Economic salvation from shale gas?

A lot of people believe economic salvation depends upon economic growth and some people believe that salvation will come as a result of shale gas.

It could be true.

However, in a previous reincarnation I was a charter member of the skeptics club.  A more likely scenario is that shale gas may give us a temporary reprieve.  There are environmental and economic concerns.

The environmental concerns relate to global warming and earthquakes.  Also the current availability of cheap shale gas is interfering with the development or renewable energies such as wind and solar.

The economic concern relates to marginal cost.  (Marginal cost is the cost of extracting the last unit sold.)  If shale gas is going to be our salvation, then the marginal cost of extracting it will have to decrease as more gas is taken.  If the marginal cost increases, then it will only slow down the rate of economic decline.

The exploitation of shale gas is the result of high oil prices and the development of new and expensive technology.  It takes a lot of energy to get it out of the ground.  Certainly the gas currently being extracted is the easiest and cheapest.  There is some probability that future extractions will be more difficult and expensive.

Another concern about the potential for a return to economic growth is what is happening to the marginal cost of other minerals and resources such as topsoil and copper.

Rather than seeking a return to economic growth we might be better off to adapt our lives and our economy to zero or negative growth.  For some ideas about how to do that please see my essay: LETS go to market: Dealing with the economic crisis.

Here are links to three articles on shale gas. One, two, three.

 

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An excess of energy from the sun

In a comment on this weblog  Robert Dagg Murphy makes some  interesting points.

That we are using only a tiny portion of the energy from the sun is a valid point.  A breakthrough in the use of solar energy would certain change the outlook.

I figure we are currently using solar energy concentrated in the form of oil, coal and wood.

I like to say my wife and I live on a 53-acre solar collector.  We have in the past used wood from our property although the last few years we have burned industrial waste.

Murphy’s comment that “High unemployment is a sign of success” reminds me of a passage in the book Social Credit by C. H. Douglas, a British engineer and published in 1924.

He pointed out that technological developments freed people from drudgery and allowed then time to do other things.  If only we had allowed that to happen.

I read this book some years ago and the last time I looked I was unable to find the passage.

This book was picked up and adapted by a radio preacher in Alberta who started a political party and became premier of that province.  British Columbia also elected a Social Credit government but these governments soon forgot all about Douglas.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Agricultural pollution

This week’s Economist has an article on agricultural nutrient pollution in the Mississippi River.

The economics way to deal with agricultural pollution presents us with a dilemma.   The changes required are so radical the screaming from those affected would generate enough hot air to destroy the world from global warming.

I believe the price of any item should include the full costs of producing the item.  This way we can make purchasing decisions according to our own values.  This applies to food as well as everything else.

Therefore the costs of agricultural pollution should be paid by the producers and passed on to consumers.

In some cases it may be difficult to calculate the costs of pollution but we could start by eliminating all subsidies which would probably reduce a lot of pollution.  In any case subsidies should be given to consumers rather than producers.

If we had to pay the full costs of producing food, there would probably be some major changes in our eating habits to healthier foods and more home gardens.

Rio+20, green economics, sustainable growth

One of the major news events of this week is a festival of hot air known as Rio+20 or Rio+20 United Nations sustainable development conference.  I predict the major legacy of this event will be a contribution to global warming.

I think this conference will be a statement of blind faith that economic growth can continue if we call it green or sustainable – and change the faces of the decision makers.  I cannot share that faith.

The discussions will appear to center on the question: Is the goal  to harness economic forces in service to the environment or to harness the environment in service to powerful economic interests?  However a more basic question will probably be who gets to make decisions the “powerful economic interests” or environmental activists.

However if the activists were to get into a position of power they would probably find their decisions being  based on debts that had to be repaid and special interests that had to be protected.

It may be that continued economic growth is not going to happen, in which case these arguments are not relevant.

Are evironmental and economic problems interconnected?

I always thought we lived in a highly interconnected world but when it comes to environmental problems and economics few people appear to make a connection.

For example, the fifth Global Environment Outlook (GEO-5) report from The U.N. Environment Programme.  It was released two weeks before a big environmental conference in Brazil.

