What do subprime mortgages, Atlantic salmon dinners, SUVs and globalization have in common?
They all depend on cheap oil.
But from the depleting oil wells of the Middle East to the soaring cost of their unconventional replacements, like tar sands, the era of cheap oil is over, just as globalization has made the world economy ever more thirsty for the fuel.
Oil prices, of course, will still fall in the middle of a recession, just as they have recently, but they will never be cheap again.
The world isn’t about to run out of oil—it’s just running out of oil that we can afford to burn. And whether we move goods by air, ship, truck or rail, the global economy runs on oil.
Replace cheap oil with tomorrow’s triple-digit prices and all of a sudden the wheels of globalization get thrown into reverse. Distance will soon cost money, radically redefining both economic geography and global trade patterns.
Soaring transport costs suddenly change the entire economics of importing everything from cheap labour markets half way around the world. So much so that triple digit oil prices will soon breathe new life into our hollowed-out rust belts, and, in the process, bring long-lost manufacturing jobs back home.
The repatriation of factory jobs to Western economies will take place all the sooner when the cost of burning oil includes not only the price of buying the fuel but also the price for the carbon emissions it leaves in the atmosphere.
As the global economy implodes under the weight of triple-digit oil prices, local economies will suddenly re-emerge. And as our economy changes, so too will our oil-dependent, long-distance lifestyles.
From farmers’ markets to carbon tariffs, from the revitalization of manufacturing to the reconversion of far-flung suburbs back to the farmland that they once were, our future is going to, in many respects, resemble the now-distant past.
There is little we can do to prevent oil prices from returning to triple-digit levels. But those prices don’t necessarily have to be apocalyptic.
There is much that we can do to make sure that soaring oil prices don’t have the same devastating consequences on our economies as they have had during past recessions as well as during the recent one.
In order to insulate ourselves from even greater oil price shocks in the future, we must move from the hugely energy-intensive model of a global economy to the far more sustainable model of a local economy. And that means we must re-engineer our lives to adapt to the contours of a much smaller world.
While much could go terribly wrong in this transition, don’t be surprised if we find more than a few silver linings in the process. And don’t be surprised if the new smaller world that emerges isn’t a more livable and enjoyable world than the much larger one we are about to leave behind.
The End of growth
Jeff’s Last book: Jeff Rubin’s Smaller World
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