New Energy, New Economics, and Retro Politics

by / Mar. 23, 2016 12am EST

Some of the conversation about Sanders and Trump is laughably retro. Trump, who was just a loud version of Richie Rich until his candidacy, is now called Mussolini or worse because his rallies attract tattooed wannabe Aryans. Old intellectuals, citing Sanders’s roots as a Polish Jew raised in Brooklyn and not an Our Crowd German Jew raised on Park Avenue, yell that he is surely a Bolshevik, and point to his “honeymoon in the Soviet Union” because they dislike his call for higher income-tax rates, socialized medicine, and public-college tuition subsidies.

Trump is just a blowhard and Sanders is just a Eurosocialist. Trump has little support among the neo-intellectuals who are reluctantly awakening to the fact that the Tea Party movement they helped sire is populist, racist, and not at all ideologically conservative, and that the party of the business class may be about to calve a randomly floating berg with GPS coordinates as follows: 1968 Wallace, 1992 Perot, and 2000 Buchanan. As for the former mayor of Burlington, Vermont, whose brand-new wife accompanied him to Yaroslavl in 1988 on the Sister City program founded by that renowned Commie dupe Dwight David Eisenhower, he is a Boomer liberal of the crunchy class. Bernie the Red visited the USSR in 1988, two years after Andrei Sakharov had been released from the Gulag, a year after Reagan had negotiated the intermediate-range nuclear weapons treaty with Gorbachev, four years into perestroika and glasnost. Yet Trump gets remade into a fascist and Sanders into a useful idiot or worse.

We are not reliving the Weimar Republic. But we are indeed experiencing commodity-price deflation and income and wealth concentration as occurred in the 1920s. America is 40 years into the trend-line identified by Richard Wolff, Paul Krugman, Emmanuel Saez, and your own checkbook: Since 1975 or so, the gains from increased industrial productivity have not been shared with wage-earners as they were between 1890 and 1975. The gains are to capital, and that’s why old capital owners cherish the status quo and love Hillary, while young folks and people without pensions don’t like the status quo and skew for Trump or Sanders. So now we’ve got two political figures who are quite different than either Clinton’s sometimes nimble but often clumsy triangulation, or the zombie Hooverism of Republicans, and the Haves are panicking.

But even these challengers are disappointingly 20th-century. The past is not a very good guide, because power, conflict, and economic challenges in the entire 20th century were about getting control of oil, most especially Middle East oil. The British and French empires conspired to dismantle the Ottoman Empire, install regimes in the Arabian peninsula, and create client states out of jumbled aggregations of city-states and provinces and slices of provinces—Iraq, Syria, Trans-Jordan, the Levant, and the Mandate that became Israel. It was all about oil. Our politics still uses that vocabulary. That’s rapidly becoming obsolete.

It’s about distributed energy now
Distributed energy is changing everything. More specifically, alternative energy is changing everything because alternative, non-petroleum energy is rapidly getting to scale. And because alternative energy is localized in both its sourcing and utilization, it’s disruptive.

Just in the past year, the combination of geopolitics and the large-scale build-out of alternative sources of energy have together made the finale of 100 years of petroleum-centric finance, foreign policy, and trade very likely. Our geography within and beyond our borders got reshaped by oil starting in World War I. Now the new energy economics will reshape the world beyond us even as we continue to live in landscapes that were planned for the internal-combustion engine, landscapes that will be immensely difficult to change. The great disruption that is upon us is not quite comprehended by our politics, because our politics is still petroleum-centered.

The US Energy Information Administration projects that renewable energy will grow almost 10 percent this year, to 14 percent of total electricity production, mainly from wind and solar—despite low prices for domestic natural gas, and despite world oil prices remaining at far less than half what they were just a year ago.

Do the math: If renewables grow at 10 percent a year (and the rate of change will probably accelerate), then electricity from renewables will be at least 40 percent of all US electricity within 10 years. Bloomberg News thinks that electric cars will be so numerous within eight years that they will cause the next oil crisis, or just prolong the one we’re in now, because electric cars will reduce demand for oil by two million barrels per day. That’s the size of today’s oil glut. So: permanently low gas prices. Yay! Unless you’re a bank that has loaned billions to American oil corporations.