This report identifies the key drivers behind climate change as population growth and urbanization, fossil fuel-based energy consumption and globalization.

It seems to me that all of these will have a steadily increasing negative impact on our economy.  It could well be that they are behind the current economic crisis.

However, the report says the annual economic damage from climate change is estimated at 1-2 percent of world GDP by 2100, if temperatures increase by 2.5 degrees Celsius.

I fear this report is overly optimistic and unless we get some more realistic assessments we will not change our behaviors in time to prevent a major catastrophe.

How will overuse of resources show up in the economy?

On a number of occasions this web log has noted the Living Planet report and its claim that we are currently using 150 per cen of the resources that the planet will sustain.  If this is true, how is it going to affect the economy and how will we notice it?

It may be that the quantity theory of money can help us.  This theory states that

MV=PQ

Where
M is the amount of money in circulation
V is the velocity at which the money is exchanged in the economy
P is the prices at which goods and services change hands
Q is the quantity of goods and services produced.

If we are using resources faster than they can be replaced where will it show up in this equation?

The first place to look is on the PQ side.  As the demand for resources increases, and as resources become more difficult to extract or produce then we can expect prices to increase.

There may also be shortages or declines in some components of Q  some resources will be at or near depletion and many will require increasing amounts of energy to extract.  This again will cause an increase in prices.

On the other side of the equation velocity is difficult or impossible to  measure so we have to ignore it.  Money supply is also difficult to measure.  Definitions  usually start with cash in circullation and demand deposits in the banks known as M1.  However, other types of deposits are often added to M1 sot that we can have multiple defitions of money – your choice.  Money is created when the banks make loans and central banks try to control the total by purchasing or selling government bonds.

One thing is clear:  changes in the Q part of the equation are going to force changes on the other three variables.  If there are stressful or abrupt changes in Q, there will probably be turmoil in the financial side of the economy.  We probably need to evaluate what is happening to Q in physical rather than monetary terms.

We should also note that changes in M can affect production of goods and services. For example, what would happen to the North American food factory if a failure in the banking system were to prevent farmers from getting the loans to put chemicals on their crops?  Also a major drop in the money supply (such as probably happened with the housing crisis a couple of years ago would and did create turmoil in the economy.

So if we are using resources at a faster rate than they can be replaced how are we likely to notice it?  Overall there will probably be a steady rise in prices and a steady decline in living standards,  unless there is a huge major shock  to the system.  Also where there are localized shocks such as earthquakes, tsunamis  or an electro magnetic pulse from the sun (forecast for sometime in the next two or three years) we can expect major drops in local standards of living as people will find it difficult to recover.

As time passes, more and more people will be faced with a lower standard of living.  But people being people, some will prosper.  The rich will continue to get richer and the poor will continue to get poorer.

Wouldn’t life be nicer for everyone if we could go back to the golden years of prosperity?

Agriculture and environmental issues

Since writing the previous post I came across this article on environmental issues associated with agriculture.  There are even more reasons to be concerned although one must note agriculture is supporting more people than ever and at least some people are living longer than ever.

What’s happening in agriculture?

With supermarkets, big box stores, fast food outlets, convenience stores, farmers’ markets and Wal Mart all overflowing with food, some of us (especially those of us with access to the internet) tend to take food for granted and ignore what is happening on the farm.  But how would we fare if the North American food factory were to break down?  Famine is something that happens in far away places.

We like to think our’s is mostly a service and information economy.  However, we can put time and effort into these things only  because of efficiencies in agriculture.   When I studied European economic history, the prof  placed a lot of emphasisi on improvements in farming techniqes.  (He then went on to write an excellent book on the Industrial Revolution:  The British industrial revolution in global perspective by Robert C. Allen.  Cambridge University Press, 2009)

There are a number  of  potential problems in agriculture: monoculture,  topsoil depletion, soil erosion, climate change, short-term extreme weather, the use of chemicals and subsidies.  It may be that farmers, like the rest of us, act in their own short-term interests as opposed to the long-term interests of everyone.

It could be that these problems are a greater threat to us than other concerns such as nuclear war, environmental degradation or global warming.   We should be probably be paying more attention to what is happening on our farms and if necessary be prepared to put pressure on farmers to ensure the food supply does not come to a halt.

