Last week, the Financial Mail led with a lengthy cover story on the oil price and its implications for the South African economy. It contains some very enlightening facts, such as a chart which shows that for every ten units of fuel South Africa uses for a unit of production, the United Stateas uses only nine, and both China and the world average operate more efficiently, at eight units. Ours is a much more energy-intensive economy than even the United States. (So why exactly there’s a windmill on the graphic is beyond me.)
Our consumption of oil since 1980 is up by 60%, compared to 20% in the US, and minus 20% in many European countries. In an energy intensive economy that actually grows (unlike, say, Europe), this is to be expected, and in itself is a positive sign. But the article is right to point out that both of these facts put us at a comparative disadvantage when global oil prices rise.
What the article neglects, however, it to consider consumption as a function of price, which in South Africa is controlled by the state. Our fuel, like our electricity, has been kept cheap compared to competing economies, which means that we can — or could, until recently — afford to favour energy over other resources such as time, labour, or high-technology, to drive production. (Much of this is because our fuel tax is comparatively low. Still 27% too high, of course, as pointed out in a previous post, but much less than in many other economies.)
What is disappointing is that instead of a focus on how businesses can reduce fuel as a component in production, or a discussion of price, price controls and how they might affect both suppliers and consumers, the article spends much of its time talking up the alarmist scenarios of the Association for the Study of Peak Oil and Gas, known as ASPO. Price deregulation is relegated to a short sidebar by a different writer, which predictably notes that lifting price controls in a steeply rising market is likely to be a political non-starter.
ASPO is an outfit born out of “Peak Oil” alarmism, a group of assorted environmentalists, socialists, economic illiterates and special-interest lobbyists, who have been whingeing for decades about a looming peak in oil production. I’m pleased to see at least one oil company CEO, Tony Hayward of BP, has taken on ASPO president Kjell Aleklett, in a wager reminiscent of the famous bet between Paul Ehrlich and Julian Simon, on a similar subject: the scarcity of natural resources. Simon won that bet handily, and I’d urge Hayward to take Aleklett’s complaint about the low prize pot (or rather, barrel) at face value. Double up. Go all in. Maybe set something up so others can buy shares in the bet too.
Fair enough, the ASPO alarmists, headed in South Africa by one Simon Ratcliffe, have been asked to inform the Thabo Mbeki presidency’s scenario planning exercise about their whacky, apocalyptic prophesies, so perhaps their arguments deserve to be better known, lest they become deluded government policy. But one would expect a finance publication to be a little more critical in its assessment of ASPO’s claims.
The Peak Oil paranoiacs say that much of what they predicted appears to be coming to pass. Well, that’s not quite true. They predicted that we’d run out of oil and have a crisis. Or more accurately, that we’d reach a production peak and then have a crisis. Price never really featured in Peak Oil alarmism until the oil price began its most recent run-up, when it became a convenient “told you so” data point.
The obvious response to their argument has always been: it doesn’t really matter if we’re running out of underground oil, if it becomes more costly to exploit, or if Americans are too stupid to use their own underground oil resources.
If scarcity does not increase, the case is trivial. There’s no problem. If it does increase, however, prices will simply rise. If prices rise, consumers will be forced to become more efficient, and more uneconomical resources such as tar sands and alternative forms of energy will become more profitable. Canada’s vast shale oil deposits, previously hard or impossible to mine, are being exploited at full steam (if you’ll excuse the pun). Even at the current meagre recovery rate of about 10%, they are second only to Saudi Arabia in their bounty. If the extraction technology improves, they could double proven global oil reserves. Their exploitation became economical only recently, so this kind of expensive production wasn’t even considered by the Peak Oil doomsayers at the time. Their simplistic argument, if I recall correctly, went something along the lines of “if it takes more than the equivalent of a barrel of oil to extract a barrel, it cannot be economically extracted”. Better technology, higher prices, economies of scale, or other forms of energy, never entered the static, linear systems in their muddled little heads. But then, perhaps that’s because they won’t profit from finding and producing energy. I sure hope they’ve sold their shares in the stupid companies that are flocking to Canada for a piece of the action.
