Yes, the Gross Planet Product is shrinking...in dollar terms.
A strong dollar, collapsing commodity prices, primarily oil and coal, massive disruptions in a key region (Middle East) and softening in another (China), unrest in three major Latin American countries (Argentina, Brazil, Venezuela) with depressed copper prices crushing Chile while Colombia (oil, coal) hurts, disarray in Africa caused by China's slow down, India flip flopping all over their economic map, an Europe facing increased uncertainty (ergo, lower investments), disruptive massive migrations like seldom seen in history, and climate-based damage (e.g. drought in Syria behind earlier migration pressure) and uncertainty drive the Gross Planet Product down. Tectonic economic shifts driven by disruptive innovations (examples from the recent past: electric motors, internal combustion engine, computers, containers, broad band, financial globalization), an usual compensating force, are "missing in action."
Benchmark Brent and West Texas Intermediate crudes both dropped below $30 per barrel recently. Goldman Sachs muses price could plunge below $20. Its demand is going down not because President Obama or anyone else has finally broken the stranglehold of Cheney/House of Saud energy group, but because the economy is shrinking, demanding less; likewise with commodities, even, in the face of unrest, gold. As the signal from our Central Bank (benchmark rates up) is absorbed by the planetary economy, the downward pressure will increase--at least in the beginning (later, perhaps a healthier bounce will surprise everyone). Changes in Iran, like those provoked in Irak earlier, will open up their oil trade. Perhaps this would not bring the shock popularized by the Saudis, many suspect sanctions removal will mostly make legal existing "ghost" trade with Europe, China, India, and Japan; still, another vector down.
Tough time to be in the market, major uncertainty challenge decisions--although I would bet, even when Wall Mart is currently "soft," on corporates catering to American consumers. Apart from this irksome dynamic, the future does not augur well. Savings which should have financed investments in productive (from roads to major equipment renewal) capital instead fund the weapons trade (their stocks up). As productive investment declines, so will planetary product in the near future. Weapons and boots on the ground may protect or not, but, as the Soviets found out when the evil empire imploded, they do not "produce."
Oil at $30/barrel benefits household consumption because the price drop becomes a major stimulus, which, instead of "blessing" big banks or corporates, as the response to crises has done in the past, benefits the American family at large. Given the spiraling income polarization in America, this should be seen by most as a welcome development. The drastic price drop in energy products has (begun to realign?) re-aligned income distribution, even if marginally. Thus, a broad push in planetary product resulting from greater household consumption should be expected...but in those countries where corruption runs rampant. Yet, broad push will take time to come through in actual metrics.
When those who lose big (energy hedge funds, Texas oil producers, Houston political strategists) wield enormous power...stay alert. Will nasty reactions follow? As you know, ignoring major pressure (and risking significant financing for Hillary's campaign, as well as worsened personal safety) the Obama Administration has instructed all Federal Agencies not to bail out (billions this time) the energy hedge funds, or so I hear...tricky one. Not surprisingly many hedge funds, including generous Paul Singer (hedge), the Wilks Family (fracking), Robert Mercer (hedge ), Toby Neugebauer (private equity) and the feared Koch Bros (oil et al), pour millions in the campaign of more amiable candidates .
On the unexpected front, it turns out that Cheney's cabala, by artificially keeping oil extremely costly--to garner major benefits, a la Koch brothers or Exon--delivered a major unintended collateral benefit: they protected the environment. The Energy Group discouraged, through price rationing, consumption--and for those who track global warming and its consequences, that rationing, by bringing consumption down, brought benefits. Yet, the inexpensive energy Americans enjoy today up ended conservation and alternatives while encouraging the super-guzzlers populating our roads anew. Many expect that a Republican victory, besides massive bail outs, will bring the barrel above $80, and the price at the pump above $3/gallon. Yet, many friends will pay $4+ at the pump with no complains if the money goes to major corporations, but not a penny in taxes if it goes to protect their children's environmental legacy... And that will not change, even if Hell freezes over. Counterintuitive Conclusion: If you care about global warming, vote Republican?
Barring a Republican victory, expect oil price to stay at these levels. Analysts strongly believe, on a supply and demand market clearing basis, this price reflects real market conditions better than the collusive higher ones endured in the recent past -- many years ago, around twenty, when I knew a bit more than I do now, I argued oil prices should be no higher than $30, and should actually hover around $20 -- at constant dollars.
Yes, the Gross Planet Product is shrinking, and will continue to shrink.
ABOUT THE AUTHOR
Felipe Manteiga is married to Patricia and has three children and two grandchildren. He joined the U S. Foreign Service community in 1975 as a USAID/USDA development specialist and retired from his position as Director of the Agricultural and Food Security Office in U.S. AID, Washington in 2002. Felipe also joined the Millennium Challenge Account's (MCC) "founders" group in 2004. His training as an economist led him to design, manage, and evaluate projects, programs and strategies at the cooperative and firm, local, sectoral, national and international levels. The challenges engaged allowed him to pioneer technical, organizational, policy and financial innovations in agriculture (high value crops, drip) and agribusiness (quality exports to the U.S., cold chain), environmental management (reforestation, hill side agriculture, water management), bilateral and international agreements (e.g., Caribbean Basin Initiative), finances (instruments serving small and micro entrepreneurs and reinforcing value chains through public-private financial partnerships), marketing (e.g., pioneering internet based applications) and education/ training (e.g. distance education, video applications based on projects in progress). Significant experience gained in policy and program negotiation (e.g., USAID project negotiations, MCC compacts). He worked in a broad array of nations, often high risk areas (Guinea Conakry, Honduras, Haiti), in the Western Hemisphere, Africa, Asia and Eastern and Central Europe.
