On practical solutions

Just some lighthearted overnight reading:

Limiting the Toll of Gas Prices

The price of economy gasoline in and around Huntsville, Ala., is at about $3 a gallon, a little above the national average. As it climbed to that level in recent weeks, faculty and staff members at Calhoun Community College heard increasing griping from students about the toll that commuting to class was putting on their already tight budgets.
Calhoun administrators brainstormed to "see if there were any alternatives we could come up with that would make it easier on their pocketbooks."
They decided to alter the Decatur campus's class schedule for the spring term so that all courses that now meet for 50 minutes each Monday, Wednesday and Friday will instead be held just Mondays and Wednesdays, for an hour and 15 minutes each.

Commuting to campus in New York is a different beast altogether, so these kinds of complaints aren't really relevant at schools around here. But it's interesting to see the earliest signs of how large organizations respond to an energy crunch.

Update [2005-10-13 9:28:49 by ianqui]: In the previous thread, DuncanK pointed us to this pretty interesting Business Week article called "Living Too Large in Exurbia". I believe these articles now seem to be increasingly more common...

i am reminded of a girl in high school 1980 complaining to the teacher about the high price of gas, and how she can barely afford it at 79 cents a gallon. Musta been tough driving that 78 Camaro. i had no clue, cuz i had no car. It will be interesting how this plays out around the country.
The guys at Poten have another interesting article on gas prices and tanker traffic http://www.poten.com/ see their last article.
I view the economist as a chimera. half social scientist and half mathematician .  At best, a strange occupation .  
my current picture of the future is that the vertical nature of American society will be replaced by a pancake style .  This is been suggested as a lean and mean corporate structure .  
If I were an academic I would be thinking about a new career .  First of all, powerdown will require that each individual pay for their existence at a simpler level where the rubber hits the road .  Many disciplines have been supported by cheap oil .  Trained as a sociologist , I'm expendable as we transition to the new paradigm .  Fortunately or unfortunately as a retiree , I may enjoy "helicopter money " for as long as the nation survives.  An economist is required , as a professional, to recognize that the United States is bankrupt .  The Petro dollar is enforced by the military .
when things get ugly, membership in the cultural elite will be offered to fewer and fewer people .
The new paradigm will eat the lunch of academics .No temperature control,no students , no subsidized lunches in the faculty lounge , no traveling to speaking engagements and only one hope for the future .  Cold fusion !  Don't hold your breath on that one.
Outside of the hard sciences I would recommend that academics study organic gardening .  In the inevitable simplification of the future I expect that Einstein and Alfred E. Neuman will harvest tomatoes side by side .  a  compression of IQ that will satisfy the the egalitarians so politically ubiquitous as we speak .  
Two things:

First, I think universities will actually do very well in an expensive-energy world.  Granted, most will suffer financial setbacks (less state funding, declines in value of endowments, etc.).  However, most will continue to have lots of things of value:  even shrunken endowments will be a source of capital, most have land and buildings, they can always get more money from their students (if no other way, by expanding admissions of rich students).  Some departments may shrink relative to others (expect agricultural departments to grow), but I think universities are likely to be one of the most stable institutions in the future, reprising their medieval history.

Second, although there are many problems with the US economy, I'm not nearly so doom-and-gloomy as most people.  The US still has vast natural resources compared to the population (even if not so much oil any more).  It still has lots of educated people (even if there are too many who do not have a good education).  It still has a stable government (even if it's been badly run lately).  If things get really bad in the world, the US is going to be one of the least-bad places to be.  Unlike most of the world, there is probably enough land in the US to grow food for the entire population, for example, even with much lower oil inputs.

As a resident of Boston (America's biggest college town) and a potential academic myself, I've thought a lot about this.

The fact is that the US is living way beyond its means and produces little that the rest of the world wants and not even many of the things that its own citizens want.  When the Asian central banks refuse to keep adding to our tab, there will be a truly wrenching adjustment, in the form of something like the 1930s depression.