So, the price mechanism works its magic once again, and the “crisis” is a non-event. Scarcity is the very reason the price mechanism exists; without scarcity, it couldn’t exist. Price has always managed to distribute scarce resources to where they are most productive. It has always motivated people to find alternatives, or find better, more efficient ways of doing things.
But that’s not what the ASPO people say. They posit two “scenarios”. The first is “business as usual”, in which all of us are complete idiots and sit around ignoring scarcity and rising prices until we starve or kill each other (or both). As if we aren’t smart enough to economise or seek alternatives. Every day, you can hear people talking of ways to save fuel, including fairly extreme measures like moving closer to work, or working from home. Why would fuel be something unique? Why would consumers be insensitive to price rises until there is “a big oil shock”?
Shocks are only likely to occur in regulated markets, where producers and consumers are not able to adjust to surpluses or shortages, because of artificial restrictions, prices, taxes or other market distortions imposed by the state. Last year, the oil price took a breather, to the consternation of market watchers, who found it hard to comprehend a market so badly distorted by regulation, subsidies and outright extortion by governments.
The other ASPO scenario is wholesale restructuring of the economy, central-planning style. A vast web of quotas, rations, subsidies and taxes should be created, all with draconian legislative force. Combined with “a huge investment” in energy austerity and alternative energy sources, this, ASPO says, will solve all our problems and make us live happily ever after. Why it considers expensive fuel a “crisis”, but shrugs off a “huge investment” as just some bitter medicine we’ll have to swallow, is never quite explained. And what happens if our “huge investment” turns out to be misdirected, is never considered. No, the socialist panacea prescribed by Dr ASPO will cure all our ills. After all, the government knows what is best, and can make our commercial choices for us, since we’re too stupid to look after ourselves.
Let’s assume the underlying assertion that supplies are on an irreversible, long-term, downward trend are true. They may well be (beyond the trivial fact that no resource is infinite), though that is far from the only reason prices are rising, and anyone who makes firm predictions on when critical depletion would make oil unviable as a source of energy is either brave or stupid or both. But that oil will one day be too expensive to profitably extract is not an unreasonable expectation. That this will inevitably be followed by “societal and economic disintegration”, however, as Ratcliffe once told MiningMX.com, does not follow.
The fact that ASPO’s preachers make only two prophesies is very revealing. Both are extreme. One is designed to put the fear of God into policy makers and the voting public, so they’ll buy the other as their only salvation. ASPO looks suspiciously like a lobby for all those companies that today can’t make an honest buck selling alternative energy solutions or more economical equipment. I hope the government treats them with as much skepticism as it would treat the oil industry: as just another pressure group, lobbying for preferential treatment for their vested interests.
If the presidency accepts ASPO’s doomsday scenarios as likely, and formulates policy accordingly, I sure hope you’re in on Tony Hayward’s bet. Spare cash will come in handy in a socialist Utopia.
The fairest and surest way to resolve this “crisis” is simply to set the market free. Deregulate prices, even if they rise as a result, and even if they put inefficient companies out of business. People will make a plan. They always have. The world didn’t end when the horse became obsolete, or electricity replaced gas. It became better, healthier, more productive. Let alternative solutions to high-priced fuel fight it out on a level playing field, where nobody is forced to use anyone’s solution, no solution is unfairly advantaged or held back by subsidies or taxes, and no nanny-state restrictions are in play. May the best solution win.
(First published on my own blog.)
@Reelience
Israel is not a racial state?
How do you explain a law banning mariage between Jews and palestinians?
http://card.wordpress.com/2006/08/06/israel-passes-nazisque-racial-marriage-law/
http://www.zmag.org/znet/viewArticle/10063
and what about these laws:
In a single day, 27 July 2005, the Israeli parliament (Knesset) passed two new laws, the Civil Wrongs/Civil Torts (Liability of the State) Law and the Citizenship and Entry into Israel Law, whose effect is to take discrimination against Palestinians to a new level.