Today, projecting change is no longer an academic exercise. Stanford’s Mark Jacobson has done a state-by-state plan for converting to renewable resources, starting with New York, that puts it all on the table: offshore wind the way the Danes do it, utility-scale solar like in Spain, more hydro than anybody but Quebec currently has. Cambridge physicist David McKay lays out a plan with five variations for his native Britain—variations that include buying electricity from sunny exporters like Morocco and Spain, and costly-but-clean fourth-generation nuclear.

Way back in 2014, all the learned heads in foreign policy were nodding learnedly that fracking had made the US into an energy superpower. That was when fracking made economic sense. Fracking for oil no longer does. (Go to North Dakota. Count the foreclosures.)

 Yet what are we talking about in 2016? The Republicans speak of developing domestic oil capacity as if the oil companies don’t know that US production costs are twice the market price of a barrel of oil. Meanwhile, Sanders and Clinton debate fracking as if it’s still 2014.

This is how fast things have changed.

Sanders sounds like a crunchy liberal. Sanders says no to fracking, not just for oil but also for natural gas. He errs in speaking as if the federal government could unilaterally dictate that all gas-powered electricity plants would immediately be able to do without fracked natural gas, which is still marginally profitable notwithstanding the massive oversupply on hand. The federal government couldn’t legally ban it and wouldn’t anyway.

It’s true that just 10 years ago, before fracking brought gas out of “tight” formations, the US faced massive electric-power shutdowns and a supply crisis. Now the US is in a position to export gas. Sanders is absolutely correct that fracking where there’s water, like in New York and Pennsylvania and Ohio, or the entire country of France, is destructive and crazy and should be banned. But in the Texas desert, in places where there are no aquifers to poison? Until the conversion to renewables, which is coming quickly, gas is where the juice comes from—the juice to run our 2017 $30,000 Tesla will come from fracking, which does indeed cause earthquakes and poison cattle and emit methane. It’s the worst possible choice, unless you want coal.

The disruptive news today is this: The wait for clean, low- or no-carbon electricity won’t be very long. The capital markets are going to get us there.

But you wouldn’t know that from listening to the campaign.

Geology, geography and politics I: global
Were we to have a Democratic president of the United States with a Congress that could digest the new data, rather than a Congress that is beholden to the petroleum industry, there would probably be the start of a reorientation of that portion of the annual $4 trillion budget that is related to securing energy supplies for the US and for our allies—in other words, the $600 billion defense budget. (As President Obama pointed out in his last State of the Union address, we spend more on defense than Russia, China, Israel, Saudi Arabia, Iran, and the EU countries, combined.) If, within 10 years, 40 percent of our electricity will be coming from thousands or tens of thousands or millions of local generation points—rooftops, wind farms, some utility-scale solar-array fields—then the centralized power, and the relevance, of oil producers will be radically diminished.

Not so fast, one says. Okay, correct. But the only oil we will want to use is the old-style liquid oil that still exists in huge supply in the Persian Gulf region, and in lesser supply in the North Sea. Low-sulphur, easy-to-extract oil sells now for under $40 a barrel, down from $100 a barrel a year ago, and will remain at or below $40 a barrel for the next couple of years, according to the US Energy Information Administration. The ratio of energy returned on energy invested in Saudi Arabia is about 100-to-one, which is why their cost of production is about $10 a barrel. In North America? Forget about it.

Getting oil in Canada means getting only a six-to-one ratio from oil that can’t be produced for less than about $60 US per barrel. Getting oil out of the “tight” formations in North Dakota means 10-to-one, and ditto the extraction price. In Texas it’s better, about 20-to-one out of Eagle Ford and the Permian Basin.

But check this out: Solar power and wind power yields are now competitive—reaching 20-to-one energy returned on energy invested. And with advances in engineering, the ratio has been and will continue to be getting better—which means that it’s not really in our national self-interest to pollute ourselves further by fracking oil in North Dakota or buying tar sands oil from Alberta. The market has already spoken, anyway: There are hundreds of North Dakota oil wells lying idle since the price of a barrel of oil on the world market fell, as it did in January, to half what it costs to extract a barrel of oil from the Bakken Shale. If you want to know why the loonie is only 76 cents US, look at the gas pump: Justin Trudeau is prime minister now because former Prime Minister Stephen Harper bet all Canada’s future on the tar sands when it made economic sense to produce it. No longer.

