Working in Iowa

 

 

 

Gas prices are creeping up, and recession or not Americans are on the move again.

 

In America, cheap energy is thought a birthright.  During that first tumultuous energy shock in the 1970s, I recall a bumper sticker that said: “A bushel of wheat for a barrel of oil.”  We have a high opinion of our grain producers, and we have a low opinion of oil producers.  We like our oil cheap, and we don’t like anyone who threatens to make it pricey.

 

Cheap energy, however, has its costs, especially in the long run.  For years I have warned that there will eventually be a reckoning between our lust for energy, our profligate consumption, our settled modes of production here and abroad, our preferences for settlement and housing sizes, and our collective abilities to get from here to there comfortably, efficiently, and economically. 

 

Last year’s energy and food price shock set production, transportation, and consumption back on their collective heels.  Firms rapidly began to evaluate their energy demands finding that continued energy cost gains would yield rapidly decreasing profits.  Truckers slowed down and increasingly hauled only full loads, and America’s households sharply reduced their collective energy demands and drove less.  Car pooling re-emerged, and mass transit was discussed again.  

 

On my annual Memorial Day weekend trip to Cheyenne, Wyoming, last year, $4.15 gas meant much slower speeds, not a single travel trailer or motor home to be spied between Lincoln, NE, and the Wyoming border, and relatively few SUVs on the road.  This year, with gas almost $2.00 less, it was the reverse.  Motor homes and travel trailers were on the move, and the Cadillac Escalades were out in full force.  Cheap oil, and last year’s problems were just, well, last year’s problems.

 

They aren’t.  As soon as the economy starts to recover, as is appears it might by the fourth quarter, as soon as the rest of the world begins to boost its demand for oil as well, energy prices will climb predictably and persistently.  What then?  

 

First, there will be renewed calls for conservation, then there will be renewed calls to increase oil exploration in coastal or arctic zones, to be followed by renewed calls for exploiting oil shale and other more expensive oil sources in the west, and finally we will get more renewable fuels nationalism reminding us that all oil producers are either terrorists or sponsors of terrorism and that biofuels are patriotic.

 

These are all predictable, short-term and short-memory responses, but the longer term supposes drastic changes as energy prices creep upward.  There are historical comparative food production advantages that depend on extremely cheap energy to produce, store, and distribute fruits and vegetables in the U.S. and internationally.  High energy prices will change that, and production will eventually find multiple temperate zones that are proximate to demand centers.  The locus of foods production will surely change.  Who does what and where will evolve.

 

There are cheap energy fueled industrial production advantages all across the developing nations that will sharply change when oil prices rise. That will mean that production will migrate from China, for example, to locations that are more proximate to demand -- not necessarily to the Rust Belt, but perhaps to Mexico.

 

Iowa is particularly vulnerable to energy prices. Our manufacturing emphasis and our agriculture sector are energy intensive, and our workers, especially our rural workers, must commute to trade centers.  

 

Progressively higher energy prices are likely to diminish the potential of rural communities to compete for firms and simultaneously induce migration among commuters saddled with higher costs.  High energy costs obliterate rural cost of living offsets and will work to drive down rural housing values and bid up urban values.  Iowa’s rural communities will be disproportionately burdened over time.

 

There will be national, regional, and state-level social, economic, and physical evolutions. The pace and the pattern of that change will reveal itself over the next decade, a decade that promises transformation, consternation, and, we hope, innovation.  In the mean time, enjoy the cheap oil while it lasts, because it won’t.

 

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