Wednesday, June 25, 2008

The end of cheap energy, and much else, perhaps

I'm reading a fascinating book right now, Reinventing Collapse, by Dmitry Orlov, which argues that the United States is on the verge of a political and economic collapse largely similar to the one experienced by the Soviet Union in the late 1980s and early 1990s. He proceeds from the insight which I first tentatively proposed in Mandarins of the Future, and which was developed in magnificent detail by Odd Arne Westad in The Global Cold War, namely that the United States is in essence a "modernist" twin of the Soviet Union, both of which built vast complex societies based on boundless faith in physical and organizational technology.

In a variety of symbolic and material senses, the two lands shared a faith in the capacity of men to improve social conditions via technological progress. They raced each other to see who could most successfully dominate space, build the most insanely large military establishment, jail the vastest sector of their population, manage the most widely hated evil empires, squander the most natural resources and commit the worst globally-significant ecological crimes--and, most crucially, borrow the most from abroad to fund these endeavors. While the Soviets were more poorly organized than the United States, and hence collapsed first, Orlov argues that the collapse of the Soviet Union in fact was only the first half of the collapse of this broadly shared modernist vision of state and society.

While the Russians realized by the 1980s that idea of modernization is a mirage, the U.S. has yet to do. Orlov argues that the U.S. too will give up the modernist ghost in the machine when we (soon) experience a similar collapse. An old "peak oil" hand, Orlov argues that what will precipitate the endgame for the U.S. liberal faith in modernization is the end of cheap energy supplies, which will render the entire American way of life untenable, and indeed collapse the American dream's fundamental belief in the classlessness of American society. The U.S. today, like the Soviet Union in the 1980s, is sustaining itself only for one last gasp by running up huge foreign debts to import energy. When the energy exporters finally refuse to subsidize American energy consumption, the game will be up.

I recommend the book in the strongest terms, if only as food for thought.

In the meanwhile, to get a foretaste of how it will feel to watch this version of the American dream collapse, read this article in the New York Times about how high energy prices are causing the economic (and soon social) collapse of far-flung suburbs, which are simply unaffordable to commute in and out of. The Times concludes, "Life on the edges of suburbia is beginning to feel untenable." And with it, Orlov would argue will collapse the American Dream itself.

The early indicator on this process is that the "house price collapse," which is generally described in the media as a universal and largely uniform process, is in fact a highly differentiated one, that is affecting outlying areas, exurbs, and minor cities far more than central city locations. Again, the Times:
Across the nation, the realization is taking hold that rising energy prices are less a momentary blip than a change with lasting consequences. The shift to costlier fuel is threatening to slow the decades-old migration away from cities, while exacerbating the housing downturn by diminishing the appeal of larger homes set far from urban jobs. In Atlanta, Philadelphia, San Francisco and Minneapolis, homes beyond the urban core have been falling in value faster than those within, according to an analysis by Moody's

Some now proclaim the unfolding demise of suburbia.

“Many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s — slums characterized by poverty, crime and decay,” declared Christopher B. Leinberger, an urban land use expert, in a recent essay in The Atlantic Monthly [available here].
If we buy this scenario, then consider the political implications. First, let's note that these are the same areas of the country that voted Republican in droves over the last several electoral cycles. Now they will pay the greatest social and economic price for the failed imperial policies of those they foolishly voted for. Between the establishment of a permanent higher equilibrium price for energy, and the inevitable collapse of what my friend Steve Weber refers to as the Texas-Tienamen bargain, life for all but the very richest in the United States is about to get a lot bleaker. As Paul Volcker famously announced when he assumed the reins of the Federal Reserve in 1979, "the standard of living for the average American has to decline." In the best case, the U.S. will be in for a massive Volcker-style shock therapy. The question is whether the advent now of permanently higher energy prices mean, unlike the U.S. in the 1980s, the patient will never recover. The return of cheap oil after 1983 bailed out Volcker's approach, but this time it seems unlikely that a get-out-of-high-energy-price-jail-free card will magically appear.

If that's the case, then the logical question to ask is whether President Obama may end up as the Gorbachev of the United States--the man who sees the problem with the current system starkly, but in attempting the necessary radical reform, only hastens its collapse. Alas, it's certainly not all that hard to imagine Obama in such a role. The other option is to continue with the Konstantin Chernenko-like McCain, which will only delay the inevitable a little and make the eventual necessary adjustment more severe and painful.

Mission Accomplished, George!

1 comment:

Dmitry Orlov said...

Thanks for a terrific review! I agree with everything you say; plus, you say it very well. Could you please also post it to Amazon?