February/March 1983 RAIN Page 11 Unemployment is likely to be a debilitating social problem in the future, yet from another perspective there is a huge amount of work that needs to be done — building a way of life not so dependent on energy. Alaska so far, some twenty trillion cubic feet, is only one year's worth of consumption, and so it is not surprising that the job of financing such a huge project has not been successful. Offshore drilling is much more expensive than onshore, as is the drilling of many holes to find the last small oil and gas deposits on land. Synthetic fuels from coal and oil shales will be the most expensive of all, which is why Exxon and Occidental have stopped projects on which they had spent many hundreds of millions of dollars. All of these huge new costs for energy, whether im- orted or domestic, are costs that wouldn't have had to ave been paid if the old oil fields were still meeting our needs. And even if all the OPEC revenues were spent back in this country, American workers would still be working for foreign consumers rather than for American consumers. These are the costs of scarcity. The only place to get the money to pay these bills is out ofAmerican paychecks. As we pay these higher energy bills, the real incomes of Americans should come down, to account for the drain of money from the consumer economy. But instead, we asked for — and usually received — cost of living increases to cover the higher cost of gasoline, heating fuel, and all the things made with energy. We assumed higher energy costs were part of the usual cost of living calculus. This was the way we had always interpreted higher prices before, and this was the way we wanted to see it now. Cost of living increases to cover higher energy costs are, in effect, an attempt to deny the reality of scarcity; higher incomes simply gave people the money to go on consuming oil as if scarcity didn't exist, as if cheap oil was still coming out of the old fields in Texas and Louisiana. The usual function of higher prices, to discourage consumption, was weakened by the fact that the consumer had the money to pay the higher prices. The overall result was that higher incomes sustained consumption rather than discouraging it. There were more dollars chasing fewer goods, the age old source of inflation. Still, economists were perplexed. Not only was inflation a problem but so was unemployment. Classical economic theory said both should not occur at the same time, and the term staglfation had to be coined to describe this new phenomenon. But high wages can be seen as frustrating another fundamental change that energy scarcity leads to — the increased use of labor. Our minds, shaped by growth in the past, think in terms of using more machines, but the increasing cost of energy points in just the opposite direction — to the use of more labor and fewer machines. Cost of living increases, however, simply push up the cost of labor along with the cost of energy, and this substitution does not occur. Labor is too expensive, and therefore is not used. Inflation is easy to deal with, in theory at least, by restraining federal deficits, the money supply, and personal incomes. Unemployment, however, is a different storv; it will be a pervasive problem as less energy is available to the economy. It is difficult to imagine how labor will be able to compete with the efficient machines we have, even if wages were lower. Yet if we do not have enough energy to keep workers at their stations by the machines, where will the new jobs be found? Are we to be plagued by the "Detroit syndrome" from now on out. Increasing energy prices should mean falling incomes rather than cost of living increases. of displaced workers trapped without work, with houses that can't be sold, and in cities and states that are going broke? Cutting wages would help, but not very much because they will not bring down the cost of the energy and materials that go into the building of a car. Nor will lower sales prices bring down the cost of operating a car as long as gasoline prices are high. Worse yet, falling wages would reduce demand for other products, causing further unemployment. The moderating force in all this would be OPEC; they would have to lower oil prices in order to sell it, permitting a much needed infusion of energy. This will help, but at some point OPEC resources too will decline, since they are serving the entire industrial world; current estimates are that they will last twenty years longer than ours, but such estimates assume steady economic growth, which is growing more unlikely. Unemployment is likely to be a debilitating social problem in the future, yet from another perspective there is a huge amount of work that needs to be done—building a way of life not so dependent on energy. □□ Warren Johnson is author o/Muddling Toward Frugality, and is presently in the Geography Departmental San Diego State University. This article is part ofa longer article. Mr. Johnson is looking for a general audience publication for the longer piece. Any takers ?
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