The Crisis
Overview
The current financial crisis is not understood correctly, and the proposed solutions are thus incorrect.
The crisis is caused by the inability of the modern economic system to deal with a declining economy. The declining economy is an expected consequence of the Energy Crisis. The fact that oil production is increasingly incapable of keeping up with the demands of a growing economy is the first phase of the Energy Crisis. Later phases will be even worse unless we prepare now.
The Crisis is not about confidence, it is about real underlying problems that need to be addressed. The desire of people to take steps to prepare for the future is correct. The desire of governments to restart business as usual is wrong. People prepare by saving money. This is not the correct way for society as a whole to respond.
This document will mention many actions by society that might contribute to a solution. There is not enough leeway for us to go down many wrong paths. We need to make decisions based on hard-headed numerical calculation and vigorous open debate. We need to minimize decisions based on sectional interests and hidden agendas.
We need to accept that there will be a period of greater central control of the economy, and greater public ownership of economic assets. A Republican administration in the US has found that it needs to acquire an insurance company, so this should be obvious. It needs to be done in a more organized way. We need to plan for Long Crisis Socialism, not just do one ad hoc nationalization after another.
The Crisis will be marked by oscillations between periods of decline and deflation, and periods of economic revival and inflation. We need a better way of dealing with deflation. Current proposals to combat deflation by printing money and spending it randomly will work out badly, particularly if politicians get their hands on the money without oversight.
We are going to be short of expertise for many things we need to do. We are going to have to proceed bravely using intelligence and knowledge, as we do in wartime. The Internet makes knowledge accessible, and is a key tool.
Preamble
We face multiple crises: an energy crisis, a financial crisis and an environmental crisis. Let's just call it The Crisis. We will emerge from The Crisis significantly poorer. But the majority of people in the developed world, the middle class, will be happier, because they will have reclaimed their lives from the incomprehensible and incompetent economic powers that have imposed the current massive economic inequality on society.
According to the statistics we have enjoyed 60 years of nearly uninterrupted economic growth. Surely the middle class has benefited enormously from that? Let's compare the median American 2 child family between 1972 and 2006. In inflation adjusted terms the 2006 family spends significantly less on food, on clothes, on appliances. However they spend 70% more on housing. Does this mean they live in a big new McMansion? No only richer folk do that. Our median couple live in a fractionally bigger house, 6.1 rooms instead of 5.8, but it is 20 years older. The 2006 couple is less likely to have health insurance. The other new cost is education for pre-school and then for college. The significant fall in wealth is despite the fact that in 2006 it is much more likely that both parents work, even with very young children. The two jobs necessitates 2 cars. The final straw is this: in 1972 our median couple was saving 11% of their income. In 2006 it is -1%. Our 2006 family is gradually sinking into debt at the rate of 1% of income per year.
America is, in fact, poorer in many ways than it was in 1972. The reason is that 1972 was the peak of US domestic oil production. Since then an increasing amount of oil has come in from the global oil market, with wealth pouring out in return. But wait, a lot of the outgoing money isn't spent, and returns to America in loans. A giant financial industry grows up, skimming off enormous wealth while selling the white powder of debt to the increasingly impoverished American middle class. It was in fact a giant Ponzi scheme, dependent on new borrowing to prevent a credit collapse. Then the world as a whole hit peak oil in the 2005-2008 period. The resultant oil price spike pricked the debt Ponzi-like scheme. The economic collapse continues as this is written (Dec 2008), with no end in sight.
Society needs to make massive changes in basic infrastructure. It is abundantly clear that the current capitalist financial system is going to fail to support this work. We don't have the resources to get this work done while preserving the extravagant frivolous lifestyle of the rich. And indeed we can see that the rich have not been making the constructive contribution to our society that has been claimed and which might justify their privileges. How the middle class responds politically will determine how we come out of this crisis in 20 years time. We can go through a period of socialism and planning to get the job done, then transition back to an improved free market system that is ponzi-proof and doesn't require the current excesses of social inequality. Or we can just let the crisis play out with endless unplanned government interventions supporting the rich, and finally emerge with the massive social inequality that prevailed before the Industrial Revolution. The middle class is big, and waking it up is not easy, but that is the only route to change we can believe in.
