Rising fuel costs take the drive out of the US
By Gary Duncan
It has hurtled along in top gear for decades but at last it seems that America’s love affair with the automobile could be coming to the end of the road.
Even as oil prices have more than tripled since the early years of this decade, car-crazed Americans have remained driven by this passion. In every year for the past 2½ decades since records began, they have notched up ever more miles. And US motorists have ignored the soaring cost of fuel to carry on buying huge gas-guzzling vehicles with undiminished enthusiasm.
From 2002 to 2005, the proportion of US vehicle sales taken by so-called “sport utility vehicles”, the tank-like SUVs that have come to symbolise the American driver, has risen from 52 per cent to 55 per cent.
No more. Suddenly, these trends have come to a juddering halt. Startling figures highlighted by Ethan Harris, of Lehman Brothers, show that last year, for the first time since at least the early Eighties, the number of miles driven by Americans fell year-on-year – and fell sharply, dropping by about 4 per cent.
At the same time, sales of SUVs have stalled, falling by 24 per cent last month from their levels a year earlier.
Yet over the past few weeks and months a sudden and striking convergence of global trends and attitudes has begun to suggest that it is not only rich American SUV drivers, struggling to pay to fill up at the pumps, who are running out of road. Rather, the entire world seems to have arrived at some sort of economic turning point.
Until we reached what may come to be seen as an historic crossroads, a hungry world’s appetite for resources – whether oil, minerals, food or fresh water – seemed to stretch away to the horizon, like the dead-straight highways of the American Midwest. At the same time, the planet’s ability to meet this demand, despite some nagging anxieties, had long seemed capable of accelerating almost indefinitely to keep up.
No more. Abruptly, the world’s freewheeling, carefree (and careless) pattern of ever-rising consumption is being called into question as never before.
Last week, oil prices surged yet again on world markets, continuing their relentless rise as the cost of a barrel of crude shot up to what would once have seemed an almost unthinkable $139 a barrel. Yesterday, Iran’s representative to the Opec oil cartel predicted that soon crude would hit $150 a barrel. Goldman Sachs has sounded warnings over a potential “super-spike” to $200.
The inevitable consequence is growing angst for Western consumers and their governments. While the economies of the industrial West have proved remarkably resilient so far to the inexorable rise in the oil price, the haunting question is: at what point does the crude drama become a crisis? Just where is the tipping point?
Yet it is not just oil. Food and water, the most basic necessities of life so long taken for granted in the developed world, have thrust themselves on to the conference tables of the West’s leaders and policymakers.
Food – its short supply in the face of rapidly rising demand and its escalating cost – is suddenly a dominant theme in the global conversation. Last week, ministers and officials from around the world met in Rome to confront a looming world crisis after the era of cheap and plentiful food was effectively declared over in last month’s joint report from the United Nations and the Organisation for Economic Cooperation and Development.
Disquietingly, Robert Malthus, the 18th-century British economist, who famously, and wrongly, predicted that ever-rising population would lead to mass starvation, has forced his way back into vogue among a cadre of “neo-Malthusian” doom-mongers.
Even water is the subject of a torrent of concern. Last week a panel of leading global experts convened by Goldman Sachs in London to confront the “Top Five Risks” to global prosperity sounded the alert that catastrophic water shortages could prove an even bigger danger to the human race than depletion of energy supply and deficient food supplies.
Arrestingly, a Goldman Sachs report notes that demand for fresh water is doubling every 20 years and calls it “the petroleum for the next century”. Lord Stern of Brentford, the former World Bank chief economist, argues that fresh water has mistakenly been treated as a renewable resource and exploited without restraint because it has been mispriced.
All of this is very scary stuff indeed. We seem, all of a sudden, to have hit a watershed. From a rosy, optimistic era of seemingly limitless potential and boundless appetites, the world seems to be entering a grim new age of scarcity.
That we have reached some sort of defining moment is only emphasised by the fact that even hard-nosed central bankers, not generally noted for their sandal-wearing, hippy environmentalism, think so.
Jean-Claude Trichet, the President of the European Central Bank (ECB), told a conference in Barcelona last week: “From a world of seemingly unlimited resources, mankind is gradually accustoming itself to the Earth as a limited, crowded and finite space, with limited resources for extraction and a narrowing capacity for waste disposal of pollution.”
Mr Trichet argued that the economics of this new world were “increasingly pushing at the boundaries of development” and required new thinking.
Coming from a central bank governor, these are pretty remarkable comments. The daunting challenges that this far from brave new world will confront were only underlined last week by Mr Trichet’s warning that the inflationary repercussions of rising oil prices could force the ECB to raise interest rates next month, even as eurozone growth is faltering. Similarly hawkish signals from the Bank of England and the US Federal Reserve rammed home the point.
Far more broadly, it is clear that in the new era we are entering it is scarcity that will become the linchpin of global trends in economics, politics, diplomacy and security, for decades to come. It is scarcity and the global struggle for finite resources that will shape world events as never before. This may not be pretty – and economics will be at the centre for, fundamentally, economics is about how we divide and allocate scarce resources among ourselves.
As Mr Trichet hinted, we are only now beginning to glimpse the trials that lie ahead, but as they become clearer, the premium on policymakers taking tough and wise decisions will rise as sharply as the prices of resources. We must hope that our leaders can grasp these challenges before we all run out of road.