Response to Dean Baker's "The Deficit and Our Children"

Long-term oil prices (yellow line is inflation-adjusted) 1861-2007. The recent price spikes will soon be recalled as "the good old days." Image via Wikipedia

I really like and admire Dean Baker and have greatly valued his sharp insights over the years. I put no stock in anything the shysters in the Concord Coalition are selling, and despise the transparent efforts by them and others to repeal the New Deal in the name of deficit reduction (while leaving the military and Wall St. riding high on the hog, naturally). His article (linked below), "The Deficit and Our Children" is a fair attempt to counter the faux hysteria of the right over deficits (now that a Democrat is in the White House).

However, I fear that, like most economists, Baker has entirely missed something that will have a profound effect on his rosy projections of great future wealth thanks to the magic of growth: the end of cheap energy, often referred to in shorthand as "peak oil."

I like to summarize it for people this way:

(1) essentially all our great wealth in the US reflects not our industry or ingenuity or Providential favor but rather our dumb luck at conquering a land richly endowed with abundant and essentially free energy. Our economic growth parallels exactly our increased consumption of these fossil fuels.

(2) Coal is a health disaster, not only in miners killed directly but in catastrophic direct and indirect environmental consequences of coal use, particularly in climate change. We must stop using coal, leaving nearly all of what remains in the ground or else be doomed by our own poisons.

(3) Oil has reached or is just past its point of maximum abundance now -- meaning that, from here on out, it will inexorably decrease in availability, forcing prices up to bring supply and demand into equilibrium.

(4) The relentless increase in oil prices -- even aside from the great price volatility we can expect, which is very destructive to our complex economic systems -- make Baker's growth projections absurd. We are going to learn that ultimately economic wealth depends on natural resources, and that tying everything in our economy to an assumption of endlessly available cheap energy was a disastrous (albeit easily explained) blunder.

(5) Because our entire economic system is based on continual growth and because our economy is very unlikely to grow and is instead highly likely to shrink relentlessly to reflect the steady decrease in the availability of energy and the total absence of the kind of cheap energy we've come to expect (and upon which we've set up everything in America, from suburbia to health care), we can expect a wrenching change in the next decade. When we're facing persistent and ineradicable unemployment at 40-50%, we're going to find out that arguments about the health of the social security trust fund in 2043 are about as relevant as the price of tea in Lilliput.

(6) To bring this back to health, the point is this: Just as our public health demands are going to be climbing --- thanks to climate disruption, the huge "baked in" amount of obesity-related diseases, and collapsing civil infrastructure (clean water) and peoples' inability to afford the medicines we've taught them to expect --- our resources are going to be shrinking steadily.

For a good menu of stories exploring the connection between health and the end of cheap energy, you can go here

http://energybulletin.net/taxonomy/term/67

For a concise explanation of the mechanics of peak oil and a good introduction to other resources, try here: http://energybulletin.net/primer

For a good attempt to explore the health consequences of trying to use coal to maintain the high-energy lifestyle, see here:

Climate Chaos: Your Health at Risk What You Can Do to Protect Yourself and Your Family (Public Health)

http://www.powells.com/biblio/71-9780275998585-0

Baker's column is here.