The book begins innocently enough. Two men are fishing in a stream near an old railroad bed. They are talking, enjoying each other’s company. It is “sometime in the not-too-distant future.” And thus does a story unfold over a couple of summer months. The only hint that something is amiss comes when the narrator states that he “couldn’t remember a lovelier evening before or after our world changed.”

The world changed? Then the two fishermen gather their belongings and walk back to town. They are walking, of course, because there are no motorized vehicles. In this world there is no oil. But the lack of oil is just the beginning of this summer’s tale.

Welcome to Union Grove, Where there is No Oil

No, this is not a story about how the world has “run out” of oil. In the big scheme of things, the world will never run out of oil. The Peak Oil concept means a lot of things to a lot of people. But one thing that Peak Oil does NOT premise is that the world will “run out” of oil.

The key idea of Peak Oil is that output of crude oil will reach some maximum level on a global scale. Then world oil output will decline over time. (We may already be there.) There will be oil, but not enough to go around in amounts that people and nations desire. “Not enough” is not the same as “run out.”

In the future there will be oil — plenty of it, perhaps — in some parts of the world. And there will be very little oil, or none, in other parts of the world. And that’s the problem.

Which gets to the point of James Kunstler’s marvelous new book. In the “not-too-distant future” you won’t find oil in the small, upstate town of Union Grove, New York. Union Grove is an isolated, low-energy hamlet. For Union Grove, the Oil Age is over. And in this futuristic setting, Kunstler plays out a prophecy that may be closer than you suspect.

Quite an Apocalypse — And Quite the Post-Apocalyptic Novel

Kunstler’s novel falls within a genre called post-apocalyptic literature. The author’s premise is that there will be an apocalypse. Bad things will befall mankind. Lots of people will die. And some people will survive. This is the survivors’ story.

So in a literary sense, World Made by Hand is similar to some famous Cold War-era novels set in a post-nuclear-war world, such as On the Beach or Level 7. Kunstler is writing fiction about survival and survivors, describing what might happen.

A fictional world creates a new set of boundaries. Some things are not plausible in our “real” world. But good fiction makes possible events and reactions that might not otherwise occur. Within fiction, some events take on a new form of logic or plausibility.

But to be convincing, we have to trust the author or the narrator. With enough trust, we can accept a story based on the narrator’s perspective. The narrator becomes our eyes and ears. So the narrator must come across as reliable.

In World Made by Hand, Kunstler’s narrator “Robert” — a former executive at a software company, turned carpenter — mixes science and technology with well-established economic and political trends. You can believe what is happening in this book because so much of it seems rooted in what you already know to be so.

Overall, Kunstler paints a grim picture of the future. Oil or no, life goes on. It’s like the oil-scarce world of Mad Max, but without the madness. All of life’s emotions are still there, but in different proportions than what we’ve come to expect in our well-energized time. Really, on occasion life is tender in the future. It’s even sweet. In some scenes this book tells a story that is funny. Yes, you are allowed to laugh as you read this book.

The Grim Part

Let’s discuss the grim part. What sort of apocalypse occurs? Well, Kunstler never just hits you in the face with it. Like a grand master, he plays his cards subtly. Kunstler offers you only enough information at any point for you to feel the chill winds of a terrible disaster.

In one exchange of dialogue between the narrator and a young man, the youngster grits his teeth and shakes his head at the current plight all around him. And then the young man refers bitterly to the older fellow being part of “the generation that wrecked the world.” What happened, you wonder? Don’t worry. You’ll find out.

Throughout the book, Kunstler tosses out clues. For example, Kunstler spells out how in the past, worldwide demand for oil far outstripped the available supply. So prices for oil began to skyrocket. People became desperate and did desperate things. Sound familiar?

Kunstler makes passing reference to a war in the Middle East. But Kunstler never goes into detail. He doesn’t have to, really. The details are not critical to this story line. But you learn that during the war, things got out of hand. There was immense loss of life, and most of an American army never came home.

On this last point, Kunstler is not just economical in his use of words. Indeed, he’s downright parsimonious. But with just a quick bit of dialogue, Kunstler puts a chill into your spine if not the fear of God in your heart. With a fraction of a sentence, it’s as if you are reading The Peloponnesian War, where Thucydides describes the loss of the Athenian army in Sicily. “Everything was destroyed,” wrote Thucydides, “and few out of many returned home. Such were the events.”