The difference between the 1930s and today is that today the US lacks a strong manufacturing sector or adequate energy resources.  Without a multibillion-dollar-a-day foreign subsidy stream, I don't think that the bloated service sector can avoid a sharp downsizing.

Part of that downsizing will certainly affect universities.

Think about the main sources of funding for universities:  student tuition and fees, government grants, and endowment income.  

Tuition and fee income will drop sharply in a deep recession because in real terms, median incomes will drop sharply due to layoffs and pay cuts.   Rich kids will continue to attend college, but their numbers will not increase.  

Government grants will drop sharply because revenues will drop sharply and foreign central banks will no longer be footing the bill.  Meanwhile governments will probably have to spend more on poverty relief.  

Finally, every serious economist agrees that nearly all asset classes are now overvalued.  That means a drop in the size of endowments.  A sharp recession means  a drop in the yield on those endowments as well.

This all adds up to sharply reduced income for the higher education sector.  However, the impact will differ widely from one school to the next.  

Universities like Harvard and Stanford, will see their endowments shrink, but they will still be huge.  They are also able to attract the richest students.  They will have to tighten their belts from the loss of government grants, but they will survive nearly intact.

However, most higher-ed enrollment and employment is in the run-of-the-mill, second- or third-tier public and private colleges and universities:  places like Northeastern University, University of Massachusetts, or the Cal State system.  These places will suffer enormously.  They rely heavily on government money and cannot attract wealthy students, particularly when the more prestigious schools relax their standards for students with money. These lesser schools will have massive staff layoffs, and many of them will close their doors completely.

In a way the complaints are relevant to New York City but for different reasons. The gasoline price is not an issue if you take transit, but your time is still an issue, unless, for some bizarre reason, your time is worthless. And, for most people, public transit is obscenely slow. Busses in NYC routinely move at 3-5mph even in the outer boroughs. The subway doesn't go everywhere, and unless you're lucky enough to be able to use an express, you may attain 10mph including walking, waiting, and stops. So scheduling to reduce the number of round trips may be highly beneficial even in New York.

Alas, however, this sort of measure, like much else to do with "conservation", is not overly scalable. Ultimately you also need supply of some sort, not just demand reduction. After all, if gas goes up again and your rescheduled day is already too long, what do you do for an encore?

Except that in New York, it's been this way forever, so whatever schedules have been determined to be optimal are still sufficient now. Certainly trying to get to school with a car isn't a better solution, and never has been.
The complaints will become relevant to New York soon enough.  At the very least, higher oil and natural gas prices will sharply raise the cost of the electricity that runs the subway system.  High gas prices have already impacted buses.  I bet that the MTA is running way over budget as a result.

The state government is not going to provide any more subsidy, so there will be higher fares as soon as the MTA can legally impose them.

Indeed, if high energy prices render enough Americans insolvent, there could be a sharp drop in consumer spending.  High energy prices and increased credit risk will continue to exert upward pressure on long-term interest rates, with a likely deflation of the real estate bubble.  Put these things together, and you have a major recession that will have an especially severe impact on the financial sector.

That will mean a decrease in tax revenues and therefore subsidies for the MTA and higher fares still for New Yorkers who will have less money to spend on them due to layoffs.

I'm definitely not saying NYC won't be affected. Of course it will. We'll have to pay more for our subways and buses. But at least NYC already has the country's most extensive mass transit system, and I feel pretty confident that in the future, other cities are going to have to beef theirs up.
At least you HAVE a transit system.  Can't say that around where I live.

I think that a huge number of people are still convinced this is temporary.  That it is a result of katrina, or oil companies gouging, or a bad phase of the moon, or whatever; but they are just trying to hang on "until things go back to normal."

This is curious - but once again they miss the point.
My wife and I went thru university without a car.  Enough was saved for univeristy or made working during it and we always brown bagged it - years later still eating on $3/day.

Meanwhile the students that we teach are driving cars, spending more on clothes every year than I have in my lifetime, wearing fancy jewlery, spending more on each meal than I would on food for the whole day .... and they gripe about the cost of gas too.

