Re: SC66

http://www.canada.com/ottawacitizen/news/opinion/story.html?id=7c4c8ea9-ad1f-48a7-b4dd-515a63372c88

Farewell to suburbia

The fog of cluelessness that hangs over North America about the gathering global oil crisis and its ramifications seems to thicken by the hour. One reason for all the fog is that the key part of the story is so broadly misunderstood -- namely, that it's not about running out of oil; it's about how the complex systems we depend on for everyday life begin to destabilize as the global demand for oil starts to outstrip the supply.

By "complex systems" I mean very precisely:

- the way we produce and distribute our food;

- the way we do commerce and manufacturing;

- the way we move people and things around the landscape;

- the way we accumulate and deploy capital investment;

- the way we get and allocate energy resources (i.e. the oil markets themselves);

- plus many other activities such as education, medicine, governance, and so on.

All these systems are visibly wobbling these days, and mutually reinforcing each other's instabilities, multiplying and accelerating our problems. For instance, our ventures in bio-fuels are affecting worldwide grain prices so severely that food riots have broken out in several poor countries. Whoops! Bitten by unintended consequences.

The capital markets have been faltering conspicuously for half a year now and the failures occurring there are not so mysterious if you understand that a major implication of the oil story is the prospect of industrial economies being unable to generate the kind of regular "growth" that we've become used to. Hence, a loss of faith infects the common investment "instruments" that represent the conventional idea of growth. Under these conditions stocks, bonds, and currencies themselves lose legitimacy and a desperation sets in among the financial community to find some other way to make money.

It is no wonder, then, in the face of this crisis of confidence, that sharp minds on Wall Street turned to the creation of unconventional new "engineered" securities -- based on algorithms and equations incomprehensible to non-insiders -- and that many of these new paper investment vehicles, such as mortgage-backed-securities, have turned out to be badly engineered, shall we say. These failures, in turn, amplify the instability in the financial markets and make things worse, with banks now fearful of each other's holdings and the regular operations of credit falling into a state of paralysis -- with further ramifications for the mortgage markets, for the house-builders, the suppliers of lumber and sheet-rock, the furniture-sellers, the strip-mall builders, and a long chain of other participants in the so-called "regular" economy.

That economy is not so regular anymore in light of the oil predicament.

Look at it from another angle. The big builders and the realtors seem to think that we've entered the lower arc of a cycle that will turn up again sooner or later. I think they are mistaken. This is not a dip in the real estate cycle, it is the end of the entire suburban program in North America as we have known it.

The new reality of the oil situation informs us that we will not have the energy to run this automobile-dependent infrastructure for daily life. The material assets of suburbia are destined to lose both their monetary value and their sheer usefulness as 100-kilometre daily commutes become economically insupportable, not to mention the cost of heating 3,000-square-foot houses.

We're going to discover the hard way that the project of suburbia represents the greatest misallocation of resources in the history of the world. We will have to occupy the landscape differently in the years ahead. Yet, the enormous sunk costs of suburbia are very likely to provoke a furious campaign to sustain the manifestly unsustainable. The political implications of that are pretty unappetizing.

As in our living arrangements, so in our manner of moving around the landscape, a.k.a. transportation. Start by recognizing that the entire system of Happy Motoring is unlikely to continue as we have known it. This should be taken for granted by anyone seriously reflecting on our future. Unfortunately, the wish to rescue this system trumps the desperate need for us to make other arrangements. Thus huge efforts are being made, and hopes invested in, what are called "alternative fuels" -- the desperate wish to keep running all the cars by other means than gasoline.

I think the stark truth of the matter is that no combination of alternative fuels will allow us to run the North American highway network, Wal-Mart, and Walt Disney World -- or even a substantial fraction of those things. Because of our sunk costs in Happy Motoring, we will surely try everything -- solar, wind, nuclear, bio-fuels, used french-fry oil -- and we will surely be disappointed by what they can actually do for us. The problem is that they don't scale.

Indeed, the whole question of scale is another key element of the larger story. I would state categorically that the energy predicament implies we will have to downscale all of the systems of daily life named above, and that we will also have to live far more locally and self-sufficiently than has been the case in recent history.

The notion that the global economy is a permanent condition of life -- famously touted by Thomas Friedman in his book, The World Is Flat -- will prove to be erroneous. The world will get rounder as our energy diet ramps down. Globalism will prove to have been a set of transient economic relations that came about because of special circumstances during a particular period of history: five decades of cheap, abundant oil, and relative peace between the powerful nations. The first of those two conditions is now palpably over, and the second may fade as the great nations commence a contest over the remaining oil resources in the world, which is sure to affect our economic relations.

The public discussion in both the United States and Canada about how we will manage this epochal transition out of the oil age ranges from incoherent to delusional these days. For instance, among the "other arrangements" we must make, which I alluded to, is the desperate need to revive the North American passenger rail system..................

...................There is no project we could take up right away that would have a greater impact on our oil use than reviving the passenger rail system. The infrastructure is already in place, rusting in the rain, waiting to be fixed. It would employ scores of thousands of people at good jobs, at every level. It would benefit people in all ranks of society. It would take enormous pressure off the airlines in serving short-hop routes that are much better allocated to rail. Most of all, it's a doable project that would build our confidence to address the many other systems that will require re-scaling and reform in the years ahead. The fact that there is almost zero political discussion about restoring the passenger rail system shows how un-serious we are.

Right now, with transport, finance, and food production in disarray, we have entered the period of history that I call "the long emergency." Despite the techno-triumphalism rampant among our governing classes, we are not likely to see (nor are we entitled to) an orderly transition from where we are now to where we are heading. We are unlikely, for instance, to "come up with" a miracle rescue remedy for motor transport. We will have to confront the sheer loss of capital that is at the heart of the financial fiasco rather than continue to play a shell game with loans from central banks to cover up for failed securities. The crisis in grain prices is an early warning that our current methods of food production are hostage to the petroleum markets.

In the absence of a coherent political discussion, we are fated to a merely reactive response to the linked failures of all these systems. One product of the long emergency will be the creation of a new social phenomenon called "the former middle class." They will be a large group of people who have lost jobs, vocations, and incomes. Quite a few are just now in the process of losing their homes. They will be full of anger and grievance and they will demand political action to return their "entitlements" to well-paid jobs, comfortable houses, and limitless mobility.

There is no telling how they will behave when they discover that those things are gone forever. We are not doing ourselves a favour by ignoring these issues.............

But we will