I love reading the Friday Wall Street Journal on Saturday mornings. Today, I read yesterday’s front page news about the consumer price drop that is squeezing profits. The issue is that the commodities, primarily oil, that go into making the products are increasing at the exact time that consumer’s ability to pay more is decreasing. All our smart people are scratching their heads and making dumb faces: “why is this happening?”
Read the article here:
The answer is as simple as can be: we are living in the peak oil time. But the WSJ DARE not write those words.
We see declines in consumer prices simply because consumers cant afford to pay more for products. This is because we are in a deep recession, with very high unemployment, which depresses wages. (Here’s a classic quote from the article about this very subject: “The one benefit of a weak economy: plenty of available labor, keeping wages under control.” – no hint of irony or even awareness in that sentence.) This recession was caused by extremely high oil prices, which were caused by a surge in global demand meeting the limits of oil production – peak oil.
So, despite being in the worst recession in 75 years, commodity prices – which for the most part all have oil as a primary input – are rising dramatically. This is a classic indicator of peak oil: despite a global drop in oil demand, the price of oil has not only not dropped accordingly, but is still at levels that in years past would been said to have crippled global economies. All because the supply of oil is declining.
After cutting costs to the absolute bone, at some point producers will have no choice but to pass the increased cost of oil on to consumers. So, Americans will be faced with higher prices for consumer goods like food, clothes, and durables – and higher prices for energy generally – while at the same time being strangled with wage deflation. This is a unique and scary situation. We have never had this combination of factors, which is understandable because we’ve never reached peak oil before now.
Remember, all this is happening when the global economy is depressed. If the vaunted “recovery” truly begins to take hold, oil prices will skyrocket, but globalization will ensure that wages, at least here in the US, don’t increase to match. People will get pinched severely. The deep-seated and vicious anger that is already just barely below the surface of American life will only increase. In 2012, we could democratically elect the next tyrant to trouble the world as we seek to regain what we rightfully consider ours: the ability to consume the entire planet as cheaply as possible.
All this because of peak oil.