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The End of Price
In the 1980s, fishermen caught the last wild Beluga sturgeon from the Sea of Azov, source of prized caviar, and wild sturgeon in the Caspian Sea failed to reproduce. The sturgeon catch plunged by 95 percent, and the cost of caviar soared. Such extraordinary price growth is known as "hyperinflation," or as economist Eric Sprott says, "the caviar syndrome."
This may sound trivial regarding caviar, but hyperinflation turns critical with commodities such as oil, gas, copper, zinc, water, or fine hardwood, all now growing rare on a global scale. Industrial civilization has already depleted the best and most accessible of these resources. Sturgeons might recover if we leave them alone, but copper and oil do not reproduce themselves.
As humanity scours every last region of the planet for resources, we enter a new historic period in which certain vital commodities no longer have a traditional market price linked to demand and supply, but rather to the cost of access.
Hitting the wall
In April, 500 migrating ducks landed on a Syncrude Canada oilsands tailing pond and perished. Syncrude CEO Tom Katinas reported being "very saddened" by this, quickly banned media from the site, and issued an internal memo: "It is our responsibility to ensure that the best interests of Syncrude are maintained." To clarify, the oil company’s best interest is cash flow, not ducks. The Canadian oilsands, once promoted as a saviour of the world petroleum crisis, now appears anaemic. Shell Canada recently adjusted its oilsands production estimates from CAN$ 7.3 to CAN$ 11 billion, an abrupt 50-percent cost increase. Then, last month, Imperial Oil geologist Clement Bowman insisted that the Canadian government commit billions of dollars to solve "the huge environmental problems associated with the resource," namely, carbon-dioxide emissions, water divergence, a nuclear power plant to boil the sludge, dead ducks, and an obliterated prairie ecosystem. Bowman emphasized that unless these environmental issues are solved, "the oilsands have almost hit the wall."
There you have it. The "wall" is profitability. The "free-market" strategy to dodging this wall is public welfare: socialize the costs; privatize the profits.
The full environmental and social costs of doing business are never reported on the operating budgets of these billionaire companies. Public money and toxic lakes do not appear on the balance sheets. Why? Because it wouldn’t be profitable. Investments from the public and from nature don’t earn stock options, although the free market wizards need these investments to avoid hitting the wall.
The Alberta, Canada oilsands: obliterated prairies
Great powers
Since 2003, the US has spent over a trillion dollars, and killed over a million people, to secure Iraq’s oil supply. The long-term public cost of the war is now projected to reach US$ 2-3 trillion, which roughly amounts to a US$ 30/barrel subsidy for every drop of oil in the Iraqi proven oil reserves.
Nations have waged oil wars for a century, since 1912, when the British Navy abandoned coal for oil and Winston Churchill declared, "You have got to find the oil … purchased regularly and cheaply in peace, and with absolute certainty in war." Such tactics are not lost on China. "A great power must be one that controls more resources," wrote Zhang Wenmu, a research fellow at the China Institute of Contemporary International Relations, "and there has never been a case in history where such a pursuit is realized in peace."
To gain access to forests and oil fields, China finances thugs in Burma and Sudan, just as the US has backed deadly juntas in El Salvador and Chile, or Russia in its provinces. China has caught up with the US and Europe in consumption, now using over a quarter of the world’s copper and steel, and half the cement. Note that we now discuss resource use in large fractions of the Earth’s entire supply.
Construction projects in poorer countries simply stall because there isn’t enough cement or steel at any price.
The rising costs of retrieving oil - war, subsidies, energy input, and ecological disaster relief - will increase the price of everything. Economists call this "cost-push" inflation, a more virulent strain than commonly reported inflation. Central banks are helpless to manipulate cost-based inflation with bank rates or money supply. This state of affairs is the logical conclusion of growth economics on a fixed planet warmed by a modest star.
Bidding wars
In 1979, Soviet geologists discovered the world’s largest undeveloped copper deposits in Afghanistan. The CIA-armed Taliban booted out the Russians, and in 2005, companies from the UK, US, and Canada bid for the rights to the Afghani Anyak copper field. The bids came in at about US$ 1.2 billion, including infrastructure, roads, a power plant, and a profit margin acceptable to shareholders.
