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Haven't We Learned Anything?

The World Cup of Oil

by JOHN K. WHITE

It was reported last week that the United States is now the number 1 oil producer in the world ahead of Saudi Arabia and Russia, adding to its 2010 lead in gas production, all thanks to the fracking revolution and shale gas. And because cheap energy drives the American economy everyone is happy again. Crisis, what crisis? Full steam ahead! Wrong, Do not collect $200 trillion in future oil revenues unequally taxed, Do not exhaust an already limited resource, Do not increase global warming. Please. Haven’t we learned anything in the last 150 years?

The beginning of modern economics can perhaps be traced to a summer’s day on August 27, 1859, when Colonel Drake and his team first drilled a viable commercial well just south of Titusville, Pennsylvania. Forget Adam Smith and the Industrial Revolution in Britain with its efficient production of pins and expansionist Victorian cry for world control. Oil like no other product has changed the world, making billionaires of John D. Rockefeller (the world’s first) and J. Paul Getty, while freeing the American mind to a more modern and ruthlessly successful world expansion. No matter the pollution. No matter that we live on a planet with limited resources.

It is also being routinely reported that inequality is not a natural by-product of expansionist capitalism, but instead just an old-fashioned result of influence peddling and insider knowledge, the modern version of a court nobility getting the favourable scraps. Wrong again.

Sure, influence makes a bad game worse. But when economics is played as a game as defined by a trading market, there will always be winners and losers, just as sure as heads will come up three times in a row 12.5% of the time in three coin flips. Especially so, if that market is run by the efficient market hypothesis (EMH) malarkey, for which the Chicago school’s Eugene Fama and Lars Peter Hansen won the so-called 2013 Economics Nobel. That we can have two accepted countervailing theories – EMH and naturally fair capitalism (NFC?) – routinely trotted out to endorse the travesty of a business-first society is outrageous.

More worrying though is our endless push for more. More oil, more gas, more everything we can get our hands on. Sadly, we have learned nothing from Bubble Economics that seeks only to maximize, everything apparently made right now because the United States has won the World Cup of Oil, donning laurels for its nation-saving hydraulic fracturing. Witness less unemployment, sky-high share prices, the cheapest oil in years. Everyone’s singing. More, more, more, how do you like it? Endless expansionist economics at its worst.

To be sure, past growth has been staggering and without precedent. But as Tim Jackson noted in Prosperity Without Growth: Economics for a Finite Planet, such expansionism is “totally at odds with our scientific knowledge of the finite resource base and the fragile ecology on which we depend for survival.” What’s more, with regard to the effects such growth has on our economies, Hyman Minsky noted that “the normal functioning of our economy leads to financial trauma and crises, inflation, currency depreciations, unemployment and poverty in the midst of what could be virtually universal affluence.”

And yet we are told that growth is the only model, unchecked until a correction occurs – often disastrously, as in the 2009 credit crunch and resultant worldwide recession, which in some countries was in fact a depression.

The push for more was alarmingly noted by The International Energy Agency which predicts that carbon emissions will almost double in the next 20 years, three-quarters of that from China, India, and the Middle East. With the U.S. at the top of the table again, that lust will grow even greater.Perpetual growth without any thought to the harm in the process.

Oil output is a good example of failed expansionist thinking, showing huge increases throughout the 20th century, doubling in the United States every 8.7 years from 1880 to 1930, and prompting questions about its continued sustainability. The concept of peak oil (defined as half the available oil in the ground to be extracted) originated with the American geophysicist M. King Hubbert in 1956, who predicted that the United States would reach maximum production (peak oil) in the 1970s, which it did. He further predicted world peak oil in 2000, a date still hotly debated.

Note, however, that what has already been extracted is the easier half – the upside – and that the downward half is much more difficult, not to mention scarcity- or security-based price increases as we approach end oil and end gas. Of course, some will say that hydraulic fracturing and shale gas are somehow different, that despite continually expanding we will be spared the ultimate day of reckoning.

Why are we speeding to the end? To satisfy the money men? Will we now resurrect the housing bubble given all this newfound cheap oil and resultant demand for more? Will we then relax regulations about how to invest all the excess capital that results from less unemployment and more demand? Will we add another $4 trillion to the deficit but tell everyone not to worry because as a percentage of GDP we are still better than everyone else? Will we add another trillion dollars to the Forbes list while further eroding everyday workers’ rights? Melt a few more icebergs and create more polar vortices but pretend fossil fuels have nothing to do with it? Will we wait for the next bubble to burst before we start the next round of finger pointing?

It’s like we’re wired for speed, unable to slow down despite all the cautions against excess. Speed limits, seat belts, and air bags are good things. They protect. But like kids in a road racer we pay no attention to what’s ahead, drunk on our own stupidity. It was with good reason that the Fed chairman W. M. Martin Jr. noted that the goal of a regulatory body is to take away the punch bowl after the party gets going, a corrective or negative feedback system designed to keep from destroying ourselves with too much of a good thing. Success sure, but safety and sustainability first.

Alas, reduce, reuse, and recycle are again falling on deaf ears. Maximizing to paper over the systemic faults of a system that purports to be about people but is in reality about turning human labour into a machine is sheer madness. Commodities owned and traded for money and not for use is the worst of all economic practice, designed for one purpose only: more.

Of course, being outraged all the time is tiring. Logic doesn’t seem to work. Perhaps a favourite movie will illustrate the madness: Metropolis by Fritz Lang, Modern Times by Charlie Chaplin, Wall Street by Oliver Stone. Or a book: Hard Times by Charles Dickens (admittedly hard slogging), The Ragged Trousered Philanthropists by Robert Tressell (a must modern read), The Grapes of Wrath by John Steinbeck (a surprise Oprah book club choice).

Maybe contrary economic logic doesn’t work on a beholden working population so disenfranchised that ‘Think Globally, Act Locally’ is an unreasonable luxury chattered about but lost in the daily grind. To be sure, the politicians have been bought and sold so many times their souls are threadbare. Maybe we have to make a game of reduce, reuse, recycle. The United States should be leading the world in restricting excess.

We can’t keep ignoring the warnings. Economics is not a game. What a crock to keep maximizing limited resources. “Madness, madness” as the doctor mutters over the blown-up bridge in the final scene of The Bridge on the River Kwai after Alec Guiness’s character finally realizes he has been aiding and abetting the enemy all along in his relentless quest. Madness. More oil madness.

JOHN K. WHITE, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013). Do The Math! is also available in a Kindle edition. He can be reached at: john.white@ucd.ie.