Tuesday, June 12, 2007

Overcoming Dependence

As long ago as 1945, when FDR met with Kind Ibn Saud aboard the USS Quincy, the US has made foreign oil dependency the cornerstone of its geopolitical strategy. No policy is left untouched by this choice: defence and domestic security, fiscal, monetary and economic development - all are heavily influenced by our need to secure and import ever growing volumes of foreign crude oil. The negative implications are profound and are currently becoming increasingly obvious: wars in the Middle East and Central Asia, terrorist attacks, the re-emergence of adversarial relationships between super-powers. Even the harmful effects to our environment is becoming an important topic when global leaders meet (eg the recent G8).

And yet, our foreign oil policy has not been without positive aspects, if dubious. The global thirst for oil priced in dollars has allowed the US to run up enormous deficits and debts without the need to maintain large foreign exchange reserves. The so-called Dollar Hegemony is based on the near-universal acceptance of our oil-backed currency and this, in turn, allows for the American Way of Life. If the US had not itself become the world's single largest importer and consumer of oil - the most indispensable and fungible commodity of them all - it is unlikely that the US dollar would possess the global reserve status it has today. Crude oil, the US dollar and the profound reach of American military and economic power have become inextricably linked.

But as remaining oil reserves become concentrated in the hands of fewer key producers, we are increasingly hostage to their desires and expectations, those quid pro quos that go beyond merely meeting the asking price in cash. Informed readers need no further elaboration; suffice it to say that just three countries, Saudi Arabia, Iraq and Iran control approximately 45% of global oil reserves. From a monetary policy perspective alone, it is extremely unwise to base the ultimate value of the dollar on such a narrow foundation - even before the very serious threat of geological Peak Oil.

What is to be done, purely from the viewpoint of monetary and fiscal policy? In order to retain the dollar's supreme position, the US must possess goods and services that the rest of the world wishes to buy and pay for in dollars. At this point nothing matches crude oil in such importance: if we were to suddenly replace oil with another source of energy not priced in dollars (eg solar or wind), the US economy would suffer mightily from the need to service so much debt without recourse to a universally accepted dollar.

But change we must: oil is running out and so is our ability to be the overwhelming influence-setter in the important oil and natural gas producing regions (e.g. Venezuela, Russia, Iran). Putting aside geologic considerations, if we do not soon replace oil as the main backing for our currency we will simply become yet another imperial has-been that is gradually impoverished from interest payments to foreign lenders and constant currency devaluation. Every great empire the world has ever seen has gone down that slippery route: Rome (West and East), the Ottomans, Spain, Great Britain, USSR. We, too, are not impervious to bad judgement and an over-abundance of false confidence when conditions change and actions are needed sooner, rather than later.

In my opinion, we must do two things, starting immediately:

a) Cut down on oil consumption via a significant fuel tax that will finance a modern Moon Shot-type project to replace every single watt generated by oil (foreign AND domestic) with solar, wind, nuclear, fusion, geothermal, or whatever else we come up with. Spend the money domestically and the economy will grow based on R&D and capital spending, instead of consuming imports. I am aware of the EROEI limitations of more diffuse energy sources, but that whole discussion misses the point: changing our energy regime is not something we could do, it's something we must do. The sooner we start the better the chances of adjusting our economy and society with few major disruptions.

b) Start reclaiming the manufacturing base of our domestic economy via a variety of positive and negative inducements (subsidies and import duties). Such industrial capabilities are absolutely necessary for the development and application of a new energy regime, one that will also create a range of highly lucrative export goods and services and thus support the value of the dollar. This is anathema to globalization adherents but, after all, globalization is itself entirely dependent on the ready availability of cheap energy (containerships and bulk carriers criss-crossing the oceans, state-subsidized energy in China, etc.). When that is taken away, whoever has an alternative-energy economy already in full operation will have a tremendous comparative advantage.

In closing, establishing a new US energy regime will benefit the economy, the environment and our national security and will help maintain the attractiveness of the dollar as a global reserve currency. Doing nothing is simply not an option.