But then, in the fall of 2007, China offered Afghanistan US$ 2.8 billion for the copper, more than doubling the effective value in a single stroke. By financing US trade debt, China holds fist-fulls of rapidly sinking US dollars that they would rather trade for resources, Sudanese oil, Afghani copper, or swaths of northern Alberta. The estimated 12 million tons of copper in the Anyak field - the largest known untapped reserve in the world - will supply China for four years.
No profit-minded company could have matched the Chinese copper bid, because it left no profit. Overnight, world copper prices were no longer about supply and demand, but about access. Since 2003, the price of copper has soared from US$ 0.81 per pound to over US$ 3.90, a surge of about 38 percent annually. Traditional economic theory tells us that commodity price increases dampen consumption and boost supply by making marginal deposits profitable. However, the reverse is now true with oil, copper, and other limited natural products. As price accelerates, global demand still grows, and recoverable reserves still dwindle, unleashing hyperinflation, the End of Price, an era in which access to vital commodities is about power, not market mechanisms.
Human suffering also booms with commodity prices. Gulf News economics writer Sean Kelleher suggests, "we are into a new paradigm." Surging commodity prices, he writes, "might well be a boon to investors, but it will be a burden to the poorer end of all societies." Traditional wealth creation reveals its dark side. China’s Southern Metropolis Daily reports that an open child slave trade now thrives within China. Factory managers purchase children "like cabbages" in Sichuan street markets and ship them to the Pearl River Delta industrial heartland, following the tradition of English textile factories, Belgian rubber dealers in the Congo, or American cotton barons.
We now see the real face of modern industrialism: plunder public assets, enrich the wealthy, exploit child slaves, lay waste to living habitats, design obsolescence, and sell shoddy goods in community-killing giant box stores. On paper, it’s all profitable. In reality, the ship of industry steams forward like the Titanic.
The tech fix
Another favourite theory of the growth economists is that "technology" will save us from resource depletion. Ethanol will replace petroleum. Oops. We forgot that corn grows in soil that once supported forests or supplied food.
Innovators, we hear, will allegedly find alternatives for everything, but copper and oil, for example, possess unique properties. Copper water pipe is strong and flexible at a wide range of temperatures, antibacterial, and easy to use. Copper remains essential for high-efficiency, high tech electronics that supposedly promise efficiency gains.
As James Kunstler explains in The Long Emergency, technology is not energy. Technology costs energy. Electronic wizardry does not replace a depleted earth. The world’s copper, lead, and tin consumption might endure for 20 years at current rates before it reaches the "caviar syndrome." Bauxite and iron ore may last 50 years. But the clock keeps ticking, 3 billion more people will inhabit the planet in 50 years, and nature shall not be mocked.
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Bankrupt theories
Robert Ayres, Professor Emeritus at the INSEAD business school in France, explains that eternal-growth economists make four erroneous assumptions:
1. Steady growth projected into the future is a fallacy. There are no examples in nature of exponential growth continuing indefinitely.
2. Traditional economic growth models rely on an unjustifiable simplification of human activity, and an ignorance of nature’s laws and complexities.
3. Growth economists imagine abstract firms and consumers making optimum decisions with perfect information. None of this exists. Sovereign, monopolistic, and special interests direct decisions and foreclose valuable options.
4. The theory that capital, plus labour and technology, equals growth ignores nature’s requirements and limits.
To this we may add the so-called "invisible hand" of Adam Smith. The theory assumes that people pursuing their own self interest will guide civilization to the "best possible world." The evidence of history shows that no such invisible hand transforms collective greed into paradise. The history of slavery, sweatshops, and dead lakes filled with toxic sludge attest to this fallacy.
Traditional economists - socialist and capitalist - have presumed that industrial output could grow forever. Other more visionary economists - Donella Meadows, Herman Daly, Hazel Henderson, E.F. Schumacher - long ago pointed out that traditional economic theory forgot to account for ecological systems and natural value.
