By Peter Cochrane, 20 April 2005 09:55
COMMENT Abrupt change
19.04.05, 18.40 GMT, Marriott Hotel, Cupertino, California
At university I studied engineering and also took supplementary courses on economics. I can remember thinking how linear and restricted the models were, and how dependent the whole subject was upon the basic assumptions of stability and well-behaved markets.
Surprisingly, I still find that mentality alive and well today. But it is clear that our world is subject to abrupt and unexpected changes. One of the best physical manifestations of this is very visible in Boulder, Colorado. The sheer face of the Flatirons suddenly erupt from the ground to mark the end of the Great Plains and beginning of the Rocky Mountains. There is no precursor, no warning just near-vertical rock.
Such rapid change is also visible in networks, systems, production plants and most dramatically of all, in markets.
One of the most dramatic examples I've witnessed recently has been the sudden awareness in the US that there is a global oil crisis. Two years ago, the vast majority of Americans didn't seem to know there was a problem; even 18 months ago it was only discussed in professional circles. But recently it hit the media and now it's the talk of the town. Every newspaper, radio and TV show seems to carry a feature on the impending energy crisis.
Garage forecourts are suddenly full of 4x4 SUVs and it's almost impossible to purchase a hybrid vehicle there is an enormous waiting list. Just about everyone I've met in the last three months is considering changing their vehicle for something smaller, as gas prices slide upwards.
This has wrong-footed the American automotive industry, which continues to produce engines of huge dimension with about 50 to 60 per cent of the efficiency of the more modern EU and Japanese designs. Moreover, body size and weight has remained enormous, and now an abrupt market change leaves the industry with few appropriate products.
The last decade has seen a growing dominance of overseas suppliers in the US market. It now looks as if this dominance is going to accelerate unless the home industry can respond quickly. Surprisingly, they don't seem to have seen this crisis coming. If they had watched the UK they would have seen it several times in the last 30 years!
What do you think? I want to hear your feedback. Post a Reader Comment below.
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There are 13 comments. Join the discussion
1. Dick Wallin
When you say "body size and weight has remained enormous" are you talking about the SUVs or Americans?
(IMHO the latter leads to the former...)
2. anonymous
Not many more places left to invade for oil eh?
3. YouAreSoakingInIt
As soon as the average guy out there reckons the mind-boggling consequences of infinite growth against a finite ressource, all hell will break loose.
Forget about "soft-landing" scenarios or "techno-fixes" around the corner saving our sorry a$$es. Either evolve or perish.
4. Knut Boehnert
The average American is by default and by government information tactic quite clueless about what goes on in the world.
And as usual when it comes to the simple fact of recognising something is wrong Americans (like many Western societies) simply overreact.
But that is maybe good as the US has to catch up on reducing fuel consumption quite rapidly to fall in line with what we in Europe are doing for the last 10 to 15 years.
Maybe there is hope for the good ole' USo'A - even despite a president who seems outbound to stick his head in the sand when it comes to tough questions that matter to the world.
5. anonymous
At last!! USA catches on: shock horror! How do you spell Kyoto?
6. Gerald
Indeed - this has been foretold by the doom-mongers for a while, especially those Peak Oilists (do a Google search for "Peak Oil" and you will see what I mean.)
Makes you wonder, though. Will America finally accept that they have to change their ways of life, or will they follow George W, and continue in their blind ignorance of environmental factors until they have to invade every oil-bearing country to feed their ravenous appetite?
It's frightening.
7. David Quinn
I wouldn't bet on the Plain People's (a phrase used by H L Mencken) conversion lasting. If you remember they turned to small cars and speed limits in the 1970s oil crisis but as soon as there was an easing of the price they went back to gas guzzling. There seems to be no end to people's (and Americans in particular) capacity for self deception. That SUVs are a nonsense is obvious surely to all even without an oil shortage. It's the carbon dioxide stupid. But self denial is no fun so let's not do it. As soon as there is a price dip the SUVs will be back. Depend upon it.
8. anonymous
Prehaps the energy crisis wouldn't be so impending if the Americans weren't so selfish, how many years now has the US administration been stock piling oil which in turn has kept the price up, so joins China and the price goes further up.
The whole point of the Afghan invasion was to secure the land with a sympathetic government (deja vu, wasn't that the idea with letting the Taleban rule) so that they can build a pipeline to the last largest oil reserve being the caspian sea.
(You never know fat america might go on a diet with all the walking that they might have to do.... no your right I was only joking)
9. Dick Winchester
As I've just finished a report on this issue I'm happy to share the conclusion... Post about 2010 and assuming the current global economic growth trend which will result in increased demand, large lumps of doo doo will hit the fan ( this is an techno economic term for laymen) and many a politicians face will turn scarlet for not having listened to people who don't run oil companies about the problem of finding and producing more reserves.
A good clue as to what is really going on is to watch US investment trends... Dubya and brother Jeb have both put up big buckets of public money to ensure the USA dominates the hydrogen economy in the same way as it dominated the oil economy. In the UK - not a lot stirs!
10. Alan C. Larman
Might this mean that the Americans might soon join the real world? I'll believe that when they ratify the Kyoto Protocol, and start using the Metric system! I'm not holding my breath, though.
11. Carl Spencer
It may have taken the american public 2 years to figure this but the US government has predicted this for a long time hence, Iraq. And, more to the point the fact that Iraq was the only nation in the world at the time to be trading oil in Euros with a stack of other countries waiting to follow.
The interesting fact is that this story has never made headline news. But do a Google for 'iraq trades oil in euros' and there are some interesting articles out there.
12. David Howe
I agree that the raising of fuel prices will slow the sales of SUV's in the US, but I have to ask what is the reason for their proliferation in areas where fuel prices are already high??? Having just returned from several countries in Europe and Mexico I'm surprised by the increase in the number of SUV's on the road as compared to previous 6-12 months...not a scientific sampling but when the visibility of SUV on the roadways is limited and then one begins seeing one every few km, it seems to me that says there's an increase.
13. Kyle Manjaro
In 1980 the cost of a gallon of gas in the US was $1.80. In inflation-adjusted terms the present day "1980-price" of gas in the US is about $2.~20. Clearly, the US heavily 'subsidises' Americans, or otherwise deflects the "real" costs of oil while severely criticising other countries who do the same; OR maybe the really dirty secret is that "real" cost of gasoline (US and UK) is hidden. In the UK the pump price is mostly governemnt taxes totally unrelated to gasoline costs, in the US every time the "price" of oil goes up a dollar oil firms, like Exxon-Mobil for particular example take home an extra $550 MILLION in PROFITS. If there's an OIL crisis it's present Chinese and coming China/India demand; if there's and ENERGY crisis (which I believe there is) it's government and big business policies rather than any real (latent) energy shortage. As you wrote Mr. Cochrane, the automobile manufacturers in the US have had at least 30 years to digest the message both the Arab Oil crisis and Japanese competitors brought them a generation ago, and they're still as pig-eyed (little-league greed) now as then.