The conversion is underway despite these cheap energy-commodity prices. And the conversion is already changing geopolitics. Energy self-sufficiency became a consensus plan in Germany 10 years ago because everybody figured out that Hermann Scheer was correct—not only that it could be engineered without disrupting the German economy, but that getting Vladimir Putin’s hands off Germany’s throat was a really good plan.

The German phenomenon is occurring fast, and the focus is no longer on fracking but on renewables simply because market forces make fracking untenable. The foreign policy journals still sound like they’re being written by the oil companies because of the ongoing emphasis on fracking and Middle East and North Sea oil as the energies of industry, but look at it this way: The expansion of solar, wind, and other localized energy-generation sources is happening so quickly that the replacement of oil is being digested by the equities markets and reported daily by the business press. Just as there is a shift underway in markets, there will soon enough be a shift in what the learned heads will tell our politicians—notwithstanding the wishes of the people who write the checks to the think tanks.

One warning. The University of San Diego physicist Tom Murphy wonders if converting to alternatives will still leave the world in an energy deficit.

Geology, geography, and politics II: local
Back at home, in our sprawled-out metros, we have the usual memes: Sanders and Clinton speak about cities as if they are detached from their metros, and the Republicans, including Trump, do their Republican shtick, i.e., silence. Meanwhile, we are treated to the curious scene of intellectuals who write lots of articles about America’s massive infrastructure deficit rushing to the defense of incrementalist mainstream candidates rather than to Sanders, who promises $1 trillion for bullet trains, safe bridges, modern airports, and lead-free drinking water. Trump decries bad airports while also promising to spend zillions and simultaneously cutting corporate and income taxes—Shazaam! Supply-side magic reborn!—while Sanders leaves unaddressed the notion that the 20th-century infrastructure we have is the wrong infrastructure for tomorrow.

The fact is, oil and the internal combustion engine in personal vehicles remade American metros into energy-wasting behemoths that have spread low-density housing over vast swaths of former farmland—and the federal government, so very long a thralldom of Emperor Petroleum, has made itself irrelevant.

We have no public transportation policy. We have no metropolitan energy policy. We have nothing but economists who still think that the Kuznets curve, which promises environmental improvement as economies move away from manufacturing, is a reflection of reality—when the reality is that accumulations of contaminants in waterways and landscapes reshaped for automobiles do not stop polluting, but rather continue to pile up hugely costly human health hazards that only government could ever be rich enough to remediate.

But there’s a happy paradox: So long as capital needs to flow into new ventures in order to create income streams to replace the income lost on crashed fracking deals, the pace of alternative-energy plays is expected to increase. That 10 percent jump projected for 2016 is looking like an underestimate. Michael Lewis, now pitching deals for Deutschebank, is on the profit-making side of the conversation that is being driven by intellectuals, like the ones at Irena, the International Renewable Energy Association. They’ve done the numbers: Transition to renewables for 36 percent of global energy use by 2030 will save $4 trillion. The numbers work, Irena says, because renewables are profitable.

The point is simply this: There’s money to be made, there is smart money getting invested in renewable energy because bad bets in fracking have to be covered, and the money is way ahead of the politicians.

John Maynard Keynes got a lot correct when he wrote about the potential need for government to be in frequent if not permanent deficit-spending mode just to keep up with technology and population growth. To the extent that we have to coordinate policy with what markets are doing so that we can achieve public goals—like preserving arable land, preserving and remediating water resources, mitigating coastal flooding—there’s going to have to be a smart, as well as a brave, shift in priorities.

That will take a president. And a Congress. And long term buy-in from an electoral base.

The other disruption: automation
And the reason we need to have a serious national commitment to a much more robust social safety net—with French-style short work weeks, Canadian-style universal healthcare, Swiss-style basic incomes, German-style high-wage workers—is because automation in manufacturing is striding ahead with seven-league boots.

University of Arizona political scientist Lane Kenworthy argues, like Sanders, for a greatly broadened social safety net, including a comprehensive healthcare system. But Kenworthy’s argument isn’t quite the 20th-century rationale Sanders uses—essentially a Keynesian argument that redistribution will be required in order to sustain aggregate demand that’s been undermined by income polarization.