They just don't get it.

Read Your Money Or Your Life I tell them.  Where are you spending your money?  Does it line up with your values? Is personal convience worth the world to you?  You would not believe how many kids toys we have found and I have fixed on the "Sunday night store" (aka garbage day).  I've supplied neighbours and friends who don't care if something is used or patched up with lots of tricycles, trailers and sandbox toys.

Everyone is still asleep. They think of this as a temporary measure.  Of course someone tore my "Peak Oil - Wake UP" sign off of my door.

I have noticed the same behaviour in people younger than 35.  They have always had cheap gas and abundant personal transportation.  ALL the college people HAVE to have a car.  They all have to go home on the weekends or drive to campus from 20 blocks away and I live in a small University town.  They don't NEED to do these things, but they can't conceive any other way to live.

I also didn't own a car until I graduated from College.  You were dropped off at College in the fall and that is where you were until breaks or major car pool trips home.  Very few students owned cars (This was late 70's early 80's) and they were extremely highly valued for their utility.  The owners always got gas and food paid for by riders because we knew the high cost of owning a car.

Our young people have never learned how to do without luxuries.  There are not enough peer examples for them to follow.  That will be the biggest hurdle in the coming energy crunch.  Young adults are going to have to learn (very late in life in my opinion) how to live well without energy consuming luxuries being used every day.  They see these as needs now, not wants.  Learning the difference is going to be painfull.

This is a HUGE generalization - there are quite a few students who are paying their own way through school, and these same students are not profligate spenders.

As the parent of 4 college graduates, I can say this about the kids today: they are what they were taught.

Give a kid money, he will spend it. Make a kid EARN their own money, and she will appreciate it.

I forced all 4 of mine to buy their own cars. Each of them not only worked summers, but held down part-time jobs during the year with full academic loads. No, I did not expect a 4.0 grade point average. But having been down the same road, all college grants you is a piece of paper allowing you to enter the job market at a much higher level than non-graduates.

If kids are doing what you say, I would venture that Mommy and Daddy are footing the bill, and that these same kids haven't ever done a hard days work in their lives.

"Your Money or Your Life" http://tinyurl.com/9cg8h is incredibly subversive from the Credit card/Madison Ave/Media's perspective.

NPR's All Things Considered, looks at how the credit card industry markets to teenagers. http://www.npr.org/templates/story/story.php?storyId=4488488
A transcript:

We are not citizens anymore we are consumers and the pressure is especially intense on the young. See Branded: The Buying and Selling of Teenagers http://tinyurl.com/bos3s


No Logo: No Space, No Choice, No Jobs http://tinyurl.com/9lz95


pariah -

It doesn't have to be quite that low a level of powerdown. Universities and teachers have existed since the Greeks. There were many universities prior to the Industrial Revolution. Not ubuquitous as they are now, but usually one within a geographically contiguous region.

The fact is, everyone is not suited for college. Yet it has become a business, and thus lowered standards to increase profits. Most students begin their college career by taking the courses which many of us older guys took in high school - higher algebra, calculus, physics, literature, history, etc. They must do this because what is currently taught in high school is drivel - the entire curriculum in any high school is designed around passing as many kids as possible and making test scores on a single exam. Everything else has fallen by the wayside. No dumbass left behind is the rule today.

College SHOULD be for those students with a true aptitude for learning, who are of above average intelligence. It SHOULD be elite, and foster great minds to do great things. I think that this will return, in time, to academia, and that many universities will be closed. In their place, trade schools and agricultural/mechanical schools should proliferate to educate the average person in order to allow them to earn a living. In effect, we will likely return to something resembling academia in the 1940's.

It doesn't matter whether it is Peak Oil or an economic downturn - there are too many colleges, they are too expensive, full of fatcat administrators and catering to the lowest common denominator - cash. Education has become very much secondary to cash flow due to the competitive nature of business. This culture shock, whatever it turns out to be, should force universities back into the business of education and exploration. I think it could turn out even better for those who are true teachers and educators...

