Michael thinks we leftists think the oil crisis is all about stupid business-men. If only it were that simple.

Tribe Discussion: Alternative Money and Economics - tribe.net

My reply : It's not a question of whether capitalists are stupid or not. Even great supporters of capitalism don't claim businessmen have more (or less) wisdom than anyone else. The pro-capitalism claim is that capitalists have an institution : the market, which allows greater diversity of experiment, and which discovers and promulgates the successful experiments more efficiently than other institutions do.

The argument doesn't hinge on the people. It hinges on the capacity of the market to solve the problem of oil passing its "peak production".

A good book to read here is Clayton Christensen's "The Innovator's Dilemma"

What Christiansen wants to do is analyse why so many, apparently good, market leading companies, fail. And what he discovers is that they do so, by too slavishly following the signals given to them by the market.

What happens with the doomed companies of "the innovators dilemma" is that they have an existing customer base which they pay too much attention to. This customer base is using a particular format of product (Christensen's examples range from disk-drives to steel to earth-moving machinery) They want (and reward) improvements in the price / performance of this particular format and the company gives it to them. But it remains blind to another coming "disruptive" technology. Not because it's too stupid to understand the technology, but because the signals it gets from its customers are steering it in a different direction.

By the time the customer discovers the "disruptive" technology, another supplier has become dominant in it, and the customer switches to the new supplier rather than wait around for the previous market leader to catch up.

Markets are essentially thermostats : too cold, switch on the heating, too hot, switch it off. Demand outstrips supply, raise the price. Supply outstrips demand, lower it. That's the information available.

In an ideal world, there are nothing but smooth gradients. And simply following the prices up and down will keep you on the right course. What Christiansen demonstrates very clearly is that the world isn't composed of smooth gradients but discontinuities and catastrophe points and dead ends.

In theory market leaders who've spent years supplying customers with one technology will start to perceive a gentle shift towards a demand for another, start to shift their product output accordingly, tracking the demands of the customers.

In practice, the transformation is sudden, shocking, and market leaders rarely survive. As Christensen keeps emphasizing, not because they were stupid but because the market switch is too fast for the the feedback mechanisms to cope. Because the market-leader has constructed and is constrained by the system of other dependent suppliers and the existing customers pushing in the other direction.

This is why he calls such technologies "disruptive". They cause disruption.

Let's go back to the claims about the end of oil. No one is saying oil is going to run out tomorrow. What most people are saying is that oil is getting near its peak of production. That's not a prediction which is based on oil prices increasing, that's a prediction based on trends in oil discoveries. They're slowing down.
Although we're discovering more oil "everyday", the rate at which we are discovering oil is certainly decreasing, while the rate of consumption is going up.

As I said, this isn't a debate about whether the people are smart enough, it's whether the market as institution is able to react fast enough to avoid crises. From Christensen, we know that that's not always the case. Market signals are not always sufficiently timely nor companies sufficiently fast on their feet, to meet dramatic changes. Especially when there's a lot of inertia built in to the system, with each player in holding the others back from making change until the catastrophe.

What we have to remember about oil is that we are so dependent in so many different ways. Food production is highly energy intensive. Plastics are made from oil and almost everything in modern society is partly made from plastic. All kinds of things aren't made in the "west" at all because cheap fuel has enabled cheap transport which takes advantage of cheap labour in Asia.

All these dependencies are a) highly oil dependent, and b) difficult to switch. We have nothing equivalent to replace oil with - you don't make plastic with uranium; oil or gas made from coal requires extremely poisonous processes.

The market should be encouraging relevant research to improve these or find other sources of energy. But our scientists don't have any theories of real alternatives. And the market isn't doing what's needed. Right now, oil is still so cheap that, like the 8 inch disk-drive makers who didn't research 5 1/4 inch discs because no one wanted them, no one does real, sufficient research into alternatives because the car drivers and the farmers and the plastic industry and outsourcers don't want something else which is currently more expensive. Until, one day, they suddenly will, and maybe the industry won't have time to adjust.

Ok, let's not let this become totally negative. Markets are pretty good at acting on negative feedback. Alternative energy sources exist, alternative, less energy intensive methods of production and consumption exist, and if the catastrophe doesn't happen too quickly, the markets should be able to find and encourage them and steer us towards something survivable. But there are a lot of imponderable "ifs" there. As Christensen says, only 4 of the 100 biggest companies in 1900 were big in 2000. 96% screwed up, either due to incompetence or because the market *didn't* lead them in the right direction.

So I suggest the market could do with a bit of help. How does alt.money come in?

Well, alt.money is almost always "local". The big advantage from the oil perspective is users of local currencies can't buy stuff from the other side of the world and don't consume that fuel for transport. That has a downside, of course, sometimes there are real benefits of international trade. We want things and services from places which we can't produce locally. But there is also a lot of international trade which is simply arbitraging the relative prices of national currencies. With more local money, there'd be less of that.

The more people voluntary switch to alt.money, the more they encourage local production, by local labour and from local materials. This consumes less fuel.

Doing things locally, also tends away from doing things in mass, making small scale alternative energy more viable. Perhaps the local farmer selling in my village can produce vegetables without recourse to so much fertilizer or needing fleets of trucks to get his stuff to market.

Local money is not sufficient in itself, but it can play a role in constructing a local economy with a bias towards local, lower energy production.

Obviously, a gamble on the status quo might pay off. As the price of oil increases, someone (probably in China) will unveil a new super energy efficient car that works on everything from gasoline to cow-dung, oil companies will invent new techniques for extracting oil from hitherto unreachable depths, the big boxes will reverse their habit and start to source locally to keep prices down etc.

But remember the dilemma. Sometimes the market leader simply goes bust.