Kunstler: Oil Buying Vacation

September 18, 2006
To find any news on the cable news networks these days is getting as hard as finding a pay telephone in an airport. This weekend I went to MSNBC three separate times to see if anything was going on in the world, only to find Matt Lauer interviewing Deborah LeFavre, the blonde babe Florida schoolteacher who got down-and-funky with a 14-year-old student. ("He wanted it; I gave it to him.")

I guess the network execs could not resist running the segment nearly around the clock. If they could show porn instead, perhaps they would be even happier. Elsewhere around the cable menu, CNN-Headline has passed the baton to geeks like Glen Beck and Nancy Grace, who offer the equivalent of biting the heads off chickens, CNBC ran a seemingly endless loop of cops-in-cars-chasing-lowlife around (pick it) Florida, Las Vegas, or Phoenix, while over at regular-CNN Larry King was discoursing with Sean Penn on world politics (in lieu of someone who actually works in government or foreign policy).

This is an interesting case of the diminishing returns of technology, the stealth disease that is corroding our economy and our culture. The concept is not as abstruse as it seems. It is related to Gresham's law of economics, which states that "bad money drives out good." If you have a society on a gold standard of circulating money, and you introduce silver as an acceptable medium of exchange, Gresham said, the gold will all disappear from circulation due to hoarding, until only silver is left in circulation. Likewise, there is a tendency with the layering of technologies to diminish the real value of whatever these technologies are applied to in our culture, like broadcast news -- the more cable channels, the worse we are informed.

The most obvious example of the diminishing returns of technology is something that probably drives millions of Americans batshit every hour of the day -- the inability to connect to a live human being on the telephone. This situation has come about precisely because of the investments made in computer upgrades of telephone systems since the 1980s. All over America, in companies, banks, colleges, doctors' offices, machines now answer the phone and the caller must submit to the absurdity of negotiating with a robot (usually a perky female robot). At best, these systems waste a quarter-hour of your time. At worst, I daresay a few poor souls have literally killed themselves over a failure to connect to some crucial person at a crucial moment. I don't know for sure, but my guess is if all these companies, offices, and institutions had just continued to pay salaries for a few receptionists each over the years, instead of investing an equivalent amount of money in the latest technology, we would be a much happier nation -- and at least a couple of million people (probably women) would have decent jobs intelligently and swiftly routing caller's needs to the right person in their organization.

Getting back to the original matter of the television news, what was going on around the world this weekend was not very much of anything. The Pope was the latest in a long line of individuals who spoke their minds about something (in this case, the implacably violent ideology of Islam), and then tried to take it back when a few mullahs affected to be offended. But aside from the Pope acting like an Ivy League university president called on the carpet by vengeful correctniks, not much was actually happening in the world.

Which leads me to the real subject of this Monday blog, which is the question of oil prices. Cheerleaders for an obsolete reality, such as Michael Lynch and Forbes Magazine, are hailing the current drop from the mid $70-range to the low $60-range as an epochal tide-turning return to the salad days of cheap oil. (Lynch predicts it will go down to the $20's.)

Here are some of my current theories. For one thing, being at-or-near peak does not remove price volatility from the picture. It may, in fact, increase volatility as oil markets -- like any large-scale complex system -- are likely to be destabilized by the uncertainties of what peak will do to all the other big complex systems in our hyper-connected world.

What we've probably seen over the summer, with oil prices entering record territory, is large users laying in inventories in fear of even higher prices. Most of this fear premium revolved around the anticipation of another wild hurricane season, which so far failed to materialize. It was also pegged to the Israel-Hezbollah war, which further induced dread of a wider Middle East war, a showdown with Hezbollah's sponsor, Iran, and the threat of disruptions to oil exports out of the Persian Gulf.

Now, a matter of speculation circulating in the rumor-stream of the Internet is the idea that some large entity (i.e. the US government) has managed to manipulate the oil markets in order to calm the voters down prior to the fall elections. Personally, as I have expressed countless times, I am allergic to conspiracy theories. Oil prices are not actually set by the oil companies or the exporting nations. Prices are set on the futures and spot markets, where major buyers of crude bid on either short-term or long-term contracts for the stuff, in order to run their enterprises in a rational, businesslike way. Earlier this summer they bid the prices up.

Some buyers may have simply dropped out as the price of oil exceeded their practical ability to pay -- and by this I mean mainly the governments of Third World countries. This would represent significant demand destruction, but the pain incurred by people in Third World economies would likely occur off the "radar screen" of the US news media. (How many Americans, for instance, are up-to-speed on the horrific economic suffering in Zimbabwe?).

Don't look at China for demand destruction. Its oil consumption actually grew by 15 percent this year.

If there is demand destruction in the US, it has not shown up yet in the overcooked and overspiced statistics emanating from the federal agencies -- though the housing slump-or-crash-or-whatever is beginning to make an impression on economy-watchers. There is otherwise no evidence that fewer cars are clogging the Capital Beltway or the Santa Monica Freeway.

But here's one thing I wonder: what if the number one user of oil products in the US had laid in huge inventories of the stuff earlier in the year and has lately withdrawn from bidding in the futures and spot markets? I am speaking of the US Military. It would make sense, against the background of Iran rattling its nuclear capabilities, and the Israel / Hezbollah affair, that the US armed forces filled their tank farms to the max this summer and are now stepping back from bidding on any additional oil for the time being. This could be easily "managed" by the people who run this massive organization -- namely, the President, the Secretary of Defense, and the rest of the civilian authorities based in the executive branch of the government. They don't have to consult with congress on their oil purchases.

I apologize for veering into conspiracy territory on this -- and I don't have a shred of evidence that this is happening. It's just a thought, a caprice, a "wild hair," a theory. Surely there is some enterprising graduate student or trust fund nerd on the peak oil web sites who might investigate this dark notion. Has the US military gone on an oil-buying vacation as we head toward the elections?