Socialism is a dirty word in much of the West, but even Republican America is doing ad hoc nationalizations now. What we need is serious well-planned socialism. I commend Mike Moore's plan to socialize the American car industry for the duration of the crisis, but it needs to be done in a much wider planning context.
We'll start by trying to understand The Crisis before getting back to solutions and how to get there.
Money
The first thing to understand is
money. Money is certainly funny stuff, and our understanding of it is
rather coloured by the way it used to be a redeemable stand-in for
some physical stuff (typically gold). As it currently operates money
does two things well, and is pressed into service for some other
things which it does less well, particularly in volatile times.
The
things money does well are:
Act as a medium of exchange to avoid the inconvenience of
barter;
Provide a measurement of the
relative value of things at a point in time.
Money is not so good at providing a
comparison of value across time. This is not just because of
inflation and deflation, but because the relative values of things
change, so that inflation and deflation are not well defined: they only make sense if you
know exactly what basket of goods and services you are considering,
and typically the basket that makes sense at one time is incorrect
for a different time.
Money is used by people and
organizations to move wealth into the future. We put dollars into a suitcase under the bed, and spend it at a later time. It seems as if
the money in the suitcase is a magical store of value, but that is
very misleading. What actually happens is this: when you put the
money in the suitcase you take it out of circulation. This reduces
the amount of money chasing the same amount of goods. This causes a
small amount of deflation, making everybody else holding dollars
minutely richer. Then when you get the money out of the suitcase
and put it back into circulation, that money acquires its value by
causing inflation and taking a small amount of value from all the
other circulating money.
It is important to see that this
process, which makes it possible to move wealth into the future
through money, only works for entities embedded in a relatively
stable wider environment. Society
as a whole can't move wealth into the future through money. We'll
come back to this point later. Real wealth isn't money, it is
useful physical stuff, and knowledge and expertise. Some of it can be
moved into the future, but most loses some or all of its value
in the process.
There is a real economy out there with real goods and
services and activities. One needs to think clearly about that, and
not think too much about money. That's what we'll be trying to do in
this document.
The Energy Crisis
The prosperity of the modern world has been built on cheap fossil
energy, starting with coal for the Industrial Revolution. This fossil
fuel is running out much more rapidly than estimates from official
geological sources. Oil, and particularly cheap good quality oil, is
evidently running out first. Even when the price was recently very high it was
not possible to expand supply. Demand is now down because of the
worldwide economic meltdown, but we are still using up this finite
resource at a great rate. By the time demand recovers, the maximum
available oil production rate will not be able to reach the plateau that
we've seen from 2005 to mid 2008. It is almost certain that the peak
of oil production is behind us and a long and bumpy decline lies
ahead. The core job of governments over the next 20 years is to
manage that decline and optimize the changeover to other sources of
energy. More on that later.
This document will assume that
we've passed peak oil, with peak natural gas and coal to follow
within a decade or two. If you don't agree with this then what
follows will describe a future rather than a current problem. That
would be great. There would be time to prepare and possibly avoid any
monumental economic catastrophe. But make no mistake: there has to be an end to exponentially
rising consumption of finite resources (in this case fossil fuels), and there will be
something like a bell shaped curve, with a peak followed by decline.
Oil use tracks the economy
The last 60 years have been the age of Oil, and the clearest
indicator of that is how closely the world's economic production has
tracked up and down with oil production. It makes no sense to ask
which causes which. We saw how quite small reductions in oil
production during previous oil shocks lead to matching economic
declines. Most of the time we've seen the reverse, with a rising
world economy demanding more oil, and until recently getting it.
The world's economic infrastructure, particularly transport, is
tuned to oil. The economy will decline with oil production, though at
times it won't be clear which is leading and which is following. As
we switch away from oil, the economy will eventually decouple. We
need to make sure that happens sooner rather than later. Some Peak
Oil commentators think that this won't happen until there is
something like a complete collapse of civilization. I don't believe that, but I do think the problem is very serious, and how bad things eventually get will be determined by the quality of our response now. If there was a break in the continuous thread of industrial civilization, then, with all the easily accessible resources used up, our
descendants would have a much tougher time rebuilding an industrial civilization
than our ancestors had in building it. Quite possibly there will be
no second chance.
