Peak oil, Walmart, Free Markets and Econ Dev in Lex

Random Thoughts on a hot August night.

Peak oil and technology: I keep having the same discussions about peak oil: it really doesn’t mean anything – the market will provide. (Ahhhhh – see we never have to worry, because we have this miracle called a “free market.”) Well, actually, yes, the market will provide. Technology will be employed to recover oil in the future that today doesn’t make economic sense. But that’s just my point. Our global economy is geared to run well on oil that is less than $60 a barrel. Anything higher than that and our economy cannot adjust. See, oil is the base material of the whole thing – if it is expensive, then everything up the line will be as well. And we just can’t take that kind of inflation.

The other trap that the techno-fix folks don’t understand is that in the peak oil times, the price of oil will be extremely volatile. No one will invest the amount of money necessary to make hard to reach or hard to extract oil viable if there is no guarantee of a constant price. But that’s not the way it works. Oil prices will rise as any “recovery” takes hold. Then the price will hit a threshold that the recovery cannot tolerate, sparking recession, and with it, lower oil prices. So there is a paradox: technology needs sustained high prices to recover oil. Yet sustained high prices will cripple the oil dependent economies, reducing demand, and thus lowering price.

Technology will never be a fix. It will at times add supply on line that otherwise wouldn’t have been available, but only if the price is extraordinarily high. Bottom line: technology won’t bring back cheap oil. And without cheap oil, the economy as we knew it is toast.

Adam Smith, our “free market” hero, had one fundamental tenet: The wealth of nations lies in labor, not in land. Labor is that which adds value to everything else, and with value adds wealth. But herein lies the trouble that we’re really beginning to drown in. Yes, labor is vital in the life of civilizations, and yes it adds value and increases wealth. But seeing the earth as only the pit from which we extract the things that we can add our labor to, and then the trash pit where we can throw our waste, leads to climate change and peak resources.

Without a clean, stable environment, without fresh water, good food, and shelter there is no labor in the sense that industrial society understands it. 300 years ago, this didn’t matter. The world was simply waiting to be exploited. The 21st century, if we do it right, will be the time that we fundamentally rebalance the economic theories we’ve accepted as eternal. Now,  Earth must come first. Without that, there is nothing else. With that, we can find a new way towards a better future.

Walmart: Our tea-bagging friends are hot on the cause of Walmart just now. I read something the other day that said, essentially, that Walmart has done more to help poor people than any liberal has ever done. (read that again)

The amount of ignorance and self hate in that statement is enough to blow the top of my head off. This has what it is coming to in American life: the defense of global corporations is seen as the right “American” value.

Here’s what Walmart does. Walmart exists to sell as much stuff as it can, and thereby making as much money as it can – the “free market.” It gets that volume on low price. It gets that price by exploiting wage differentials and unequal labor and environmental regulations around the world, but primarily in China – 75% of everything sold in Walmart comes from China.

It also does that by employing a huge work force of poorly paid people, who in this day and time feel fortunate to have a job.

Walmart is the enemy of increased wages and better standards. If people have more, they won’t spend as much at Walmart. This is the opposite of what Henry Ford did 100 years ago. He actually paid his workers MORE so they would be able to afford his cars. At Walmart, the world’s largest corporation, this would be disaster. See, Walmart’s goal is to keep as many people shopping in their stores as possible. And the only way to do that is to make sure that wages don’t rise and thus ever more people feel stretched. “Thank God for Walmart.”

Walmart: Keeping people poor. Always.

Lexington’s economic development: There’s another round of economic development planning going on here. What’s coming down the track seems like more of the same. A plan to develop our “strengths” and improve our “clusters.”

The real problem is one of clarity: for what future should we be planning? A high energy, global economy based on “innovation” and “creativity”? Or a low energy, local future based on food and natural resources? Which one is sexier? Yep, I’m sure we’ll go that route this time too. The great thing is that we’ve got a shadow economic base growing, one that will be ready to take over, I hope.

In the interest of Full Disclosure, I participated in some of these exercises while I was CEO of Bluegrass Tomorrow. In 2007, we published a ground-breaking study exploring the idea of regional revenue sharing. The conclusion was that we needed a 1% local option sales tax that would be collected and distributed regionally for the purpose of improving our infrastructure and quality of life amenities. I’m still quite proud of that, even though my understanding of the reality we face has grown immensely. Read the report here

I also authored a study that benchmarked the Bluegrass Region against 22 similar regions around the country. This was the follow up to the above report so that we could gain a clearer plan as we moved forward. I collected an immense amount of data and what it showed is that generally Lexington ranked above average in most of the important areas. Not good enough, but better than most.

The thrust of the report however, was that we had 10 years as a region to get our act in order if we wanted to sustain growth in the 21st century. The 10 years represented the tipping points of climate, oil, and demographics (the Millennials would be settling down by then). I also had the pleasure of profiling some of the cool things that the other regions were doing in their own way to get ready. Lots of cool ideas on building local economies and quality of life. Read the report here.

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