G8 wisdom and foreclosures

The G8 ministers meeting in Japan are up in arms about oil prices. The G8 are a group of eight rich nations whose influence goes well beyond that of the remaining 100+ countries on the planet. Nevertheless the G8 invited China, India, and South Korea, illustrating the power shift that is about to take place on the world stage. Soon the G8 will have to add to its magic number or consider booting some of it older members who are no longer carrying so much weight.

For now though, it appears the G8 mostly invited China and India so participants could scold these countries for their energy subsidies. The participants in question being mostly the US. Never mind that the US has its own energy subsidies in place. When you are the biggest bully on the block it is fine to attack others for what you yourself do all the time.

What worries the US is that world oil production has stalled since 2005, while global economic growth -read China and India- is pushing demand to ever higher levels. Much of that growth is fueled by US dollars and US demand for cheap goods. The US has moved much of its manufacturing base to China, and much of its low-level services base to India. When you buy a gadget in the US, chances are it was made in China, and when you call customer service to inquire about something, chances are someone in Bangalore will be answering the phone. That puts the US in a tricky position. What also puts the US in a tricky position is the increasing military might of the Chinese. That while we are busily trying to keep our head above the water in the Middle East.

We also read that the five top consumers, the US, China, Japan, South Korea, and India, urged oil producers to boost output, while pledging to develop clean energy alternatives and increase efficiency. It is unclear what if anything the US government means by its pledge to develop clean alternatives and increase efficiency. So far, all we have seen is quite to the contrary. Any attempt to take away subsidies from fossil fuels has been death on arrival. With two oil men in the White house, it seems unlikely such a pledge amounts to much more than window dressing. Other bills, to support alternative energy, or to reduce greenhouse gases, or other pollution have all been stalled, and received veto warnings to boot.

On a more practical level, both China and the US are increasingly reverting to coal, a fossil fuel that is even more damaging to the environment than oil. So much for progress. In the US, coal has been busy convincing consumers and politicians alike that there is such a thing as "clean coal." Ads on TV ask consumers to embrace clean coal as the energy of the future. Both the US and China unfortunately have huge coal reserves to feed their power hungry consumers.

The advertising is especially damaging. At this stage, clean coal is as real as cold fusion, or x-ray lasers. And we all know what happened there. Fortunately for us, the US is more constrained than China and US consumers are more sensitive to coal pollution than the Chinese, who have little say in what their government does. But there is no telling what US consumers will put up with once gas prices close in on $8 a gallon. It is a scenario that is more realistic than most people think. The US infrastructure is also more vulnerable than the Chinese infrastructure. In the US much of what is there, and almost all of what is being added daily is heavily dependent on cars and trucks. The layouts are very unfriendly towards alternatives such as walking, biking, or even public transportation.

If the US mortgage crisis has a silver lining it is right here. Now is the time to abandon much of this non-sensical infrastructure. If you have to leave because your house is in foreclosure, at least now you have the option to go live closer to work, closer to the city, or in a place where you can walk or use transit. The high oil prices give you an added incentive and one can only hope prices will stay high for long enough to support a mini-migration towards the population centers. It is important because there will be partial recoveries and people may be tempted to re-indulge in their bad habits. Ultimately though our economy is unsustainable and a collapse of one kind or another is inevitable. The more we adjust now, the better off we will be when that finally happens.