The Tsunami Effect
Those likening the current economic problems to a tsunami are more
correct than they realize. The characteristic of a tsunami is that a
sudden change in the ocean floor requires the ocean to make a
matching change. But it can't make the change across the whole ocean
instantly. Instead it makes a much larger change locally, and that
change is communicated to the rest of the ocean in a series of waves.
Suppose there is a sudden uplift in a part of the ocean floor. Then
instead of lifting the whole ocean a minute amount, instead it lifts
the water just above the uplift by a lot. The top of that water is
then higher than the surrounding ocean and collapses outwards as a
spreading wave. It collapses so fast that it overshoots downwards
creating a local trough at the scene of the uplift. This then follows
the spreading wave with a following spreading trough. And so on, so
that we get the series of peaks and troughs that characterize the
tsunami.
Something similar happened during the recent rise in the oil
price. The underlying dislocation was the sudden appearance of an
unbridgeable gap between the demand for oil at the prevailing price
and the available supply at that price, and indeed supply was unable
to rise at any price. There was a need to reduce demand to match
supply. But it was impossible to reduce demand in a uniform way
across the whole economy, since so much activity was predetermined by
existing contracts and unavoidable use. So the bits of the oil demand
that were able to reduce needed to be hit extra hard. The price had
to go up enough to stop vacation and other optional driving across
the world, and other easily modified behaviour. To do this the oil
price overshot upwards by a lot. At the prices that were reached, many companies
were the living dead, continuing only on momentum and hope and
existing contracts.
The
effects
of the high price spread out like a wave, touching
enterprises that aren't obviously much affected by the oil price. At
the time of writing (December 2008) the economy is in free-fall. It has
already dropped
enough so that there is no shortage of oil, but it has much further
down to go before it rebounds. When it does recover it will once
again rise enough to hit declining oil production, the oil price will
again soar, and a new episode of economic collapse will start. These are the waves of the Peak Oil Tsunami.
The future promises to actually be messier than the picture above suggests. Jeremy Grantham, chairman at Grantham Mayo Van
Otterloo, an institutional money manager, said recently: "The global economy gives a good impression of having run at top speed
into a brick wall". It is doubtful if we will get up that head of steam again. So the next time we will run into peak oil at a slower speed, with some parts of the world economy going well, and others less well. The price break out will be less dramatic and the crash less catastrophic. Maybe we'll ride the wave down the slope for a while instead of wiping out.
The Financial Crisis
Many think that the economic meltdown is just a result of problems
in the financial system. It is certainly hard to disentangle these
issues, but we'll try.
Recycling Money
In a barter economy, if you wanted to save for the future then
you'd acquire durable stuff that would be useful later or
exchangeable later. In a money society we like to save money. But
money is funny stuff. If someone saves money then someone else has to
go in to debt, to balance it out. Maybe you think they could just put
it in a suitcase under the bed, but that would cause deflation and
the central bank would end up creating money to lend to balance it
out, aiming, as they do, for 2-3 percent inflation.
Unfortunately the world is cursed with some very determined
savers. This includes the Chinese government and, most relevantly to
us, some of the major oil producers. Hasn't it been a cosy deal. They
send us oil and we send them bits of paper: dollar bills, bonds,
equities. Much of this paper is turning out to be
worthless. A huge financial industry grew up to recycle oil money
back into the Western economies as loans. Hundreds of millions of
dollars, or more, was siphoned off as our enthusiastic savers were
connected to ever more dubious borrowers. “You mean I can live
in this house for nearly nothing for 2 years, then walk away when you
put the interest rate up?”; “Yep”. Then the lenders
borrowed more money using those mortgages as collateral. Wow.
Still, no real wealth is destroyed by this chicanery. A lot of
wealth has ended up in the wrong hands. The fact that banks and other
financial institutions (and even countries) are insolvent is a real
problem, but can be fixed, as we are seeing.
The real problem is that we have a declining economy and our
economic system is not designed to handle that correctly. The oil
price overshoot was always going to lead to an economic (and oil
price) crash. But the management of the crash is incorrect. In
particular allowing deflation is disastrous.
