Consequences of Peak Oil that a basic economic model won’t account for

Spanish lorry drivers have begun an indefinite strike over the rise in diesel, about 20% this year. In addition to striking, many have disrupted traffic around Madrid and on the border with France.

BBC News

Many people typically refute the suggested consequences of peak oil, saying that improvements in technology, use of alternatives, conservation and increased exploration will occur as a result of market forces, reducing demand and eliminating any catastrophic impacts of depletion. Ignoring the limitations of the aforementioned “solutions” in the short to medium-term, this argument also ignores some of the effects that will be felt while the economy is changing.

For example, with rising diesel prices, trucking, and long-distance sourcing in general, loses its cost advantage over other modes of transport and local sourcing. If the market behaves correctly, the size of the trucking industry will shrink, and society will properly allocate resources in other areas. The problem is, the human element is ignored. Many truckers will not take kindly to a gradual phase-out carried out by market forces. Like we see in Spain, many will fight for survival rather than embrace unemployment.

This can already be seen in a few other industries. Fishermen in all of western Europe are already staying in port in protest of fuel prices, and also for economic reasons. Adjustments in the economy occur frequently without incident, creating some unemployment but not severely damaging the well-being of society. When vital cogs of the economy are forced to adjust, we face a tremendous risk. Not only are these basic services necessary for the function of the economy, but the workers in these sectors also have tremendous leverage, and they know it. How long before these actions become more widespread and cause shortages all over the world, not due to lack of supply, but lack of transport? How long can the government resist pressure to subsidize, and create an even larger cliff for us to fall off of?

The Spanish government is actually preparing the right thing; providing assistance while encouraging retirement of older drivers and restructuring. This will hopefully keep the movement of goods steady while allowing the shrinking of the industry to occur. Currently, they would like to shield other parts of the economy from the increase in prices, but in the long-run, it is necessary for the rest of the country to pay these prices, forcing them to look at other sourcing options, and also encouraging the purchase of products that are cheaper due to being locally sourced. Retailers like Wal-Mart are already adjusting to high fuel prices by doing this.

But it should be remembered, as evidenced by the current situation in Spain, that we cannot forget the human element.


One Response

  1. If you ever want to read a reader’s feedback :) , I rate this post for 4/5. Decent info, but I have to go to that damn yahoo to find the missed parts. Thanks, anyway!

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