Even some traditional economists now recognize the error. A 2008 Goldman-Sachs investment report about commodity shortages stated, "we see parallels with Malthusian economics." Engineers, planners, UN advisors, and investment bankers now commonly admit that the maligned economist Malthus was essentially correct. His work involves nothing more obscure than high-school calculus. The limits to growth are real.
Earth’s economics
We now see that our galloping economies rely on handouts, massive debt, war, abuse, waste, and a diminished earth. Rivers die, species go extinct, forests disappear, deserts grow, and people suffer. This state of affairs signals social dysfunction on a global scale. The industrial world exhibits sociopathic and "ecopathic" behaviour. Innocent citizens sometimes appear traumatized, even while doing their best to remain optimistic and apply creative solutions.
Daly, Henderson, Ayers, Mark Anielski, Nicholas Stern, and many other sound economists have described more accurate economic theories that recognize natural value and authentic quality of life. What human enterprise must now learn is this:
The ecology is the economy.
Everything we use, every innovation, every human enterprise or simple pleasure rests on the bounty of the Earth. Economists ignore ecology at our peril. The end of conventional price puts ecology and nature in proper perspective: priceless.
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See this and other Rex Weyler blog posts
at “Deep Green” Greenpeace International
Tags: China, commodities, Ecology, economy, price, tar sands
This was posted on Wednesday, July 2nd, 2008 at 1:25 pm and is filed under Ecology . Feel free to respond, or trackback.
6 Responses to “The End of Price”
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gail Says:
What do we do, as people of the U.S.? We live in a rural place, drive one small car, take the (limited) bus, live simply, have little debt, grow a garden, collect water in rainbarrels, recycle or reuse everything, buy recycled everything, buy locally, think globally, vote issues, and yet it can’t make up for our neighbors’ way of life or make us feel like we’re making much of a stand. And we’re getting nervous about our jobs/foods/welfare. What do we do NOW?
Rex Weyler Responds:
Gail: I’m no expert on post-consumptive survival, but like you trying to figure it out. If you are doing all those things, then you are pretty much doing what you can. The grand global events will indeed be influenced by people you cannot control. Your price of fuel is driven by the consumption of your neighbours, U.S. industries, China, and the rest of the world. You can’t change that. Expand your garden and grow as much food as possible. Learn skills that could help you endure a sustained recession or worse, a collapse. Build community. We will find that love, compassion, and common neighbourliness are going to count big.
None of our possessions provide the real source of happiness or quality of life anyway. What counts? Joy in simple work, the food you’ve grown, time with family and community. We can have all of those things, even if we lose our jobs and the economy tanks.
Do not rely on your government, Republican or Democrat. They are hopelessly locked into an untenable paradigm and the underlying philosophies never appear to change. Governments will be almost useless in the transformations ahead because politicians spend most of their time attempting to win or hold onto power by pleasing and appeasing people, appearing to serve their desires, but not by informing them of difficult challenges. No politician in our western democracies wants to inform people that they must consume less of everything, but that is exactly what we should be doing, and in the future what we will be doing.
In “Reinventing Collapse,” Dmitry Orlov discusses how the Russian economic collapse offers lessons that will help Americans deal with the decline or collapse of the U.S. economy. This is a very useful book, partially because the author has a sense of humour and compassion that feels comforting and hopeful, even as he’s delivering unpleasant news. There is a nice synopsis here at the Energy Bulletin.
A sustained decline, at the very least, is almost certain. America and western society in the 20th century has been built on cheap liquid fuel — oil — which has now peaked and will decline. Meanwhile world demand for energy will grow, and this will change everything. Those least troubled will be those with the simple lifestyles. You live in a rural environment. Protect it. You drive one small car. Drive it less and look into converting it to electric. You take the limited bus. Take it more, or even take it over and make it more useful. You live simply. Good; lucky you. Try to retire debt and expand the garden. Your recycling and local buying habits are going to serve you well. Count your blessings and enjoy the simple pleasures. In harder times, your simple life will be a beacon to others.
