Are We On A Different Planet?

“Hello, my name is John Richardson.
I had an accident, and I woke up in 1973.
Am I mad, in a coma, or back in time?
Whatever’s happened, it’s like I’ve landed on a different planet.”
Before you think I’ve been at the methanol again, please follow this link to the fantastic BBC TV series, Life On Mars, where a UK police officer living in 2006 is in a road accident and is transported back in time to 1973. This is definitely not a waste of polycarbonate – buy the DVD.
Like Sam Tyler of the series, it felt like I was back in time this morning when reading of the IEA report on an oil-supply crunch in five years.
It was back in 1973, if you remember, that an oil crisis triggered the US recession of 1973-75.
William Poole, president of the Reserve Bank of St Loius, argues that high oil prices this time around haven’t triggered a recession because of factors such as low inflation. This is largely the result of China and the rest of the developing world driving down costs.
But how long will this continue if the IEA is right? And how will the developing world reconcile itself to not having enough raw materials to sustain the huge boom in demand for the things made, ultimately, from oil? What will be the social, political and economic implications of the looming supply crunch on ever-more wealthy populations demanding the same mass-consumption lifestyles that westerners enjoy?

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2 Responses to Are We On A Different Planet?

  1. 16 July, 2007 at 9:54 am #

    I have often wondered why surging oil prices and resulting high petrochemical prices (which are used by all of us everyday) have not yet shown up in much higher inflation values. And I am told that its because Chinese made goods have kept prices low until now.

    But my guess is this wont continue for ever. The high raw material prices and high fuel prices will eventually lead to either high inflation or if inflation is controlled …then higher interest rates.

    In the first case my savings become less valuable and in the second my mortgage becomes higher……hmmm so since i dont have too much of either ( little savings and no property and therefore no mortgage)…guess I am doing ok????

  2. 17 July, 2007 at 2:55 pm #

    Low inflation has been partly based on high cost jobs in the developed world being converted into lower cost jobs in low cost economies. People in the lower cost economies have been producing the goods that high cost economies buy.

    On one hand exporting the cost of production in this way has helped to keep infationary pressures from the labour market down in the developed world.

    On the other… the increasing number of relatively well paid jobs in manufacturing in the developing world has enabled parts of the developing world to fund the loans that the developed world has taken out to pay for shiny new goods.

    We have also had and a plentiful food supply in the developed world and food has been relatively cheap for a long time. But if we start playing with the food supply, converting chunks of it into biofuels for example, we might find inflation returning. Also although oil is much less important in economies that are more serviced based than in 1973, rising oil prices will affect economies eventually. I guess that effect will be greatest in economies with smaller service sectors.

    Finally, there is a point to some development, at least to the level of clean water, decent housing, a social contract and a civil society that works. Consumerism for its own sake is much harder to justify.

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