosystems. Luckily, scientists are looking at the prospect of introductions much more carefully, conscious of the impact if the project goes awry.
By B.P.T., on July 18th, 2008
After this term’s recent Supreme Court case ruling slashing the punitive damages award that Exxon had been penalized in the disastrous Valdez spill, tort and maritime lawmakers, corporate lawyers, and CEO’s around the world are paying attention. What started as a $500 billion award in punitive damages (compared to $287 million in compensatory damages) was slashed first by the 9th Circuit Court of Appeals from $500 billion to $2.5 billion and again by the U.S. Supreme Court to about $500 million- closer to the 1:1 ratio Justice Souter argued for in his theory that punitive damages should be “reasonably predictable.”
So what does this mean in terms of basic economics for both consumers and corporations? While it may theoretically take away a bit of the incentive to bring big tort cases against large companies and some environmental groups are concerned that big oil and other companies are more likely to cut corners without the threat of enormous, unpredictable punitive awards over their heads, the larger impact may be for the companies themselves.
In what started as a Due Process debate under the 14th Amendment, several corporations with large pending or potential lawsuits could be directly impacted. This continues a trend started several years ago, which began the slicing and dicing of seemingly arbitrary punitive damages in BMW v Gore, an Alabama case in 1996, where a jury awarded Gore, a man whose car had been slightly damaged and repainted before he purchased it, $4000 in compensatory and $4million in punitive damages. This punitive damage control also includes awards like the 2003 Campbell v State Farm case, when the high court cut a $145 million damage, which was later reduced to approximately $9 million.
The immediate impact may be felt sooner rather than later by big corporations and shareholders alike, whose holdings often fluctuate based on the daily headlines and potential pending lawsuits. Chevron is facing a potential $16 billion lawsuit in Ecuador over environmental issues. And what about the big MTBE water cleanup settlement recently? Several oil companies (including Chevron) have settled 59 cases for $422 million dollars over cleanup. Exxon Mobil did not settle. An agreement was reached several weeks before the Valdez ruling. Perhaps the other oil companies were worried about the possibility of large punitive damages if they failed to settle. And maybe Exxon will come out smiling. Again.
By J.D. Seagraves, on July 18th, 2008
If you’ve opened a newspaper or turned on a television in the last year, you know that the housing market is in serious trouble. A week ago, it was announced that home prices had fallen by 15.3%, year-over-year. This marked the first time in history that all 20 metropolitan markets measured by the government posted annual declines. Not surprisingly, mortgage applications are at a 6.5-year low.
What came first, the chicken or the egg? The housing bust or the general economic slump? It’s hard to say, but there’s no doubt the two are related. On the heals of that negative housing data, it was announced that the Consumer Confidence Index had fallen to a 16-year low. A few days later, it was at a 28-year low. The dollar is very weak against foreign currencies and gold (and oil!), and the stock market is in a tailspin despite the Federal Reserve’s “weak dollar” polices intended to boost it.
Now for the counterintuitive economist’s view: It’s a great time to invest in real estate.
Why? Well for one, it’s unquestionably a buyer’s market. This means that there’s a large variety of homes for sale in every price range, from fixer-uppers to luxury homes, and many sellers are desperate. These people need to sell because of a divorce, death in the family, job transfer, or financial hardship. They must sell their homes before financial ruin sets in and the bank comes knocking. This is where capitalists capitalize.
Taking advantage of this situation doesn’t make you a bad guy. Quite the opposite: People willing to help desperate sellers are angels, not demons. Meet a hardship-case seller at a mutually agreed-upon price and you might be saving them from any number of degradations. This is yet another case where working in one’s own rational self-interests is not only the personally profitable thing to do, it’s the humane and societally beneficial thing to do, too.
But I haven’t even gotten to the best part: Desperate sellers are more likely to work with you directly, cutting out the middle-man banker and his burdensome regulations.
The best form of “seller financing” is when you simply take over the loan. For example, your seller owes $100k on a $160k mortgage with payments of $650 a month. You step in and assume the payments, and when it’s all said and done, the house is yours. Typically, you’ll get the title in your name, and the seller will be happy to get out of Dodge. And while this may violate an aspect of the seller’s mortgage contract, it is not against the law (an important distinction), and the bank can choose to enforce the clause or not — and there’s no reason for them to do so as long as you make your payments on time. Trust me, in this market, that’s all the bank will care about.
But what if the economy doesn’t rebound right away? All the better! In fact, I’m planning on that. As the Federal Reserve tries to inflate our way out of this recession-soon-to-be-depression, the value of the dollar will continue to plummet. Dollar-based financial assets will sink in real value, but real estate will increase in nominal value (due to inflation) and stay relatively stable in terms of real value. Given this scenario, let’s say the value of the dollar is cut in half. That would mean that the $100k you owe on a mortgage would become more like $50k. If the dollar loses 90% of its value, then that $100k is more like $10k. You get the idea.
When the dollar goes to zero, as I predict it will, the one thing you do not want to be holding is paper assets. Hard assets – precious metals and real estate – are where you want to be. So if you’re able to get a good, seller-financed deal on an investment property with a fixed-rate mortgage, take it.
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