Climate change adaptation is not just
about vulnerable countries
Originally published in
African Arguments, 29 December 2015
REPRINTED WITH PERMISSION
There are unsustainable cities in the Global North as well as the Global South. Real adaptation means hard choices in wealthier countries too.
Overlooking Riyadh, Saudi Arabia. Credit: Yasser Abusen.
In the climate change talks recently concluded in Paris, the final agreement included a goal to raise some $100 billion for adaptation and mitigation efforts in the worldís most vulnerable countries. While the idea of Ďadaptationí was initially shunned by activists as giving up on mitigation, it was accepted as necessary at the 2009 Copenhagen climate meeting when experts and policymakers acknowledged that some level of climate change was unavoidable.
Adaptation is now seen as a central part of climate change efforts, framed as a transfer from rich to poor countries to enable people in the Global South to adjust to challenging circumstances. However, it says little about wealthier nations and their own unsustainable conditions.
When it comes to urban adaptation, for instance, cities such as Gaborone in Botswana are likely victims of climate change and deserve adaptation support. But thatís only one side of the puzzle. Other metropoles such as Phoenix, USA, and Riyadh, Saudi Arabia, are similarly part of the problem of too many people living in arid places. While conservation is critical, the time has come for adaption in the Global North as well and for some governments to actively encourage people to resettle in more well-watered areas of their countries.
When Botswana gained independence from the UK in 1966, it didnít have a capital city as it had been administered from a locale in South Africa. After surveying potential locations in this dryland nation, planners built Gaborone in south-eastern Botswana near one of the few places with adequate rainfall and a site for a dam that could supply the city with water. It also helped that the city was located in a more densely populated part of the country and along a railway constructed in the colonial era.
Now, some 50 years later, the dam supplying water for this city of roughly 250,000 people has gone dry and residents of Gaborone endure water rationing. Six out of the last 10 years have been drought years, with average rainfall in the Gaborone area declining from 530 mm per annum in the 20th century to 450mm in more recent years. While the reasons for Gaboroneís dwindling water supply are complex, shifting rainfall patterns related to climate change and a burgeoning urban population explain much of the shortage. Downscaled climate change models suggest that the situation will grow even worse in the decades to come.
The Government of Botswana has not taken this problem sitting down, building a north-south water carrier in 2000, extending some 360 km to the northeast to transport water from reservoirs built along the Motloutse and Shashe tributaries of the Limpopo River. The pipeline is now being extended to bring in water from the newly constructed Dikgatlhong Dam further up the Shashe River.
Botswana has been able to undertake such measures because it is a middle-income country that has astutely managed its diamond mining industry and invested heavily in public services. It has also cooperated with its neighbours in order to gain legal access to surface water from the regionís rivers.
But while the government is handling these challenging circumstances, one might reasonably ask how fair it is for it alone to shoulder the costs of such water transfers when global climate change - largely brought about by the emissions of others - has left this nationís capital city high and dry.
Unsustainable from the start
The new climate change agreement struck in Paris purports to help cities like Gaborone adapt to such change. However, what is happening in Botswana also raises uncomfortable questions for other dryland cities, especially those in wealthier countries that rarely attract the attention of environment and development experts. What about metropoles that have never, even without climate change, been in sites with favourable physical attributes such as access to fresh water and a hospitable climate?
Take the case of Phoenix, USA, which currently relies on a vast network of dams and aqueducts across the western part of the country to supply water to its 4.5 million person metro area, the twelfth largest in the country. The entire western USA has been plagued by drought for much of the past 10 years and water demand from Phoenix and other cities has so drained the Colorado River that neighbouring Mexico rarely sees a trickle from this waterway.
The location of Phoenix was neither chosen for extremely favourable site conditions nor a situational trade advantage. Rather it was initially built on the back of an agricultural economy supported by large scale irrigation resulting from political decisions for dam-based development of semi-arid areas in the western USA. The cityís more recent growth has been fuelled by air conditioning, heat seeking retirees, and an influx of high tech companies.
Riyadh, Saudi Arabia, with 5.7 million people, is another dryland city seriously challenged by water scarcity. The level of investment in Riyadh, and its capital city status, has little or nothing to do with desirable site or situation characteristics as it has always had limited fresh water resources and is not at the centre of major transportation networks. Rather, its position reflects the fact that this is the ancestral home of the Saudi ruling family.
What is remarkable about Riyadh is that it is increasingly supplied with desalinated water pumped from the Persian Gulf over a distance of 467 km. While the Saudi government has the resources to support this type of infrastructure, there are periods when water is rationed because of inadequate supplies. Thornier still is the politically charged question of how sustainable is a major city that increasingly relies on energy intensive desalination, a process that is not only expensive, but generates significant greenhouse gas emissions.
Global support for urban adaptation to global climate change is often framed as a way for people in the Global South to adjust to challenging circumstances, but it says little about cities in the wealthier nations that may be structurally unsustainable because of their arid locations. While conservation is critical, because it is far cheaper and more environmentally friendly than desalination or transporting water over long distances, there may also come a time when governments need to actively encourage people to resettle in more well-watered areas of their countries if such options exist.
Real adaptation also means hard choices in wealthier countries.
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