Deflation
The prices of houses and other fixed assets are declining. The
prices of commodities are falling. This is deflation. It hasn't made
its way to the supermarket shelves yet, so official CPI figures are
still registering inflation. That's a good reason why governments
need to change their way of identifying inflation/deflation so that they get on to the problem sooner.
The combination of economic decline with deflation is disastrous
for many reasons. With total output declining, wages need to go down
in real terms. Deflation means that wages are rising in real terms,
and this can be very hard to renegotiate. The result is rapidly
rising unemployment and companies going broke. Another problem is
that companies are unwilling to sell assets preferring to leave them
on the balance sheet at an inflated price, thus concealing the loss.
When we have a forced economic decline (and we need to get used to
that) then we would like to have that run smoothly, with everyone
getting poorer together. Deflation prevents that, causing the economy
to seize up. Deflation is actually easy to fix, but the important
thing is to do it in a way that addresses the underlying problems
rather than the symptoms.
It is crucial that independent central banks, not politicians,
address
deflation, just as they have the job of preventing inflation. The
solution to deflation is to print money and spend it. However it should
be done in ways that (a) are reasonably fair and automatic; and (b) is to a large extent
reversible when inflation reappears. It is also sensible for the government to requisition some of the printed money to spend addressing the underlying
structural problems which lead to the economic decline.
Printing money is
a tax. It is used by all governments in war time because it is so easy to
collect. It is a tax on people holding money and on lenders. Because it is a tax, the
central banks should provide the printed money to government for spending when there
is appropriate tax legislation. Other than that it should be constrained to spend the money in an automatic way that is reversible. In America the Fed buys up outstanding government bonds. Australia doesn't have any such, and I think even America may not be able to buy enough. Also pumping money into the bond market is a very indirect way of getting it into the general economy. I think the questions of how to reversibly spend the money needs to be considered more. My instinct tells me that the right approach is for the central bank to buy durable
stuff that it can expect to sell when the economy picks up. Why? Because this is what an individual in a pre-money society would do to prepare for the future.
In our current crisis Governments need to spend some of the printed money on
infrastructure to address the underlying problems, but this will turn
into a feeding frenzy of bad decisions if governments are allowed to
spend the printed money without the consent and oversite of the legislature.
Capital Destruction
We've seen how reaching Peak Oil requires some process to destroy
demand. More important than demand destruction is capital
destruction. Here I am referring to real capital: useful physical
assets, knowledge and expertise.
When we move to a new technology we destroy the capital associated
with previous technologies. A recent example is the move to mobile
phones. Suddenly all those pay phones weren't making any money. And
it wasn't just the pay phone booths that had lost value: behind that
was a whole lot of back office equipment and human expertise. Of
course we absorbed that particular capital loss with no widespread pain.
Switching from an oil based infrastructure will be extremely painful,
even if the replacement is just as good. And it won't be.
The Great Depression of the 30s has been portrayed as being about
nothing substantial: just economic mismanagement by Government and
Central Banks. However looking back we see that it was a time of
enormous change in the underlying infrastructure of the Western
world. Energy moved towards electricity, oil and natural gas.
Transport moved from horses to motorized vehicles. Communication moved to
the telephone. There was massive capital destruction, and the need to
build new and different capital. Having said that we can see that
things would have worked better if governments had not allowed
deflation and perhaps they could have done more to help get the new
infrastructure up and usable.
In our current crisis, the capital destruction caused by moving transport away from oil
is not just the obvious: vehicles, service stations, mechanic
expertise, airports, ... . It also includes a lot of things built on
the assumption of cheap transport, particularly the Western world's
sprawling suburbs. When we subsequently move away from fossil fuel
for electricity generation, that will also destroy the value of a lot
of energy infrastructure.
The Underlying Problem
Getting the financial issues sorted out will reduce the pain and
duration of the transition. Addressing the underlying energy problem
is more important.
The initial problem is the decline in amount and quality of oil
produced. Liquid energy has been particularly important for
transport. We need to transition as smoothly as possible to
alternatives. Boats and trains can transport for much less energy
than road vehicles. Train lines can be electrified. Larger vehicles and
boats can be run on compressed or liquefied natural gas. Cars can run
on batteries or hybrid engines. Large ships could return to coal or
even move to nuclear.