In their current form both laws violate Israel’s obligations under international law, including human rights treaties to which Israel is a state party and which it is bound to uphold.
According to the new Civil Torts (Liability of the State) Law, some three and a half million Palestinians who live under Israeli military occupation in the West Bank and Gaza Strip are considered “residents of a conflict zone”. As such, they are denied the right to claim compensation for death, injury, or damage to property inflicted on them by Israeli forces.
The law, which applies retroactively to incidents going back to September 2000, applies only to Palestinians – not to Israelis who reside in the Occupied Territories in violation of international law.
Previous amendments to the original Civil Torts law had already significantly restricted the ability of Palestinian victims to claim compensation. To date, the overwhelming majority of the tens of thousands of Palestinians who – through no fault of their own – have been injured, or whose property was destroyed or damaged, or whose relatives were killed as a result of unlawful actions by Israeli forces in the Occupied Territories, have received no reparation. In fact, most cases are not even investigated by the Israeli authorities and Israeli soldiers responsible for killings and other abuses of Palestinians’ rights have not been brought to justice.
An amendment to the Citizenship and Entry into Israel Law (Family Reunification Law) was also approved by 59 Israeli lawmakers on 27 July. It bars family unification for Israelis who are married to Palestinian women aged under 25 and to Palestinian men aged under 35.
This law discriminates explicitly against Palestinians and also implicitly against Palestinian citizens of Israel, who constitute some 20 percent of the Israel’s population, and against Palestinian Jerusalemites,1 as it is they almost exclusively who marry Palestinians from the Occupied Territories. This law formally institutionalizes a form of racial discrimination based on ethnicity or nationality. As such, it violates the absolute prohibition on discrimination set out in international human rights law, including the International Covenant on Civil and Political Rights (ICCPR), the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD), the Convention on the Rights of the Child (CRC), and the International Covenant on Economic, Social and Cultural Rights (ICESCR). Israel has ratified all of these treaties and is obliged to implement them.
The UN Committee on the Elimination of Racial Discrimination and the UN Human Rights Committee have previously called on Israel to revoke such legislation.
Israeli officials have sought to justify the discriminatory provisions of the new law by reference to security considerations, notably the need to prevent Palestinians considered to pose a security threat from settling in Israel. In practice, however, they were able to deny admission to Israel to such Palestinians under existing legislation. Recent statements by Prime Minister Ariel Sharon and other government ministers and officials suggest that the new law may in fact to be motivated primarily by demographic considerations.
http://archive.amnesty.org/library/Index/ENGMDE150422005?open&of=ENG-ISR
Need more evidence of a race based state?
Can you spell A-P-A-R-T-H-E-I-D?
@Resilience
Apartheid in Israel is a legal reality, with a key legal distinction between “Jew” and “non-Jew”.
Although non-jews have the same rights as all other Israeli citizens, the Nationality and Entry into Israel Law forbids a Palestinian from the West Bank or Gaza Strip from becoming an Israeli resident via marriage, and does and children born in Israel from such a relation can only reside in Israel until age 12.
There is a ban on Arab citizens buying and leasing land owned by the Jewish National Fund.
Political rights, speech, voting and representation
Palestinians living in the non-annexed portions of the West Bank do not have Israeli citizenship or voting rights in Israel, but are subject to the policies of the Israeli government.
The restrictions on the movement of goods between Israel and the West Bank is “a defacto apartheid system”.
The Israeli identity card determines where [Arabs and Jews] are permitted to live, access to some government welfare programmes, and how they are likely to be treated by civil servants and policemen.
In 2000, Israeli police enforced a policy of “beach apartheid” in Tel Aviv, preventing Palestinians from using beaches and sometimes fining, arresting them, confiscating their property or requiring them to go and swim in the beach of Jaffa, Tel Aviv’s twin and neighboring city.
93% of the land inside the Green Line is not held by private owners and is managed as public property. 79.5% of the land is owned by the Israeli Government through the Israel Land Administration, and between 11-14% is privately owned by the Jewish National Fund. As a result of the government’s control over most of the land in Israel, the vast majority of land is not available to non-Jews.In March 2000, Israel’s High Court ruled in Qaadan v. Katzir that the government’s use of the JNF to develop public land was discriminatory due to the agency’s prohibition against leasing to non-Jews.