Some years ago we left a rural life for the city for reasons of work and education for our children. My wife and I are now plotting our return, so you’re ahead of us and an inspiration. We’ve orgnaized a citizen Peak Oil taskforce to help prepare our community. That might be useful for you. For what it’s worth, I find it comforting to worship the earth, not just try to live sustainably, but to actually revere the living earth every day and take pleasure in the birds and the worms in my compost, because I know that’s what keeps me alive.
All the best, rw.
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Anna McPhee Says:
This western economy just feels like it is running out of steam. In the U.S. people seem nervous and don’t know where to turn. Europe feels more stable and I don’t know about Canada, but they seem to be following the U.S. model and making all the same mistakes.
You are right about the Coscos and Walmarts killing communities. Here in the U.S. some environmentalists are cheering the “green” initiatives at Walmart, but research has shown that each one of these huge stores destroys over 100 local businesses. This destroys local community. What are we going to do when Walmart decides our community isn’t profitable enough, or when the shipments of cheap goods stop? The big box stores will close down and leave communitees gutted.
Your essays on the Greenpeace site are great. Thanks for standing up for the natural world. The story of the ducks is heartbreaking. All this destruction for money, so a wasteful society can be even more wasteful. Tragic.
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Andrea Peloso Says:
I tend to waffle between city life and country life as the most sustainable option.
In the city, there are subways, trains, people close by who can share skills and materials.
In the country, there is land to grow food, space for animals and beauty, but it seems somewhat more reliant on oil in terms of driving.
I suppose there are horses, and bikes as other means of transportation.
Why have you decided that the country is better?
Thanks for the great article.
It is heartbreaking to see the tar sands, and terrifying.
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Andrea Peloso Says:
I read Dmitry Orlov’s book yesterday. It’s funny… then what he is saying starts to sink in and it gets unbearably bleak. I have to say I felt more sad than I ever have after reading a book. But this is only because it made me think about these issues in more concrete terms. So, I am very grateful to him and Rex also for recommending it.
The danger with this I think is that we will give up and start preparing for the worst. Even it the worst is inevitable this will only make it come faster and harder with less love and community built in along the journey.
There are the familiar words of my grandmother when I was young: you never know when a bus might hit you, something terrible could happen at any time. So, relax and live life to the fullest. Now I feel more able to take some of what I can from this book.
Orlov really suggests that each individual focuses on helping themselves, but sharing with others. I think the sharing with others part is the good one to focus more on. We must be of help to one another. I know I would be extremely unhappy if I tried to do otherwise anyway and we are not culturally predisposed to have a few people in our lives that we know and trust, we know more people on a more superficial level. He mentions a lot of sad tales of people having to get what they need for themselves alone in times of danger.
He says to keep what you have a secret from others, lest it get stolen. But Russia was already preconditioned to have to be this way due to shortages of goods. I think this will just make folks over here feel really hurt, jaded, and angry. It will make things worse from what I can only guess.
I was recently living in another country where my living circumstances turned out to be more isolating than I had imagined. I hardly had any phone access and there was the occasional time when I was without internet. It was very hard to stop being utterly scared and unproductive. I became fearful and my mind would sometimes go to the worst place. In a place where I did not speak the language this was terrifying for me. I noticed that I became mistrustful and frightened and now I still have to work to undo some of this. For this reason, I really think that using the mindset developed in a time of scarcity or acting out of fear will only isolate us more. Lessons from spiritual traditions of 1000s of years advise that we keep our heart open, learn to open again when it breaks. Really, it is like a muscle – developing compassion and love, we must do it again and again,
Also, he says to try to keep a sense of humor. It will be necessary for sure. The truth is, that is what he is saying comes to pass; a lot of people won’t much want to get out of bed. We must be able to be open with one another about these deeper feelings of loss. We must learn to accept difficult emotions if we are going to stay together as communities.
Specific Advice I got from the book or thought of:
Tell everyone you know to start a garden. There are a lot of new farmers graduating from farming courses without land. There are now programs to connect them to those with land, even in cities. This would cost you nothing, you would just share the fruit of the land. If you have some - collaborate and then share the food with your neighbors. A very small plot will feed you and your family. But an acre can feed 30 or more families.
