As we watch and wait for the shipping lanes in the Strait of Hormuz to open, the economic impact on the world because of the choking off of a significant chunk of world oil supply is being debated. Economist Paul Krugman has argued in a recent Substack that the disruption and uncertainties created by the current on again, off again blockades of that narrow waterway will almost certainly cause a global recession. [His title from that specific Substack is called “Harm from Hormuz”]
He notes that though the first impact of the interdiction of sea travel through the Strait is in price rises, the really serious problem which is liable to last for months is the absolute shortage, not just of crude oil but other important products like fertilizer. He goes on to make the point that when confronted with shortages people attempt to change their behavior. The problem for drivers of traditional gasoline-powered cars, as well as trucking firms reliant on diesel and airlines reliant on jet fuel, is that there are no easy short-term changes that can be made. The only short term remedy, Krugman asserts, is a reduction in consumption which is usually caused by a recession. [If a recession has already started, it will deepen and extend that recession.]
As of now, the United States is not experiencing a recession though a number of countries in Asia, who are feeling the absence of Middle-East oil very acutely, are already seeing cutbacks in production. Meanwhile, prices have risen enough to make Americans very angry at the Trump administration which they blame for the increases in the price of gasoline at the pump. If the economy slows even further a looming recession will only increase that anger.
Far from moaning and groaning about the rising prices for oil-based products and the looming shortages, I celebrate anything that will cut into our consumption of fossil fuel based products. To explain myself, I need a slight digression.
It just so happens that on Earth Day (Wednesday, April 22) I attended a musical presentation of “Dear Everything” at the Brooklyn Academy of music. Created by “V” (formerly Eve Ensler, the creator of the Vagina Monologues) it is identified as a “Musical Uprising for the Earth.” It has already toured a number of American cities where in addition to the professional touring actors and singers, it features a local youth music and dance group. Activists such as Jane Fonda usually play the role of a narrator.
“Dear Everything” tells the story of a teenager who organizes the youth of a local community to save a forest from being cut down. The energy and music are fabulous --- the message is absolutely perfect --- “You stole our future and we want it back!” a rousing song that appears twice in the show is addressed directly to the adults in the audience.
And thinking about that production and its message is my introduction to playing “skunk at the picnic” for all readers who are focused on the difficulties created by rising gasoline prices. To respond positively to the message of the musical “Dear Everything,” prices have to rise even more ---- shortages have to force changes in behavior. Even with prices rising, the money that we consumers and businesses pay for oil-based products still does not cover the real cost to the economy.
When a plane flies, a truck rolls down the interstate, or commuters drive to work, they are all increasing global warming. The carbon my and past generations have thrown into the atmosphere has already promised to pass the danger zone of a one and a half degree Celsius increase. As the world’s temperature warms beyond that, wholesale disasters will occur.
[For details see “NASA Study Reveals Compounding Climate Risks at Two Degrees of Warming”]
“The NASA researchers paid special attention to two climate indicators: heat stress – or combined effects of temperature and humidity on the human body – and fire weather – which considers temperature, rainfall, humidity, and wind. Most regions of the world will experience higher heat stress, they found, while countries closer to the equator will suffer from a greater number of days considered extreme.
“The escalating impacts of all the climate extremes studied could cause significant damage to communities and economies, from fires, floods, landslides, and crop failures that may result,” said Ramakrishna Nemani, senior scientist at BAERI and co-author of the study.”]
In addition, there will be significant sea level rise and will leave many major cities regularly inundated.
To slow down and ultimately reverse such catastrophic changes, we should be taking every step possible to leave fossil fuels in the ground and switch to sustainable generation of energy. One major example is that cars that use electricity for driving need to replace gasoline powered cars.
None of this is new and the young people participating in “Dear Everything” as well participants in the Sunrise Movement have made the adult population acutely aware of the need to change the way we generate power. Unfortunately, to induce that change in behavior, the price of driving gasoline powered cars, diesel powered trucks and flying in planes using jet fuel will have to go up – will have to go up sufficiently to get people to change their behavior.
Given the efforts of the Trump Administration to make it more difficult to generate power with wind and solar and their efforts to subsidize continuous burning of fossil fuels, Americans may be the slowest on earth to make the changes to electrically driven cars --- even though they are already more than competitive with the traditional vehicles.
[More details on the economics of electric cars are here]
In addition to the problem of global warming, there are also immediate costs to driving gasoline powered vehicles in terms of air pollution. According to some estimates, for the price of gasoline to accurately reflect the total cost imposed on society in terms of pollution and global warming, it would have to be at least $3.80 higher than it is now.
[It turns out that this number that I used in the oral presentation is based on a study by Dr. Drew Shindell of Duke University which was published in 2015. In addition, there are estimates that suggest that the appropriate price for a gallon of gasoline to cover all social costs (global warming, pollution, congestion, etc.) is closer to $15 a gallon. ]
The point about bringing in these two estimates is to make the very important case that though it may hurt consumers to pay the true cost they are imposing on society when they fill up their tanks, the continued use of fossil fuels is in effect guaranteeing to our children and grandchildren a dangerous dystopian future.
Now I can imagine many of my listeners yelling that I, a comfortable 83-year-old
who is retired and does not have to drive to work, should not be telling hard-working Americans living paycheck to paycheck that it is their duty to pay higher gas prices until they make the shift to an electric vehicle.
Unfortunately, the cost of maintaining our current love affair with fossil fuels will be felt in no uncertain terms by our children and grandchildren over the next 70 years.
If we do not take steps now to reduce our utilization of fossil fuels, many of them will not survive the disasters we are bequeathing to the world.
And if there is a heaven and hell, we who have not done enough to protect the health of the planet’s citizens will certainly burn in hell for eternity.
Michael Meeropol is professor emeritus of economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies.
The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.
