Wednesday, May 24, 2006

Stuck at Home in Suburbia

I have a friend, currently living in a great house Central City, Wellington. You can walk anywhere in town and the Midnight Expresso is just a stones throw away. My friend is going through a combo-crisis. She is approaching 40. And she is about to move to suburbia.

This frightening tension says a lot about the mid-life mystery. When multiple bathrooms, double garages, lawns that need to be mowed and room to park the Stabicraft replaces the urban alco-club induced hedonism of our 30s. Symbolically she is faced with letting go of her youth in two short punches.

People don't choose suburbia, it chooses them.

Not only has the hyper-suburbanisation of the cattle-class over the last 20 years essentially propped up the New Zealand economy but you can accurately measure the suburban fiasco by the number of other happy motorists interfering with your commuting pleasure. Suburban life isn't much fun in Auckland if you work in the city.

Our entire fucking economy is based on continued creation and maintenance of suburban sprawl and all the insidious bullshit (recreational shopping at the local Warehouse) that it entails - we're at the end of the civilisation cul-de-sac. The far flung exburbian outreaches of society will be the first to implode in the severe vacuum that will accompany disruptions to the oil markets that they depend upon thereby seriously impeding the 80k a day commute. All the morbidly obese brain-dead infotainment zombies and desparate soccer mum housewives who live in their three bathroom "internal access" McHouses will find themselves cut off from work and midweek tennis dates.

The suburbs are the slums of the future. Some won't have to wait that long. The story goes something like this. Gross devaluation accompanied by wholesale denial - what Kunstler terms the pyschology of previous investment will be dictate behaviour. Default, foreclosure, repossession, bankruptcy. And for some, attempts to fly out of office block windows as the reality dawns.

Cheap oil subsidised our way into sprawl, but cheap oil is gone. My advice to those not currently comatose, make plans to get out now. By the time you're spending a third of your weekly wages filling the Ford Explorer it will be too late.

For my friend worried about the suburban choice - the intuition is right. However, suburbia has a knack of quickly dulling the senses.

...but don't take my word for it

Tuesday, May 23, 2006

5 Minute throw away thought.

For the wankers fascinated with non-sequiturs

Stu mentioned -

LibertyScott raises valid points though. What's our problem with people
living wherever they want and how they want. If these guys had their way,
the roads to those suburbs would be privately funded, through private
land. The people who lived there and built the roads would be the only
ones who fell over when the oil price goes through the roof.

To which I replied,

I don't think it's a valid point at all. Who decides that I can't build myself a bach with a view across Mt Aspiring. And whats the difference between the "good" that is a national park and the "good" that is productive farmland. Which is better?

Someone has to make decisions about where we live and what use land is put to. Most libertarian arguments quickly descend into absurdity with little more than a cursory look. Libertarians very rarely understand that their arguments wholly depend on the same normative bullshit that (for eg.) socialist arguments are based on. The decision about who says what goes and what doesn't. By arguing there is no place for me to make such judgements they are infact contradicting themselves.

There is no more foundational basis for the argument that I ought not make a value judgement about some behaviour or desire than I do.

Nothing pisses me off more than the facile truisms of libertarians.

Thursday, May 04, 2006

Stress Relief as Southern Lakes Fill
Warm Showers Forecast for Winter

I guess we have to be relieved that inflows into Tekapo and Pukaki have significantly "bumped" in the last couple of weeks. The inflows are approaching average again which means we can probably breathe easy this winter. Unlikely we'll be having cold showers, this year at least.
Oil Price Out of Control As World Pumps at Capacity

This was published on Scoop last week, I forgot to also publish here - here it is.

Powerless NZ
27 April 2006

As consumers around the world baulk at US$75 oil (per barrel) suspicion sets in that the oil companies are price gouging even when a few seconds rational thought informs us that oil is traded transparently on the open market to the highest bidder. Hilariously leading this crusade is President Bush himself. “Bush has ordered the US Federal Trade Commission to investigate whether the price of gasoline has been unfairly manipulated in any way since the hurricanes struck last year.” (Washington, April 25, 2006, AFP).

Interestingly in 1971 around the time US oil production peaked, the oil production regulatory agency announced that it would allow US oil companies to produce at 100% capacity. Prior to that oil production had been strictly regulated to prevent the price falling too low. After that event in 1971 the concept of marginal price for crude became irrelevant, oil became a tradeable commodity in the US on the open market, sold to the highest bidder. Shortly after this event oil production in the US peaked. Today the US produces less than 50% of the oil it consumes.

A similar event occurred in 2004 when in an attempt to quell volatile oil markets OPEC announced it would pump at capacity. At that point a marginal price for oil was no longer under OPECs control. Any first year student of economics could inform President Bush that the long run marginal cost means any additional costs or cost savings per barrel of additional or reduced production. Once the margin is gone and you are unable to increase production the marginal cost as a pricing mechanism or indicator of the same becomes irrelevant — it is simply sold to the highest bidder. The fact that the marginal cost of (Saudi) oil production is estimated to be between US$1.50 — US$3.00 per barrel must make consumers squirm (Littlejohn, 2004., Kudlow, 2001) but this is how the market works. If you don’t like the price you always have the option to purchase an alternative product, or simply not purchase at all.

OPEC has continually argued since late 2004 that they are pumping at capacity and are therefore unable to drive the price down. According to BP’s Statistical Review of World Energy, OECD oil is currently in decline to the tune of -1.9% per year. Since it seems the world is producing oil at maximum capacity or very close the concept of a marginal cost of crude is no longer relevant and because there are no swing producers, that is, no producer has the ability to control the price by flooding the market with cheap oil. Oil production is no longer at a margin of the total produced — result, the price cannot be controlled by the producer. Thus the market is sending a very clear signal that production is at a peak. Once over the peak we are on a declining trajectory forever, things are not going to get better.

OPEC’s official price range in 2005 was $22-$28, obviously with a marginal cost around 3 dollars a nice profit would have still been made. However the current price of oil is determined by free trade on futures markets with buyer knowledge that there is no excess capacity, and no one wants to miss out. The price is at the mercy of the market, surrendered to the whims of speculating traders and hedge fund managers who are increasingly fidgety due to an increasingly imaginative array of externalities such as production shutdowns in Nigeria, Iran, Iraqi civil war and Hurricanes or indeed any other perceived risk. It’s a bit like selling roses where everyday is Valentines Day.

There is currently enough oil to meet consumer demand, that will however change over the coming year or two as demand continues to grow and existing supply slowly but surely depletes. The price will remain highly volatile so long as the valves remain open at capacity. Economics relating to marginal concepts or a “fair price for oil” are no longer relevant because we are not producing a “margin” of the total producible; we are producing at the maximum, familiar market rules are out the window.

Steve McKinlay
Powerless NZ
27 April 2006