Resource projects and natives in British Columbia

B. C. first nations need to embrace natural resource projects

This is the headline for a column on the front page of today’s Vancouver Sun in which  Barbara Yaffee   argues that British Columbia natives should embrace rather than oppose three high profile and controversial projects in the northern part of the province – a mine, a oil pipeline and a tanker port to export tar sands oil.

It is not just native peoples who are against these projects but when the economy is tough the search is on for scapegoats.  It is sad that the way we have treated natives and the way their leaders have demanded they be treated is setting them up to be scapegoats.  But then maybe societies need someone to blame when things get difficult.

Ms. Yaffe points out Canadian natives suffer from lack of clean water (that is not the case in Kitamaat village near where the port would be located), high unemployment, high suicide, high incarceration and a lower life expectancy than the rest of us Canadians.

It is not clear to me that these project would solve any of those problems.  There will be shor-term  benefits but these projects could well be against the long-term interests of all of us.

Yes, we do have to make tradeoffs and sometimes they should be in favor of environmental concerns.

The living planet report

In October of last year the World Wildlife Fund published its Living Planet Report. This report claims our ecological footprint exceeds the earths biocapacity by 50 percent and that by 2030 we will need two earths to support sustainable life on the planet. This could explain a lot of the dismal economic news we have been getting lately.

Yet I have seen no discussion of this report – not even any attempts to contradict it. That’s a pity because if this report is correct, or even partly correct, prompt and drastic action is required to minimize the human suffering that will/ is happening..

 

Jobs versus the environment

There has always been some conflict between environmental concerns and the need for people to have a job. With the current economic uncertainty this conflict is becoming more of an issue. For example see the article “Soaring emissions” in The Economist of June 4th, 2011 which deals with the politics of this issue in the United States.

We tend to treat employment as a motherhood issue. Jobs are important because they provide us with a standard of living – food, shelter and leisure activities – and because they provide a means for self identification (sometimes)..

But if we were to see the problem as one of providing food and shelter in an age of incredible agricultural and industrial efficiencies, there may be other solutions. One option might be some form of a guaranteed annual income

The $200 hamburger

The other day I read a suggestion that the true cost of a hamburger, including subsidies and externalities, should be about $200.  The next day I had a hamburger for lunch and figured I was getting a real bargain.

Whatever the true cost of a hamberger,  paying  the full costs of our food out of our pockets would probably help deal with a lot of environmental and health issues.

The Living Planet Report

A major weakness of most economic analysis is that once one gets away from the blackboard the real side of the economy is forgotten. Everything is considered in financial terms and people tend to assume unlimited financial resources.  We assume the potential for growth is unlimited.

Last week the WWF (World Wildlife Fund)  offered some evidence as to where the physical aspect of the economy is at with the release of it’s Living Planet Report. This report claims our ecological footprint exceeds the earths biocapacity by 50 percent and that by 2030 we will need two earths to support sustainable life on the planet.

Humanity is currently consuming renewable resources at
a faster rate than ecosystems can regenerate them and continuing to
release more CO2 than ecosystems can absorb.

If this is true, and there is probably some truth in it, then it must be having some impact on the world economy.  Probably some people would be experiencing a decline in their standard of living, resources would become more difficult to extract and therefore more expensive and there might even by a major recession.

Perhaps the real economic challenge of our time is to adjust our economy to cope with zero or even negative growth with a minimum of human suffering.

 

Jobs and the environment

It may be that in order to solve environmental problems we first have to get over a hang up on jobs.

Jobs are important because they provide economic well being and psychologically because they provide us with a self-identity. But so long as society must provide everybody with a job, there is a need for development and economic growth.

The real problem is to ensure everyone has a reasonable standard of living food, shelter and toys. With the production technology currently available, this should be easy if we can get away from our devotion to jobs. Perhaps a guaranteed annual income scheme would work. The problem is one of distribution rather than production.

Self-identity should come from the non-economic things we do. One could be an artisit, an actor, a writer, a ski bum or a beach bum.

If we could make this shift in thinking, then it would be easier to deal with environmental problems, especially when they are in conflict with the need for jobs.

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