This is a huge change in infrastructure. Government will have to
lead. Good decisions need to be taken about what to do and in what
order.
Following uncomfortably soon we will see the worldwide peak and
then decline of all fossil fuels. This is hard to believe in
Australia where we have a lot of coal and gas, however there is no
doubt that we will sell this, at least to our traditional friends, in
an increasingly dangerous world. So the world, including Australia,
needs to prepare for a post carbon economy. Of course this is
pleasing for Australia which is predicted to be badly affected by
climate change. Our chances of co-operation on reducing use of fossil
fuels was never good, but it will turn out that the world has no
choice.
The bad news is that all our non-carbon options, nuclear and
various sorts of renewable, have significant up front capital costs
before they then deliver energy with low marginal cost. The exception
is biofuel which doesn't seem to deliver net energy at all, and will
not be considered here.
As with transport, the government is going to have to take the
lead in a huge capital investment during very difficult economic
times. There is no room for spin, pork or emotional consideration in
determining where to put that effort.
Energy for everything
It seems as if there are many inputs to our modern life, but all
of them can be replaced with enough energy. If you want fresh water
then energy can desalinate sea water and energy can transport the
water.
If we look at any physical thing shaped by human intention or any
human activity, then we can see that it was constructed using
existing infrastructure plus energy. If we look at that
infrastructure we can see that it, in turn, was constructed with
previous infrastructure and energy. This can conceivably be traced
backwards to when there was no infrastructure shaped by man at all.
Energy is everything.
There is one other essential ingredient: Suitably educated humans
to utilize the infrastructure.
Energy and Jobs
Energy and appropriately educated humans utilize existing
infrastructure to generate directly useful stuff plus new
infrastructure:
Note that our productive infrastructure is effectively decreasing
because it is tuned to an energy mix which is changing.
So total output is going to be reduced till that is fixed. To fix it
we need to devote a larger proportion of output to building new
infrastructure. So that is going to reduce the amount of useful
output even more. And then our productive infrastructure is not
optimized for its new job of building this new infrastructure, which
reduces its effective size still more.
With the Industrial Revolution, we learned to utilize an easily
expandable supply of cheap energy. This leads to ever more
sophisticated infrastructure, and a huge demand for educated workers
to drive that infrastructure. The relative shortage of workers drove
up wages and drove the price of energy down. In the following diagram
the icons are set so that a typical activity requires an equal number
of people (workers) and barrels (energy):
Because there was plenty of energy, energy prices were driven way
down. The fact that energy prices got off the floor over
the last few years shows that we aren't in this position any more.
If we get to the point where there is a significant shortage of
energy then we might go back to the way things were before the
Industrial Revolution, with wages driven to the floor:
This future destruction of the middle class is an additional reason that the middle class needs to wake up politically now. With this sobering possibility in the distance, we will turn to
the consideration of what needs to be done.
Navigating to a solution
There are no easy answers. That's why we must look at the process, not just grasp at possible solutions.
The Truth will set us free (or at least give us a
chance)
There is this idea that the economic issue is lack of confidence.
This is demonstrated in Australia by both sides of politics accusing
the other of not talking up the economy. Nothing is more destructive
of confidence than lies. Nothing would do more for confidence than
publicly identifying the real underlying issue, explaining what is
the best we can expect under the circumstances, having a plan to get
that best possible result. People will get behind that, if the plan
clearly identifies how it shares the pain as evenly as possible.
We don't only need more truth from government to people. We need
more information available about what people and organizations are
doing. We need more transparency.
The more transparency there is, then the better decisions the
markets and governments will take. This becomes much more important
in a long period of decline. People are going to be asked and
required to make sacrifices. They need to be able to see that
everyone else is also making sacrifices.
Since we need to make massive infrastructure changes at a time of
economic weakness, we can't afford to make mistakes about this. We
can't have politicians picking the most articulate advocate, or the
most politically advantageous option. We need independent scientific
and engineering teams with strong mathematical skills to conduct an
open and vigorous evaluation of the costs and benefits of different
options. This has to include substantial powers to investigate the
claims of companies with a commercial interest in government decisions. A nice name for this investigation team might be "The Ministry of Truth": reminding us of the novel "1984" and the destructive power of spin.
