Top of the News: News that American households lost $1.33 trillion in net wealth in the first quarter compared with the same period last year sounds dramatic. Yet it’s only one snapshot of the reality that we are a poorer country as a result of the bad bets and swindles of the financial elite — and the unsustainable economy most of us helped perpetuate.
For example, the numbers mean household net worth is at its lowest since 2004. But the normal march of inflation — we’re not enjoying 2004 prices — means the pain is even greater. Also, most average Americans saw their wages stagnate in the recent boom as income inequality hit levels not seen since the eve of the Great Depression — so the loss of their 401(k)s and, worse, housing values, is a calamity.
Add in the high debt many of the same average Americans face, plus continuing layoffs, and you begin to see how deep the hole is. Unfortunately the great bubble created distortions that must be worked out. For everybody, that is, but the big bankers. Don’t you wish you could have gotten an accounting rule changed that allowed you to value your house and 401(k) at 2006 levels?
The Back Story: I got a kick out of a recent Freakonomics post playing the classic Lazy Columnist Trick of setting up a strawman to knock down. In this case it was that the media “hysteria” over peak oil has faded but the media haven’t come clean and explained, I assume, that we have plenty of oil.
In fact, most of the media are clueless about energy issues; during 2008’s high prices, they were blaming the major oil companies and speculators. But when the world economy crashed, sending down demand, oil prices never fell to, say, $19 a barrel. Now they are up around $70 and the International Energy Agency raised its demand forecast for the first time in 10 months.
Peak oil is just a fact of geology: that the world has used up half of this one-time gift; it will use up much of the remainder much faster than it did the first half. The question is when it happens — did it happen in 2007 or will it be 20 years out (hardly much transition time). The remaining oil will be harder to get and more costly to refine — and no magic hydrogen car will be dropped off by benevolent aliens.
Demand will continue to rise fast as the developing world industrializes and wants to live the car-centric American dream. Meanwhile, many of the big “elephant fields” are at or near peak — Mexico’s Cantarell being one example. It’s not for nothing that the Saudi’s guard their actual oil numbers as a state secret. Watch production, not reserves that can be squishy or outright fraudulent.
The result: a higher energy future. Rising oil prices risk poleaxing any recovery, then creating yo-yo recessions as they fall again, then recover. This is classic peak behavior, as is the painful unwinding of speculative contracts, financial instability, etc. So, too, is increasing competition among nations for energy reserves. It’s all part of the Great Disruption.
Today’s Econ Haiku:
Grilled Lewis for lunch
But the recipe won’t change
You can bank on it