Don’t think about a lot about stuff you can’t predict. My god, you will just go crazy. There are a lot of very sad tales in that book that as far as I can tell, I will be powerless to avoid, so no point going there.
Value your friends, something we should already do.
Keep a gardening supplies, and bikes with a few extra tires around.
Pack a special area of your house as though you were about to go on a very long camping trip - imagining anything you might really need or like to have.
Try and imagine alternative situations where things are more difficult to obtain and we don’t have all of our conveniences.
Consider your safety and pay your debts.
If you live somewhere cold…get a good snowsuit.
It is hard, but the more that we are able to face reality and it’s possible consequences, the better things actually get.
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Andrea Peloso Says:
24 hours later…
This book was very useful in that it allowed me to think of many pillars in our culture that I currently take for granted and what I would need to take responsibility for if they were not there. Perhaps it will save my life or future lives.
The main point I took from this is that this issue is something I have to personally think, and act on each day, with an open heart.
I think though, that there is a much bigger chance that we will basically either sink or swim together over here. Of course, to a certain degree. With all of us knowing so many people, how can we really be happy if sad things happen to many of them? We must all especially look out for children and other vulnerable people.
We are a culture based on super heros, heroism, helping the weak. Our spirits will be destroyed if we go against this. As can be seen in the massive soldier suicide rate in Iraq. These poor people have been forced to do something they know is not right, or die themselves, and after a while they can no longer be happy. Their entire ideal system has been destroyed.
One is that Communism taught that capitalism was pure evil. I have some friends from Russia also who said that the post communist Russia became more evil capitalist than the USA ever was because of these ingrained teachings. Of course, I really cannot judge this for sure as I have not lived there personally. And I do not know what our future will hold. But we have only a few centuries ago, all had ancestors who found some way to live here with less.
While over here there has been Capitalism with all of its woes,many of us have personally chosen to share more, so if we have embraced more sharing ideals it has come from within and not been forced on us.
We do not have a current problem of mass alcoholism as there was in Russia prior to the crash.
We do, however, have a huge proliferation of weapons and other drugs and lots of very traumatized people in jails and overseas. We need to learn to protect ourselves, but realistically we are potentially going to be threatened by very well trained people. It will be hard. These people may well have more power than the rest of us, so if we attempt to find special places for our dear ones, they had better be pretty well hidden! Thus, we really need to try and retain as much of our culture as we can in advance.
Things that have been learned in this century and before can help us: joy leads to more joy, violence to more violence. We can choose this as much as possible. If we neglect the violence, it will grow.
We have a worse problem in the sense that most people have not had to go without in the same way, and place value on non-material things.
Also, this will occur more gradually for us, hopefully, though faster than we would wish. But we have way less housing and other resources…
We are people from all over the world, thus we may have more conflict, but also more creative solutions.
While some religious groups are culty and scary, we also have a good tradition of bringing communities together in attempts to cultivate inner peace. Though as things become more capitalist, some die out…
We must focus on what we have, and also the lessons of our ancestors, and our true land owners - First Nations people.
We do, however, have a strong tradition of sharing, and pioneering. Some of it evil, but some of it industrious and fruitful. Many of us enjoy farming and gardening.
Not all activists have been suppressed and caused massive problems over here, a lot of them have seen their protests change general consiousness and protect things. The words of some of our dead activist leaders have helped us all to understand certain issues better and strive to personally make change.
We must keep an ingredient of this in ourselves…”War is Over” at least right now, in this moment.
While after a crash there may be a crisis of identity for those folks who love leadership and action… these tendencies can be of great help to us now. We can perhaps all step up and help something intelligent, sustainable, and caring happen. At least, in as many places as possible.
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Heather Schibli Says:
Thank you Rex for a captivating and realistic essay. I would also recommend reading “Deep Economy” by Bill McKibben. McKibben focuses on small communities and returning to the land- much like what you suggested. I look forward to reading “Reinventing Collapse”.
I am currently in Toronto, Canada, and am in search of a home in the country with my husband. We are trying to find communities that have an interest in the arts, community initiative as well as the organics movement. Having grown up in a small Ontario town, I know far too well that this sort of community will be hard to find.
All the best,
Heather
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