It’s because of the more fundamental economic changes underway.

There’s a robust debate about whether the “jobless future” will be upon us within five years or within 20 years. Vivek Wadhwa, another Stanford don, thinks like an aristocrat—that a well-organized public policy can help guide society to make sensible adjustments.

Public-policy pessimists think that Robert Burns was right—that the best laid plans o’ mice an’ men gang aft allay. Somebody even smarter, namely the revered physicist Stephen Hawking, thinks we should fear and loathe artificial intelligence.

The fact is, the manufacturing of everything is already being revolutionized by robotics and by the curious innovation called 3-D printing.

The dream is that individuals can control the technology to protect, nourish, transport, and empower themselves, as if society doesn’t need to exist. This is a fantasy peddled by survivalist websites. But the politics of this techno-anarchism is all tied up with the macho movieland stuff on display in the tattoos of folks attending Trump rallies—the very people most likely never to be able to own all the stuff that huge multinational corporations will sell them to set them “free.”

Taking the dim view, we are headed for a civil war between the haves and the have-nots and a turn to self-absorption, isolationism, and snake-eating-the-tail oligarchy that will either feature well-fed, overweight, undereducated masses, or starving, cowering Hunger Games crowds.

Maybe the Sanders or Kenworthy program of a heavily socialized society purchases social peace long enough for the society to transition to a no-growth island nation, like Western Europe was before it was overwhelmed by people whose children want to blow it up. But without that future structure, expect something less than social peace—at least in the USA.

But elsewhere?

One is willing to let Toronto be our test of a desirable future.

We recently took an evening walk down Bloor West to see singer and harpist Benjamin Bagby do Beowulf. The shops, all independently owned, are the texture of a great city. Bloor East looks the same way. Chinatown, Portugal Village, Little Korea, Kensington Market. It’s like Ottawa’s ByWard Market, Montreal’s Saint Laurent Boulevard, even Etobicoke’s Lakeshore Road. There are shops forever, all local, many owned by immigrant entrepreneurs. The only parts of Ontario that look like Transit Road in Depew or Niagara Falls Boulevard over its entire run are in the Niagara region, where the car is everything, where there are no ancient city structures, where thralldom to Emperor Petroleum is in full force. It’s where a new report by StrategyCorp says there is a dependent, unsustainable economy.

Jane Jacobs moved to Toronto and dreamed, in her very dour book Dark Time Ahead, her last, of import substitution. She celebrated urban density, argued for banishing the automobile, for living with shared transport in close proximity. It means achieving the “agglomeration effect,” the economists’ inductive logic that says you’re richer when there are more people around, and they’re richer too. Import substitution actually happens in places that are big enough that one doesn’t need to send out for everything.

Toronto. There’s a hat-maker on Queen West, right near a saloon called Bar Chef, where they make their own herb-infused liqueurs and charge $20 Canadian for a cocktail, which even millennials can afford of a Friday night because they don’t spend anything at all on cars, gas, insurance, repairs. No need. The best one can do on Transit Road is to drink tequila trucked in from Mexico and mixed with mixer mixed in Florida in the bar of a chain hotel.

Import substitution in large urban agglomerations happens when entrepreneurs set up shop knowing there’s a safety net. Such places are better positioned to adapt to the next disruption that is soon to knock us upside the head: automation.

That’s a bloodless way to say it. Here’s the real word: joblessness. Or, our jobless future. A future of manufacturing needing very few people—not union locomotive assemblers in Erie, not locomotive designers in Erie, not many skilled or semi-skilled or non-skilled workers at all. Just machines.

Transit Road won’t do well in that future. Bloor Street will.

So try the following exercise. As you brush your teeth this evening, read those numbers, and the numbers about the rate of production of clean electricity, and the numbers about uneconomic oil rigs financed by banks with huge and growing portfolios of non-performing loans, and look in the mirror, and recite the names of the leading candidates for president. Without projecting your fondest wishes into that faceful of froth, choose the name of the one who will guide the United States to adjust to those changes that technology and markets will be creating.

The correct answer is? Trudeau, Hollande, Merkel, even Cameron would do. But they’re not here.

Bruce Fisher is visiting professor at SUNY Buffalo State and director of the Center for Economic and Policy Studies.