“Prepare for the future” mode
People are clearly showing that they want to save to prepare for a
difficult future. Meanwhile governments want their citizens to get back
to normal spending
patterns to get the economy back to business as usual. The people are
right.
We must go into “prepare for the future” mode. But
governments can't prepare for the future by saving money, except by
the beggar-my-neighbour tactic of saving some other safe currency,
and indeed there is no such currency.
To prepare for the future we have to stop spending money on
swimming pools, SUVs, eating out, etc. Instead the community as a
whole has to spend on new infrastructure for a changed future.
To encourage people to save, and to channel those saving where
they are needed it seems that we can learn from war time experience,
and issue “Energy Crisis Bonds”. These would logically
safeguard the value of the investment in real terms, as a proportion
of the nation's wealth. During the period of deflation there will also
be money available from unfunded spending (printed money) and that will
also be available for building infrastructure -- preferably with the consent and oversight of the legislature.
Clearly switching the working population to different activities
is going to cause a lot of dislocation, with massive unemployment
having to be absorbed into infrastructure construction. The
government will naturally make more labour-intensive infrastructure
development choices, because of the substantial cost in
unemployment benefits that is already effectively committed for each worker.
Happiness
Research,
and common experience, tell us that people will not be less happy when
they are poorer, as long as they feel that it is unavoidable, and as
long as they feel that everyone is suffering equally. This can not
plausibly be achieved without a higher level of transparency into
individual wealth than we have known recently. We remember Mrs Bennett
in "Pride and Prejudice" saying that Mr Bingley, who she hasn't met,
has "five thousand pounds a year". We don't need to get back to that level,
but we do need to have real statistical information published regularly
about how different groups in society are faring, about asset price
changes, and so on. Social harmony will be preserved if government responds
quickly when some groups are benefitting unfairly from the difficulties of
society as a whole.
Phases of the Energy Crisis
The first
phase of the energy crisis is peak oil, and that is happening now. Oil
will still be our major transport fuel for a decade and have continuing
use long after that. However the steady decline in maximum achievable oil
production puts a cap on maximum economic production. When we are near
that cap the price of oil will limit demand and initiate further
economic collapse. During this phase we are not short of energy, just
of liquid fuel, particularly hitting transport. During this phase it is
possible to make progress without improving efficiency, as long as
liquid fuel use is reduced. For example trams use much less energy than
electric trolley busses, but electric trolley bus systems are
cheaper and easier to install. Looking at longer routes, trains are
much more energy efficient than buses, but it is much easier to set up
a bus infrastructure with natural gas powered buses. But choosing the
less efficient quick solution should always be done with eyes open, and
with a plan to move beyond that choice.
The second phase of the
energy crisis will be the decline of natural gas. This will not hit the
world uniformly since natural gas is less likely to be
transported. The infrastructure for transporting gas is being built,
but will not be adequate for a fully global gas market for a long time:
so most places without gas will be forced to go to phase 3 early.
Natural gas does make a useful replacement as a transport fuel, even
though the handling issues are more difficult and potentially dangerous.
The
third phase is the decline in coal which will start within 10 or 20
years. We are used to hearing that coal will last for hundreds of
years. However already we see that the good quality coal and the easily
accessible coal is disappearing. While there is a lot of coal out
there, it is not much use if it takes nearly as much energy to get it
out and prepare it for use as you get out of it by burning it. The UK provides an example of what we might see with coal production: estimates of coal reserves in the UK were still being given as decades, until just before the coal industry collapsed in the 80s. We also hope to close down coal mining earlier than necessary in order to leave as much coal in the ground as possible, to reduce the
level of global warming.
Peak coal is the most important. If we
aren't well on the way to non-fossil energy sources by then, the
consequences will be drastic. The timing of peak coal is very
uncertain. There are other important reasons to want to leave coal in
the ground. So moving to carbon-free electricity generation must be
given very high priority, nearly as great as the priority we give to
dodging the bullet of peak oil by moving to transport options that
don't depend on oil derived fuel.