I certainly agree that higher education will not disappear altogether.  I'll resist the temptation to criticize American education as that has already been done .
From a structural standpoint , the existing system provides little Bang for the buck .  An incredible misallocation of resources .  Downsizing the current system will occur as a result of geological realities .  Political solutions , after much verbal Pablum, will have no long-term impact .  
Out of affection , allow me to criticize the oil drum .  Better mathematical models for calculating peak oil are interesting and useful .  The socioeconomic readjustments , however, will tax the human intellect as never before .  This "elephant in the room " can not be externalized .  This thread contains postings in which the problem is spoken of clearly .  This must be done .      


I whole heartedly agree. I spent years driving a parking shuttle for suburban kids who chose a college downtown. By overhearing the inane drivel of their conversation I concluded that all college students were in college because they were able to get someone else to pay for it. A few were true scholars and deserved all the financial aid they could get but it raises the question: How many quantum physicists and genetic engineers does the world really need? We are already maxed out with lawyers, MBAs, and software engineers when what we really need is somebody to retrofit SUVs into series hybrids. This only needs a little nuckle scraping apptitude not post-grad engineering that someone else has already done.
I think all ways of limiting the number of trips people have to make is a good thing, even in NYC. Less Trips = More seats on Mass transit. A step in the right direction would be more off-peak commuting incentives.

Not sure where to put this so I'll just do this here: Sean Paul over at The Agonist thinks that this editorial over at The Truth About Cars is thought provoking, mostly based on tired old lies from Yergin, maybe add your comments if you so desire.

No, I think it is thought provoking because it challenges orthodoxy, the Peak Oil orthodoxy/consensus, that is emerging and is based on empirical facts that there is still a lot of oil/hydrocarbons in the ground that technology may be able to one day recover. Yergin's not a liar per se, he's just got a franchise to protect and spins like the rest of 'em. But there are still a great deal of hydrocarbons left in the ground. And they will be with us, regardless of whether I like them or not, for a while yet. So . . .

Like I said in my post, thinking is good.

That being said, I would urge you to read this comment of mine, here.

Thinking is definitely good and we do a lot of batting around ideas here -  I feel the level of debate here is pretty good and a lot of empiric data here - just check out some of Stuart's posts on depletion modeling.

Is there a peak oil orthodoxy? I don't think you'll find that here. I think you will find a large diversity of opinion both here and in the PO aware community about timing, impact, importance of economics, etc.

Simmons, Kunstler, Ruppert, etc do not speak for the whole community but are effective at spreading the word about the concept of peak oil. The more alarmist folks definitely get more attention....and maybe that's why they lay it on a little thick.

I definitely see a lot of great batting of ideas around here. Haven't been around long enough to see most of it, but there is some good ideas and conversations happening here. I'll be stopping by more often.

And I didn't mean to imply otherwise in the above comment. ;-)

What a ridiculous thing for William Sargant to do: Compare the price of gasoline with the price of plastic toys on shop shelves!

Does he not have even the slighest knowledge about production and distribution of these "apples and oranges"!

Gasoline is a primary product of the refining process that can be trucked to your local petrol station (or whatever you call them) within hours of it being produced. It's price will reflect the up-to-the-minute cost of the refining process itself.

Whereas, the products of the refinery are only the starting point in the life of a plastic trinket.

Consider also that most plastic products are made in China, before being shipped in containers to here (or the US) taking a few weeks, to then sit in a huge warehouse for a few more weeks, before being distributed to shops where it sits in the store-room for a few days until it is put on the shelf.  The cost of that item reflects the cost of the plastic raw materials several weeks or even months ago.

Also, suppliers of these plastic goods (unlike the mercenary oil industry) will usually 'wear' increased costs until they eventually have to increase their prices to offset these costs.  The more 'layers' of these suppliers between the refinery and the shop shelf, the longer those price increases will take to arrive.