Palestinians are barred from or have restricted access to 450 miles of West Bank roads.
The permit and closure system (Israeli dompas) introduced in 1990 imposes on Palestinians similar conditions to those faced by blacks under the pass laws. In April 2002 Israel declared that the WBGS would be cut into eight main areas, outside which Palestinians could not live without a permit.
Israel is moving towards the model of apartheid through the creation of “Bantustan” like conditions in the West Bank and Gaza Strip.
Funny that the anti-Apartheid resistance in SA was disproportionately Jewish. Yet they claim that the Afrikaner versoion was racism focussed on the exclusion and domination of blacks. In contrast, the similar Israeli dispossession of Palestinians is perceived as self-defense and therefore not immoral. Chutzpah!
On 15 May 2008, 34 leading South African activists published an open letter in The Citizen, under the heading “We fought apartheid; we see no reason to celebrate it in Israel now!”. The signatories, who included Kasrils and several other government ministers, COSATU General Secretary Zwelinzima Vavi, Ahmed Kathrada, Sam Ramsamy and Blade Nzimande, wrote
We, South Africans who faced the might of unjust and brutal apartheid machinery in South Africa and fought against it with all our strength, with the objective to live in a just, democratic society, refuse today to celebrate the existence of an Apartheid state in the Middle East… Apartheid is a crime against humanity. It was when it was done against South Africans; it is so when it is done against Palestinians!
On 6 June 2008, Mr. Kgalema Motlanthe, said that conditions for Palestinians under occupation were “worse than conditions were for Blacks under the Apartheid regime.”
Willie Madisha, the President of COSATU wrote, “As someone who lived in apartheid South Africa and who has visited Palestine I say with confidence that Israel is an apartheid state. In fact, I believe that some of the atrocities committed against the South Africans by the erstwhile apartheid regime in South Africa pale in comparison to those committed against the Palestinians.
Political usage among Israelis
Jamal Zahalka, an Israeli-Arab member of the Knesset argued that an apartheid system has already taken shape in that the West Bank and Gaza Strip are separated into “cantons” and Palestinians are required to carry permits to travel between them.[151] Azmi Bishara, another Arab member of the Knesset, argued that the Palestinian situation had been caused by “colonialist apartheid.”[152]
Michael Ben-Yair, attorney-general of Israel from 1993 to 1996 referred to Israel establishing, “an apartheid regime in the occupied territories”, in an essay published in Haaretz.[153]
Some Israelis have compared the separation plan to apartheid, such as political scientist Meron Benvenisti,[74] and journalist Amira Hass.[154] Ami Ayalon, Israeli admiral and former leader of the Israel Security Agency criticized the model, claiming it “ha[d] some apartheid characteristics.”[155] Shulamit Aloni, former education minister, Israel Prize winner, and a former leader of Meretz, said that the state of Israel is “practicing its own, quite violent, form of Apartheid with the native Palestinian population.”[156]
Academic and political activist Uri Davis, an Israeli citizen who describes himself as an “anti-Zionist Palestinian Jew”,[157] has written several books on the subject, including Israel: An Apartheid State in 1987.[158]
The Movement Against Israeli Apartheid in Palestine, a campaigning group based in Israel, has established a web-based petition in which Palestinians & Israeli Jews Call for Boycotting of Apartheid Israel.
Israeli politician Yossi Sarid ‘what acts like apartheid, is run like apartheid and harasses like apartheid, is not a duck – it is apartheid’.
Consulting Engineer
You really can’t have your cake and eat it. Either you approve of what you call “apartheid” for both the Afrikaner AND the Jew; or you dissaprove of it for either.
If the Afrikaner should be allowed to retain his cultural and racial “purity”; then the the Jew must be allowed his cultural and religious “purity”.
So which is it – approve or dissaprove?
