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Chapter 3 No 10 Fashion Costs!!!
Blog Dave McArthur published 1 December 2005
I awake to hear the ANZ bank’s chief economist, John McDermott on Nat Radio’s Morning Report. It seems an ANZ National Bank survey suggests “business confidence” has suddenly dropped to its lowest level since 1988. John is “very surprised” and wonders if business people know something they (the bankers) do not know about. I don’t know what they know either but readers of my blog will know I, a simpleton, predicted the present deterioration several months ago.
As I said at the time, I am a simple man with simple views. Base our economy on sources of energy that exist in very limited quantities such as oil and Gas and we can expect inflation, stagflation, debt, strife and war. And I am not alone in pointing out our use of these resources is addictive and many New Zealand citizens are unable to imagine a life or an economy without them now.
We exhibit all the symptoms of the classic addict. There is desperation in the way we take hope from any drop in price that everything is going to be all right now. Well it aint and every drop in price only hastens the impact of the crash when we hit the wall as supplies become unaffordable. Even now we are cutting back on vital basics to service our habit – such as warm, dry, secure homes for our young families.
It was very predictable that we now have the ingredients for recession with inflation pressures surging, our Reserve Bank Governor stressing out, our trade imbalance going chronic and household debt levels rising. Sure, some of this is inevitable when a country pawns its infrastructure as we did in the “Economic Reforms” of the neocoms/Rogergnomes (1984-). However I work on a simple variation of “What’s good for GM is good for America”. My variation is “Where Ford and GM go, New Zealand goes.” Both Ford and GM are heading deeper in junk status and retrenching. Their managers insisted the future was in SUV sales just as the New Zealand Government insists the future is in more motorways and Bulk-electricity generation.
Our addiction is stoked along by the shortsighted policies of agencies like the Automobile Association and the Consumers Institute. Both are at the forefront pressuring for lower prices at the petroleum pump. That does not help us confront our addiction. The AA in particular is profoundly dishonest in that it persists with its claims that private vehicle owners pay their way. What a joke.
If you agree with me about AA lobbying, I suggest you can do our children a favour by ringing up the association. Remind them that the majority of humans are non-car owners and car owners use up a disproportionate amount of our resources and are vastly energy inefficient.
Remind them of how all ratepayers fork out to provide a massive acreage of "free" parking for car owners and in cities like Wellington this can result in triple the engineering and maintenance costs.
Remind them of our defence/security bill for maintaining access to "cheap" oil and of the domestic road-policing bill. Did I hear it cost $51 million to maintain our last deployment of SAS troops in Afghanistan
Remind them that when a motorist injures or kills, non-car owners have to pay for the “accident” costs too.
Remind them that all mortgage holders are paying a premium now and all exporters are suffering as we struggle to cover the trade deficit caused by their activities.
Remind them that most of the next generation is dependent on oil for food and health systems and that car owners put them at high risk.
Remind them that generations of non-car owners helped fund their present activities and now it is car owner’s turn to start funding the different infrastructure we need in the Post Cheap Oil-Gas Age.
Suggest that if the accounts are done honestly then there is a good argument for a carbon tax, (to square their environmental bill) a parking tax (to square their rates bill) and a mileage tax (to square their national bill).
I figure if we can build cars that monitor and relay the condition of the vehicle to a service centre we can build cars that monitor and relay oil and road use to the tax department.
It bad for our addiction that the ridiculously low global prices ($US56.50 a barrel) are being reflected in the price at the pump here. Petrol is retailing at $NZ1.34 a litre – about the same as a litre of bottled water. The “hit” from the substance use is incredibly potent. Remember:
are 159 litres (42 US gallons) in a barrel of oil. Once refined a barrel
of oil yields about 72 litres (19 US gallons) of gasoline."
I will leave it to US congressman Roscoe Bartlett to describe the ‘kick’ in this rare substance:
"We're going to have to start moving to alternatives. That's just the reality. This is a very daunting challenge because of the energy density in fossil fuels. One barrel of oil is the equivalent of 25,000 man hours of labor. That's like you having 12 people that work exclusively for you for one year, and all it costs you is a little over a hundred dollars. That's the $50 for the barrel of oil and maybe $50 for refining it. And you get that kind of labor intensity. The energy intensity is just phenomenal. I have a little personal experience. I was in West Virginia with a heavily loaded Prius, a hybrid car which we drive, and the worst mileage I got was 20 miles per gallon -- 20 miles per gallon going up a steep West Virginia mountain. The car was heavily loaded. How long would it take me to push that car 20 miles up the mountain? Obviously, I can't do it. I could do it with a come-along and chains and so forth, and if I did it in 90 days, I'd be very lucky, which is really about what the 25,000 man hours of labor per barrel of oil is. None of the alternatives have anything like the energy density of the fossil fuels except nuclear, but you can't put a nuclear power plant in the back of your car."