The key thing to understand
about phase 3 is that electricity is nice for some things, but it isn't
convenient for all things. A lot of energy conversions will have to be
done, a lot of batteries will have to be built. You can't just add the
current electric energy and the current oil and gas energy use and say
"that is how much electric energy we will need". Instead we will need
much more than that, just to stay in the same place. This at a time
when it is hard to get any sort of power station built at all.
Governments are going to have to ride roughshod over local objections
to every sort of power station.
Specific Actions
This section is meant to give an idea of the range of possible specific actions to address the Energy Crisis. Different ones harm or help different groups of people. So getting the right plan adopted and implemented expeditiously will require a lot of political energy. The problems will start with the evaluation of options and that needs to be done vigorously and transparently by engineers not politicians. However it is reasonable to expect that many actions can be identified as no-brainers that we can start on immediately. For others we can start on preliminary planning and initial work, without definitely committing to that action.
Transport
If all countries put a huge effort to move away from oil dependence
for transport, it won't come soon enough to prevent real problems
the next time the world economy gets going again. But the sad fact is
that some will make less effort, and oil exporting nations may make no
effort at all. So the countries that do make preparations need to do
even more:
- Stockpile oil while its relatively cheap during economic down periods, to release when the price shoots up;
- Strategic Petroleum Reserves need to be much larger than they currently are. Australia currently has the worst.
- Convert
as much public transport as possible to electricity or natural gas (if
locally available), and where that is not possible, stockpile the fuel;
- Busses and trucks can all be Natural Gas in Australia.
- Expand public transport, and rail and coastal shipping freight, as rapidly as possible;
- Now is a good time to buy ships;
- Busses should have more right of way;
- Car congestion taxes should be used to keep the roads unclogged;
- Install
the infrastructure to support electric and natural gas vehicles and
keep raising taxes on petrol and diesel and on new petrol and diesel
vehicles;
- Remove the duty and quickly fix any unnecessary standards issues to allow the import of electric and natural gas vehicles;
- Install additional electric generating capacity to cover additional transport requirements;
- Rezone land near railway stations for medium and high density housing and facilitate actual construction;
- and lots of other stuff...
Energy
In the short run we need more energy, in order to support transport in various ways, heating, etc. The government needs to lead because, from a business point of view, there is less need for energy during the economic slump. Also alternative and nuclear energy have large up front costs which will be very hard for businesses to raise in the current credit squeeze.
- Expand existing fossil fuel power stations where possible, to bridge the time gap to non carbon power;
- Start to plan and build every sort of new power production, combining learning with doing: wind, geothermal, solar, nuclear;
- Improve the electricity grid substantially in capacity and intelligence;
- Need high capacity DC links from energy sources (like wind on west Tasmania) to customers;
- Need to handle variable input better (like wind and solar);
- Need to allow entepreneurs to safely connect and get reward from electricity generation and storage;
- Provide government funded oil (and gas) exploration and development while oil prices are low;
- and lots of other stuff...
Long Crisis Socialism
When there is a real crisis then everyone is a bit of a Crisis
Socialist. Wars and economic collapses cause all governments to engage
in the sort of economic activities that normally only Socialist
governments do. Even George Bush is a bit of a Crisis Socialist: his
administration has purchased the insurer AIG and some banks.
Normally it doesn't make sense to describe yourself as a Crisis
Socialist since it is only applies in temporary circumstances. This
time it's different. The Energy Crisis is going to be a very long
crisis, lasting decades, with other environmental and resource
limitation issues threatening to extend the crisis. The current
financial crisis is the first phase. Ad hoc crisis socialism is
happening everywhere, without any understanding of the nature of the
crisis. We need to do Crisis Socialism properly: understand the
problem, work out what needs to be done, and plan so that things are
done in the right order. When we get past the crisis we can denationalize
the socialized activities.
Socialism only works when people are in the mood to sacrifice for the
good of the community. It works in crises. Preserving the people's good
will and support is the essential ongoing requirement. This can only be
done with a high level of trustworthy transparency.
Politics
‘what is democracy but the stage immediately preceding
oligarchy?’ Aristotle
In the World's current circumstances Socialism is not extremism, it is just an inevitable practical step. There will be plenty of extremist voices in the months and years to come. To resist those calls we urgently need clear headed leadership that can sell the necessary sacrifice to the people.
