Are we running out of oil? Not to worry, says Alan Greenspan, who is clearly concerned that jittery investors will interpret the recent escalation in prices as a sign of a looming energy crisis.
“The recent rise in spot prices is expected to wash out over the longer run,” Greenspan said in an October speech to the National Italian American Foundation.
And why not? Haven’t we’ve seen this cycle before in the 1970s and 1980s? Doesn’t that prove that cheap energy is right around the corner?
What is more, the Federal Reserve Chairman is bullish on the long-term prospects for the petroleum. While acknowledging that energy companies like Shell and Exxon Mobil have shifted their capital focus away from exploration to mergers, Greenspan is banking on technological improvements as the ticket for taking us out of the tight spot we are in.
“Technology, given a more supportive environment, is likely to ensure the needed supplies, at least for a very long while,” Greenspan added.
What he is really saying is that there is no cause for panic, because market forces will push the technological genie to work even harder to satisfy increasing demand for oil. There is no doubt in Greenspan’s mind that the genie will deliver. All we have to do is to be willing to pay higher prices for brief periods of time and the oil we desire will appear.
Notwithstanding his fondness for hedging every statement, Greenspan’s address is more a celebration of free market theories than an analysis of global energy supply and demand trends. In his world laissez faire economics trumps hard sciences like geology, and price signals overrule extraction trends and other physical data.
In Greenspanomics, the power of money is such that it can turn a finite resource like petroleum into one that can be summoned out of the ground at any quantity and price humans desire, no matter how much has been pumped and consumed beforehand. The natural world becomes a self-replenishing ATM under our command.
This Pollyanna view enables the Fed chairman to dismiss as irrelevant several ominous trends that are producing sleepless nights for geologists around the world. It matters not to him that global oil discovery peaked in 1964, and that since 1981 consumption has exceeded discovery year after year. Nor is there any acknowledgment of the decline in U.S. petroleum output since 1970, which has contributed enormously to our out-of-control trade deficit.
A prudent reaction to these warning signs would be to encourage all Americans, individually and collectively, to ease off the gas pedal and use less energy. Because so much of the energy consumed in this country serves no productive purpose, there would be a clear benefit from reducing overhead and cutting energy costs, at least in the short term.
More important, if we are to have any chance of weathering the devastating consequences of having outstripped the planet’s capacity to fuel a global economy, we must give up our bad habits immediately. For Americans, it means a war on energy waste as well as an all-out effort to conserve oil and natural gas through efficiency, solar, wind and other resources.
Initiating this change will require government intervention in energy markets, something Greenspan inherently abhors. His way of fending off new public policies in this arena is to project a beatific calm about the “wisdom” of market behavior, while predicting further miracles in technology.
“Moreover, new technologies to preserve existing conventional oil reserves and to stabilize oil prices will emerge in the years ahead,” says Greenspan the soothsayer.
“We will begin the transition to the next major sources of energy perhaps before midcentury as production from conventional oil reservoirs … is projected to peak.”
Meanwhile, outside the theoretical cocoon that Greenspan and his followers keep spinning for themselves, most geologists put the date of peak production closer to 2005 than 2050.
The longer we subscribe to Greenspan’s faith-based views that filter out politically inconvenient yet irrefutable data points indicating a supply crunch later this decade, the more painful that collision with reality will be for us.
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Michael Vickerman is executive director of RENEW Wisconsin, a nonprofit organization promoting conservation and renewable energy sources.
11-18-04