Has this guy had his head in the sands during the past few weeks as a growing number of plastics manufacturers complain about how high energy costs are impacting their business?

We may see the increases starting to flow through before christmas, but I think a lot of suppliers will probably try to wear most of it to try and maximum the christmas sales, but I think that won't last long, and maybe the new year's sales will not have the bargains that they usually have.

U.S. energy officials warn of much higher heating bills this winter

Winter heating bills could jump as much as 50% and could swell even more if forecasts for colder weather are realized, U.S. energy officials warned Wednesday.

The National Oceanic and Atmospheric Administration has predicted that this winter, defined as October through March in the energy world, will be 3.2% colder than last winter and 0.4% colder than the average winter.

"Let's hope we don't have a cold winter, because if we do, I think these price projections are going to be low," said Phil Flynn, a vice president and energy analyst at Alaron Trading Corp. in Chicago.


So basically they just decided to use the Tuesday/Thursday schedule on Monday/Wednesday so no need to travel to class on Friday - plus everyone now has a 3 day weekend.
Exactly.  And it's a false economy.

Some people work.  And they might work near where they go to school.  So they'll still be driving on Friday to go to work, but instead of killing two birds (going to school AND work) with one car trip, they'll just get one.

A three day weekend, for some college students, opens up more opportunities for -- travel.  Yes, strange as it seems, college students like to visit their friends, who often go to a different school (folks they knew in high school, for instance).  A two day weekend may not be enough time to go visit somewhere, but add an extra day and it opens up lots of possibilities.

I'm one of those people that never flew on an airplane while in college - not once.  But road trips were three weekends out of four if I didn't have to work.  It was 350 miles, one way, from my school to the beach, and I drove there frequently.

So all my babbling can probably be summed up this way: don't assume that just because you condense three class days a week down to two that you are going to save fuel.  You can, of course.  Carpooling also would conserve.  So would riding a bike or bus if these are options.

About the "high" energy prices. I'm really amazed when people start complaining about it. I can consider that as normal as empathy is not the strongest part of human nature wherever I've been (not only in USA)... But maybe if people only knew how other people lived maybe they would not complain that much.

In my country the price of gasoline is about 5$ per gallon. However the average personal income is aroung $250, maybe less. So to feel the pain that an average driver (in Bulgaria) feels you have to multiply this price by a factor of 10. Now we reach to the nice number of 50$ per gallon. No surprise nobody drives Hummers there (except the superrich) - yet 1000$ to fill your tank is... quite impressing. But still - people are born in this country, make families and some live happily and quite decently. While consuming 8 times less energy per person than we do. My point is the following - we may speculate all we want about what type of recession/depression the USA economy will endure, but we have no base for our predictions because they are rather subjective. What about $10 per gallon? Is this expensive? If you ask people now they'll say its a robbery. But after we've reached the 20$ mark it would look cheap.

But this is again so isolated - at 100-150$ per barrel half of the world would have already gone bancrupt, while USA would still suck the same quanity of oil and the price of gas will still be so mediocre to the US standards - 6$ per gallon. So we exchange two cups of coffee for millions of years of stored photosynthetic eneregy.

The only solution for them (to survive) can be this one - they will get rid of USA demand by toppling the dollar and setting the price that we pay to let's say 500$ per barrel while they will be paying around 50 euro. If/when this happens our scenarios of people making some minor sacrifices and adjustments (to cope with the astonishing 20-30$ extra expense per month) or for even some minor recessions/depressions will look like a dream in a warm summer night.