7 comments:

Mane said...

Exactly.

For starters, retooling the car factories for manufacturing light rail systems, wind mills, and even bicycles will be good start.

jason b said...

Amen, brother!

We have to examine the perverse incentives offered too. The cost of maintaining the "Dwight D. Eisenhower National System of Interstate and Defense Highways" is extreme. Amtrak is being starved out of existence. Airlines and airports receive billions. Yet a tractor trailer must get 400 mpg to be as efficient as a freight train.

The funniest thing is Daimler Benz developed a system to allow multiple cars to whizz down the highway in a line with bumpers almost touching - they re-invented a train!

Answers:
Cellulosic Ethanol, and plug in hybrids that burn it. Integrated public transport, where planes, trains, commuter rail and buses all work togeter. Pedestrian friendly mixed use development (new urbanism).

I saw a USDA study planning where the digesters should go, considering concentrated areas of waste cellulose, demand, and transportation costs.

We can do this!

Anonymous said...

Nice ideas but probably too little too late. Especially considering the resistance from special interest and the general, uninformed public. Stick a fork in it.

Mane said...

Yes, a little late already. But we have to address these issue soon enough anyway. Even small changes now will make the changes less catastrofic later.

What comes to uninformed public, well, we all have to work to inform the public: talking to people, writing blogs, op-eds, letters to the editor, writing the the MPs, etc.

Anonymous said...

nuclear power technology has become more sophisticated as have waste encapsulation and 'disposal' methods.

a national very high speed, i.e. maglev, 'rail' system has been technically feasible for years.

there's the combination which also creates large number of quality new jobs in a whole spectrum of industries and might revitalize a senile real economy.

laptop battery said...

Battery for ACER TravelMate 650 6002 6001 BTP-650 laptop battery
BTP-43D1 BATTERY FOR 220 222 223 225 230 SERIES laptop battery
Battery 916-3060 BT.00907.001 LC.BTP03.005 SQU-405 laptop battery
BATTERY for ASPIRE 1200 MS2111 1600 1606 BTP-44A3 laptop battery
TravelMate 2300 4500 Aspire 1680 3000 5000 Battery laptop battery
laptop battery for BAT30N3L 1200 BTP-550P TM 270 A550 CY25 laptop battery

New original BATCL50L battery Aspire 9100 9500 laptop battery
Battery for C100 C102 C104 C110 C111 BTP-42C1 New laptop battery
Battery fit BTP-73E1 TravelMate370 371 372 373 380 laptop battery
Battery For Travelmate BTP-620 630 BTP-39D1 632LC laptop battery
Laptop Battery for BTP-63D1 Aspire 3610 3613 3614 laptop battery
Battery TravelMate 343 345 BTP-25D1 60.40C07.002 laptop battery

BTP-ARJ1 BTP-AQJ1 3620 5540 5560 2420 laptop battery
Battery fits Aspire 3100 3690 5100 5110 9110 9800 laptop battery
Acer Battery BATEFL50L6C48 TM2400 Aspire 5500 5600 3600 laptop battery
Battery For Aspire 5030 5050 5500 5550 5570 5580 laptop battery
AS07A41 New Battery for Aspire 4310 4520 4710 4920 laptop battery
AS07A41 New Battery for Aspire 4310 4520 4710 4920 laptop battery

laptop battery said...

canon BP-308S battery
canon BP-315 battery
canon BP-310 battery
canon BP406 battery
canon BP-406 battery
canon BP412 battery
canon BP-412 battery
canon BP422 battery
canon BP-422 battery

canon BP-508 battery
canon BP-511 battery
canon BP-511A battery
canon BP-512 battery
canon BP-514 battery
canon BP522 battery
canon BP-522 battery
canon ZR40 battery
canon ZR45 battery

canon ZR50 battery
canon ZR65 battery
canon BP535 battery
canon MV300 battery
canon BP-535 battery
canon BP-608 battery
canon BP-608A battery
canon BP-617 battery
canon BP617 battery