Stone Walls of Denial

Blame the speculators.

Since oil reached the $70/barrel mark and continued north while gasoline approached $3/gallon, the public wailing has begun, and hundreds of websites lobbying for congressional action to limit speculation have sprung up, demanding action to limit the price of oil.

The Democrats ,who are suffering badly in the polls as a result of their heroic attempts to rewrite the law of supply and demand as it applies to overpriced housing and overextended borrowers, will almost surely take the bait and embark on another adventure in misconceived economic engineering, and pass laws to limit commodities speculation, specifically speculation in oil futures. If there's anything Obama and his fellow Dems don't need just before the 2010 elections, it's four-dollar-a-gallon gasoline, so look for a lot of frantic posturing and blatant pandering, in the form of legislation aimed at commodities speculation.

And if the commodities speculation is "regulated", expect spot shortages and long lines at the stations, because the law of supply and demand never rests. Speculators do not control prices, they merely respond to situations as they set up. If indeed there is an ample supply of a commodity and prices really are inflated artificially, the "bubble" will burst, for you can make just as much money shorting as you can on the long side of the trade. Why are the speculators not shorting oil? Could there be a fundamental reason for the steady rise in liquid fuel prices, such as the decline of almost every major oil field in the world, coupled with rising demand from developing nations?

The fact is that we have likely reached the absolute peak of global production, and have probably crossed it; and are now on the "bumpy plateau" , the period in which oil production is flat-lining before the descent down the other side of the slope. This period is bound to be defined by increasing volatility in prices as upward-arcing prices due to declining supplies and increasing global demand,which will quash economic activity, producing demand destruction, which results in temporarily lower prices, until the economy starts to recover, and then the cycle will repeat.

This is very, very bad news, and there is really no way to mediate the situation except to reduce our demand, and drastically. That's the "free market" solution to rising energy prices and declining production: just use less. Much less. And make whatever adjustments in your life you have to make to do that. That might mean moving closer to work, swapping your house for an apartment, moving back to the city or near a rail stop, taking the bus or train to work, or even having only one television set on at a time. It will mean, most likely, consuming less of absolutely everything. Most of all, it will mean radically reordering our built environment to enable far lower energy use, and that will take money and time we no longer have. We've wasted our time and money doing the opposite of what we need to do to mitigate the situation and make life with a fair degree of technical amenity possible as supplies dwindle, thanks to 65 years of disastrous public policy designed to promote sprawl development, auto dependency,destruction of our cities and waste of resources in the name of 'growth'.This country has simply built into its structures and systems an inflexible demand for copious amounts of cheap fuel, so much that with the best efforts at conservation in the world, most people in the U.S. simply cannot make a living or procure the necessities of life- heat, food,water, clothing- without consuming massive amounts of fossil fuels.

While Americans have wallowed in complacency and a sense of entitlement, China has for years past been busily locking in future oil production to fuel the rise of its middle class and their aspirations to the American suburban lifestyle. India, also, has a burgeoning middle class, and these two developing super-powers have been hard at work building power generation facilities, and inking contracts for future supplies of oil and other essential minerals.

And far from leveling with the citizenry regarding our prospects for continuing the Post WW2 lifestyle with its waste and excessive dependence on motors, the current administration has erected more walls of denial, and added a couple of trillion dollars to our mountain of public debt to pretend that we can continue as we have for the past 60 years. Instead of deregulating the railroads, eliminating subsidies to private airlines, and curtailing highway construction, we are devising new subsidies for auto and air transportation, suburban subdivision building, and consumer debt, while starving the systems and industries we will need as fuel supplies become ever more constrained. Enabling the citizens in their ignorance and denial by capping oil prices will not help us in making the necessary adjustments and sacrifices we will all have to make to survive the massive economic shift taking place. Manipulating the market by regulation in order to pander to the public's desire to continue obsolete lifestyles and wasteful consumption may help you win the mid-term elections, but it will only incentivize the very behaviors we need to curtail to make a successful adjustment to new necessities.