While the current hiatus in oil price rises is probably unhelpful, I am relieved to note the unsustainable global demand is being eased a little by lower heating demand because of mild weather in the Northern Hemisphere and by some movement to more energy efficient vehicles. Hence the layoffs at Ford
and GM who pinned their money on oil guzzlers. Hence also interesting phenomena such as headlines:
“The prospect of peak oil has shaken some of the mainstays of the conservative establishment into doing something about America's energy crises…”
Also it is heartening to know other countries that we like to feel are similar to New Zealand are determined not to be addicted like we are. Sweden is one such country and this week I read this release from Mona Sahlin, their Minister for Sustainable Development
Sweden first to break dependence on oil! New programme presented
The statement ends:
“Sweden has the chance to be an international model and a successful actor in export markets for alternative solutions. But this requires conscious investments - not a reactionary policy that obstructs the transition to alternative energy sources and investments in the environment of the future. Breaking dependence on oil brings many opportunities for strengthened competitiveness, technological development and progress. The aim is to break dependence on fossil fuels by 2020. By then no home will need oil for heating. By then no motorist will be obliged to use petrol as the sole option available. By then there will always be better alternatives to oil.”
Go New Zealand Aotearoa! We can do it. First step is to raise taxes on our oil use so that users pay fully for the costs of their use. Then raise oil taxes further to finance investments in sustainable infrastructure (rail, broadband, smart thermal dwellings, “smart” consumer based electricity systems, climate and agriculture research etc). It was our oil addiction that took our inflation beyond the 3% barrier. Reduction in oil dependence will reduce inflationary pressures and the need to maintain a high interest rates/$NZ.
Sure groups like the National Party will attempt to make cheap political capital out of it. Just remember they are led by people who still persist with the inane claim they “cured inflation” in the 1990s. As I seem to have to keep pointing out: a quick look at global oil, Gas and steel prices 1980-2005 will demonstrate to anyone what an ill-informed claim that is. Global prices for these commodities dropped through the floor in the 1990s.
Talking of this stuff reminds me. The other day I finally went to what must be a major source of much of the degradation of our nation’s living standards. I went to my first lecture in modern Economics at VictoriaUniversity. Well, what can I say? A decade ago us meter readers at Capital Power (A company originally developed and owned by the City Council of New Zealand’s capital.) experienced first hand the mentality of the university products in the form of Arthur Andersen’s MBAs. We thought we were joking when we attempted to explain what our universities must have been teaching these guys. Well, it turns out our worst jokes were for real. The lecture was a surreal experience. Next blog or so I will tell you about it.
Similarly I will leave it to another occasion to ask Leanne Dalziel, Government Minister in charge of the anti-DIYer legislation, what she was thinking when she promoted it.
Readers following the Bonus Joules and the Knowledge Economy cartoon (first published on my website three years ago now) will know that in the previous panel Bonus Joules had just got caught up with the modern fashion of recessed ceiling lights. The cartoon dwelling, a bit like the New Zealand Economy with its new flash Economic Reforms, is haemorrhaging funds now.
Which reminds me that I just read US congressman Roscoe Barlett or someone say that the US economy requires 2% growth to keep its credit system afloat. Can't spot my source now but imagine the same could be true for New Zealand. We have become a bit of a laboratory for the 'neocoms'. If it is true then we are going to have to find a saner definition of economic growth - one that is based on environmental realities.
And I don’t think full page ads from EECA telling us we are going to see many more stars in the future is going to help our plight. As Bonus Joules finds out later in the dark depths of Chapter seven of the cartoon journey, having a five star rating (i.e. a dwelling with high ratings for energy efficiency) is a useless measure and pointless exercise when New Zealand legislation permits, nay encourages, neighbouring properties to destroy a dwellings solar generation capacity. The best solar-based systems can be destroyed for a century when a “developer” is allowed to destroy access to the sun. When councils put zero value on the sun, the stars go out.
To those designing the new Building Code I say take care: in the Post Cheap Oil-Gas Age the Code that fails conserve our solar generating capacity becomes the tombstone of our civilisation. Learn from the Justinian Code of the 6th Century.