@anton kleinschmidt: To some extent, I suppose this is true. When a particular market suffers as a result of overinvestment or malinvestment — which was the case in the credit market, thanks to the artificially low price of credit (the central bank interest rate) — then investors tend to cash out and seek more profitable investment opportunities. That they invest in oil makes a lot of sense: there is high demand, there is uncertainty in some supplies (Middle East) and severe restrictions on others (US), and it costs more to seek out and exploit new resources. So investment should flow to this sector. The high prices are attracting investors, which in turn will put downward pressure on prices in the long run.
As for speculators, this is a red herring. All speculators do is smooth price curves. True, they’ll try to ride a one-way bet as long as possible, but in the end they’re buying risk off more conservative investors and make markets more efficient and more liquid. The only reason they’re turned into bogeymen is because they appear to be wealthy, they are hard to identify, and they deal in financial instruments and complex transaction structures that most people don’t understand. But this morning, when I bought a bottle of milk, I was a speculator. I bet that the price of milk would either rise, or wouldn’t suddenly go down. I bet that the value of my money wouldn’t rise, or would go down. I bet that my consumption of milk would benefit me more than some other purchase.
It was a purely speculative buy. It seems fairly safe, but it may prove to be as ill-advised as the first cellphone I bought. I watched the offered price drop from R3 000 to R599, and bought one, hoping I was buying at the bottom. (At the time, the subsidised cellphones market did not have much of a history, and was not that well-understood.) To this day, a bad cellphone buy or ripoff is known among my friends as the Ivo Deal: a week later, the same phone was advertised for 99c. I speculated. I lost. And someone else gained from the risk I took. Speculators aren’t evil. They win, they lose. They play a positive role in a market, not a negative one.
Ivo
Your cellphone story reminds me of our first home computer bought in the mid 1980′s – an Apple Mac. I begged my husband to wait – the price would come down, just like had happened with all new technology when competition kicked in. My husband persuaded me that it was an imperative to buy at the beginning as home computers were the future, and any children would be disadvantaged who did not have a home computer. Ours were toddlers then! We bought that computer for R10,000 (a fortune in those days), the price had dropped to about a third in about 18 months – and the children were not allowed to touch Dad’s new toy!
The difference between the men and the boys is the price of their toys!
@Lyndall
Its obvious. I approve of racial and cultural purity for all people. But the anti-apartheid movement was filled with jews. They can have it, but lead world wide condemnation against the Afrikaner. So who has the double standard?
I respect Jews for having excellent marketting. They managaed to sell their version. The Nats had terrible marketting.
Whites should learn from jews and start the same manipulative tactics to survive as a minority. That is why I am interested in examining how they operate.
Consulting Engineer
I believe that people have the right to choose whom they want to mix with and what heritage they want to retain. What we do not need is the enforced racism of either the Nats or the ANC.
I am a mongrel myself and proud of all my heritages: Afrikans, Scottish, American, Jewish.
My husband, who is tracing a family tree – back to Adam at this rate, is thrilled to have found his first black Beddy. One of the family married a Griqua princess. The old man was polite to my husband on the phone, but much prouder of his Griqua heritage than his white heritage.
The shining star of democracy in Southern Africa is Botswana – led through the worst times by the Khamas. The present president, Ian Khama, is the son of the paramount chief Seretse Khama and his British wife, and of mixed race. A mongrel, like me, and one of the best leaders of Africa.
Consulting Engineer
Jock of the Bushveld was also a mongrel!
Thanks Ivo.
Consulting Engineer
Come to think of it – what is so pure breed about the Afrikaner? A mixture of German immigrants, Dutch, French Hugenots, Khoi, Hottentots, Indonesian slaves and even Griqua – and 1820 settlers!
When I took my husband, then my boyfriend, to meet my Afrikaans grandparents on the family farm in Wellington for the first time, my grandfather quizzed him about his antecedents.Then he excused himself from the meal, something he had NEVER done before, and came back after a few minutes satisfied, and informed us that he had checked in “Die Stam Register” and my husband’s family was there – descended from 1820 settler stock.
The 1820 Settlers were BRITISH!