Distance costs money (Energy Bulletin)

by Lindsay Curren

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In a world of triple digit oil prices, distance costs money. Illustration: yardapeart.

Among the many compelling speakers at the Association for the Study of Peak Oil (ASPO-USA) conference in Washington, DC this October, only a few gave keynote addresses to the attendees. Jeff Rubin, former chief economist at CIBC World Markets and author of Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization, was among that elite. His talk, "Oil and the End of Globalization" hinged on a few key points. One of the most compelling, a refrain he returned to again and again, was that "distance costs money."

As an economist, Rubin analyzes the role of prices in the overall financial picture. And with world economic crises, from fraud and abuse, to bubbles and bailouts, from credit to credit collapse, a world economy on the verge of a meltdown has become the third leg of imminent disaster among those who like to talk about...well, imminent disaster.

First it was climate change. Then it was climate change and the global peak in oil production. Now it's about how climate change, peak oil, and economic collapse are headed for a shared crash. Perhaps economic crash will stave off a climate meltdown, but perhaps only by a few decades. Perhaps an economy in crisis also depresses oil prices, which will at some point increase energy demand. But then that increased demand will lead to more energy use, more greenhouse gas emissions, and worse climate change. Effects of climate change then could hurt the economy and, and, and....THEN...

What?

That's the question.

There are more than enough bleak looking potential outcomes on the horizon in today's world. And to hear it from some Cassandras, that horizon might only be about ten feet away. Who to trust to sort it all out becomes a major question when evaluating competing notions about the future. In another column I address how this relates to a fourth tier problem—communication—but more on that later.

Energy and the economy

Right now the hot topic in financial blame falls on shyster bankers and their whole rotten crew. Bad apples becomes the explanation for a nation and a world in recession, for the crumbling economies of countries and the reason why millions of Americans risk losing the roof over their heads. And a much worse spread of toxic loss looms just around the corner.

Speculators and bad-faith financial players are a major part of the story, no doubt. But for Rubin, the larger story of spreading ruin wouldn't even be unfolding if it weren't for the oil price spikes of 2008.

"Most people view the recent recession as purely a financial crisis, one whose origins lie in the failed sub-prime mortgage market in the US. But what people fail to ask themselves is, What caused the Fed Funds rate to go from one to five percent in 2005 and 2006? Inflation went up to six percent because of the spike in oil prices. Every recession since 1973 has had oil's fingerprints all over it. Oil shocks are inflationary."

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