There's a pretty depressing piece in the Times today Why the Tepid Response to Higher Gasoline Prices? The central question is
This points to a recent puzzle. The nationwide average price of gasoline surged 53 percent from 1998 to 2004, after adjusting for inflation. Yet consumption was up 10 percent in this period. Conventional wisdom would have predicted the price rise, which was mainly a result of external factors, to cause a 26.5 to 53 percent drop in gas consumption.
What the author, Princeton economist Alan B. Krueger, does not seem to consider is how much elasticity of demand there is. In my view, there's not much and that's the reason for his "puzzle". The 3 factors he gives are
  1. consumers probably viewed recent price increases as temporary [and so did no change their habits]
  2. car companies often cut prices of large cars when gas prices rise [so people bought SUVs]
  3. consumers responded less to price increases in the late 1990's than previously because income growth meant spending on gasoline had become a smaller share of the cost of driving
I find these arguments weak although I think there's some truth to #1 and #2 has been true lately (so-called "employee" discounts). Read the whole piece if you're interested. The bottom line is that Americans are not adjusting their demand downward much and this is a longer term trend since the late '90s. That's bad news.
Americans are maybe the only nation in the world which is not accustomed to ever looking at the price of fuel.
It's something like a tax or external cost they have to pay no matter of the price. Reducing consumption is not an option - driving is a matter of "lifestyle" and the "lifestyle" is everything.
I think #3 or some version of it is the biggest reason why demand is so inelastic and has not dropped.  For the value and utility we get out of gas, it is still very, very cheap.  Until gas prices rise up to and above European levels the demand response is going to be muted.  In other words, gas will have to consume something like 10-15% of household income rather than the 3-5% it currently does before we see significant response at the national level.  (Yeah, yeah, I know that those at  the lower income levels are going to be hurt, but it is the aggregate demand that sets the price.)

How people respond to rising prices depends on how fast prices rise.  Most people can adjust to gradually increasing prices and make the structural changes to their budget to accommodate more expensive gas over a period of time.  However, a rapid rise or spike in prices is more difficult to handle and therefore causes more pain.  In either case, the majority of Americans are finding expenditures to cut out that have less utility than what they get from gas.

In either case, the majority of Americans are finding expenditures to cut out that have less utility than what they get from gas.

Yeah, like fruit (see Christine's comment). I find this unbelievably sad.

Also sad is that everything people cut out will affect someone's job.  And then that person will have to cut things out.  

There's a bakery with the greatest scones just four blocks away.  With these gas prices, I can't afford to go there anymore.

Yes Ianqui, it is sad.  Now if you want to be depressed, think of what is happening to people in developing countries where they cannot afford a full meal, let alone the cheapest meat that Christine has to make do with; or where many people are faced with losing their livelihood as opposed to merely cutting back.

The fact of the matter is that we are better equipped to handle Peak Oil than almost any nation on earth, provided that the problem is recognized and we are prepared to make pragmatic decisions and negotiate our standard of living not only with the rest of the world but also between rich and poor.

Good post on Attytood

The death-knell of blue-collar America

There is a story that one time Henry Ford was showing former labor leader Walter Reuther around one of his new automated assembly lines. Ford proudly showed Reuther some of the automated machines (we would not call them robots today) that were at work building cars and said, "Well Walter, I'd like to see how you get these things to pay union dues." To this, Reuther replied, "Well Henry, I'd be more interested to hear how you plan to sell `em cars." What the two didn't seem to realize was that they were locked as adversaries in an economic situation in which they depended on each other.

Is  this story apocryphal? Who knows? What we do know is this: America's auto workers -- what's left of "'em," that is -- aren't going to be buying a lot of new cars in 2006...not SUVs, not hybrids or anything else. They're not going to be shopping at Wal-Mart so much, either. Or going to Disney World. And a New Orleans flood victim has a better chance of walking home with a new flat-screen TV.

What is interesting is that the low wage earners in Mexico are working at GM and Ford plants.  So why are they (the companies) doing so poorly?  

Probably because those same workers, earning $3.49 (per the article), can't afford to buy a new SUV, no matter how good the interest rate.

Do executives in Mexico make the same extreme salaries as their counterparts here in the states?  

What I see happening all around is this:

Company makes a product (or provides a service).  They want to increase their profit (decrease their costs), but at the same time they want to increase executive compensation.  So what do they do?  They cut corners, they use cheap imports, they limit options, they slash wages.  Executives get paid more, product price stays "about" the same, customers get screwed in the end.