Bernanke’s Looming Emergencies

…Bernanke’s assumption here is that high energy prices will come down for two reasons. First, when a thing gets more expensive, people use less of it, because they can’t afford it. The high price leads to falling demand. Second, the high price attracts additional competitors, who bring new supply on the market, thus bringing the price down.

Both of those are fine in theory. You’ll find them in any respectable economics textbook. But oil is not just any commodity. Why? There is no simple, effective, abundant, and cheap alternative to using oil in today’s economy. We will not have a nation full of hydrogen cars and stations this time next year.

Or take another, less assuming example: agriculture. It was petroleum- and natural gas-based fertilizers, among other technologies, that led to the “Green Revolution” of the 1960s and 1970s. Without oil-based fertilizers leading to a huge increase in crop yields around the world, it would be impossible for the earth to support its current population. As Jim Kunstler writes in The Long Emergency, “Ninety-five percent of the nitrogenous fertilizers used in America are made out of natural gas, and so it has become indispensable to U.S. agriculture.”

What happens when natural gas pipelines get close running on empty, as they did in 2003? Or when gas prices get so high, because of depletion, that companies can’t afford the market price? Fertilizer doesn’t get produced. Crop yields go down. There is less food. But for who?

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