Our riches don’t matter

Posted on | September 7, 2010 | No Comments

People in developed countries may think that we are rich enough to be able to pay increasing amounts for oil and other types of energy as petroleum becomes increasingly scarce. Our riches, however, don’t matter much.

In order for each individual country to maintain affluence and economic growth, we need to be able to maintain global supply chains for all kinds of products. At the moment we are dependent on supplies from all over the world to supply us with products for our own production systems and to sell in most types of stores. If we have less oil, we will be forced to reduce economic activity. Initially, this will mean that the least affluent will not be able to buy the petroleum products that they need in order to get to work or to produce on a daily basis. Companies in developed countries will experience increasing difficulties to purchase products from these countries.

In order to be affluent in the future we need to systematically reduce our use of oil at a faster rate than the reduction in global production, or increase the production capacity for renewable fuels so that this increase plus the reduction in oil use at least cancel out the reduction in supplies. This, for reasons explained above, needs to be done for our entire global oil supply, and not only for individual countries that may be in a position to relatively easily replace oil by renewable fuels. This, it has to be repeated, is because every country is dependent on growth in the global economy for its ability to achieve affluence and economic growth. The global economy, in its turn, is dependent on growing supplies of oil and other energy sources, but currently no other energy source can, at short notice, replace oil for transportation.

This does not seem to be clear to the majority of economists, politicians and high level business leaders. Many seem to think that we can adjust to a higher energy price. Yes, this may be possible. It will be much more difficult to adjust to a reduced supply of oil and continue to do business in the same way we do today in the face of declining global volumes.

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