Kunstler mentions in passing two horrific acts of terrorism. The bad guys (guess who?) managed to set off two nuclear weapons on U.S. soil, obliterating Los Angeles and Washington, DC. Within a short time national commerce broke down. Communications disintegrated. The economy crashed. The capital city of the U.S. moved to Minneapolis. Any semblance of control by a central government just vanished.

But post-disintegration, the U.S. did not become some sort of Libertarian Eden. It was certainly not a place that Dr. Ron Paul would recognize. Indeed, if nothing else the nation could have used some public health control.

There is just a single, short sentence in Kunstler’s novel that refers to a pandemic of “Mexican flu.” Uh-oh. This one disease apparently spread like wildfire and killed off scores of millions of people in the U.S. alone.

For those readers of an Earth First-sort of bent, if not the “deep environmentalists” out there, it’s your wish come true. Finally, a population crash. Whew! It’s as if you died and went to heaven. Except in Kunstler’s book it may well have been a large number of the environmentalists who died and went to heaven. They sure don’t live in Union Grove.

Within Kunstler’s deft narrative, things in post-Peak Oil America just fell apart. The center did not hold. Food supplies dwindled. The power grid broke down. Health care stopped functioning. Roads and highways quickly become impassable due to lack of maintenance, as well as marauding bandits. People starved. Population centers contracted, most in a catastrophic fashion.

And then there were ethnic and racial tensions — small-scale civil war, really. People migrated from one marginally inhabitable part of North America to another. Along the way they stole and fought over whatever booty they could loot and snatch.

In World Made by Hand, Kunstler answers the question posed by Rodney King in 1992 during the Los Angeles riots. “Can’t we all just get along?” Well, no. Not in an unraveling land of rapidly diminishing resources. It’s the same continent, but a different world.

There is a profoundly discouraging message embedded here. For almost everyone in this post-apocalyptic future, life in the U.S. has become, as the saying goes, “a bitch.” And you know what happens next.

Until we meet again…
Byron W. King
July 10, 2008

P.S.: I’ll return shortly with part two of this review. But until then, if you haven’t taken the time to really consider the effects of Peak Oil and how we’ll soon be reaching the realities painted in Kunstler’s book, you’d better start. We’re right now seeing how our lack of oil is impacting our daily lives. The only problem is, we still have a long way to go before it’s all over. Cheap oil may well be a thing of the past.

“World Made by Hand” Book Review was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“The $100-a-barrel oil that Goldman Sachs Group Inc. said would prevail by 2009 may be only a few months away.

“Jeffrey Currie, a London-based commodity analyst at the world’s biggest securities firm, says $95 crude is likely this year unless OPEC unexpectedly increases production, and declining inventories are raising the chances for $100 oil. Jeff Rubin at CIBC World Markets predicts $100 a barrel as soon as next year…

“Higher prices will increase revenue for energy producers from Exxon Mobil Corp. to PetroChina Co., while eroding profit at airlines including EasyJet Plc and railroads such as Union Pacific Corp. The U.S. and other oil-importing nations risk accelerating inflation, while higher energy costs threaten to restrain growth.

“Benchmark crude oil futures ended last week at $75.57 a barrel on the New York Mercantile Exchange, up 51% since mid-January and twice the level of early 2003. A record number of options have been sold that give the buyer the right to buy crude oil at $100. The contracts, covering 50 million barrels, only pay off should oil go above the target price…

“A National Petroleum Council study led by former Exxon Mobil chairman Lee Raymond, released last week, predicted a growing gap between production and demand for oil and gas during the next two decades. As recently as 2005, Raymond said oil prices had probably peaked and dismissed the possibility that supply and demand could not be brought back into balance.

“‘There are questions about whether the oil industry can keep up with demand,’ U.S. Energy Secretary Samuel Bodman said last week, commenting on the Petroleum Council report.

“Gasoline pump prices averaging more than $3 a gallon across the U.S., the consumer of 25% of the world’s oil, haven’t dented sales. Deliveries of gasoline were a record 9.23 million barrels a day in the first half of this year, according to a July 18 report from the American Petroleum Institute in Washington.

“‘It appears that high prices are acceptable to the American consumer,’ said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. ‘People want the house with a yard and white-picket fence so they are moving further and further out of the cities. They have to just get up earlier and drive further’…

“Oil prices could triple in three months, to more than $200 a barrel, given the right circumstances, according to Matthew Simmons, chairman of Simmons & Co., a Houston investment bank…

“A pullout from Iraq may be the event that pushes oil to $100 a barrel, according to Boone Pickens, the Dallas hedge fund manager who has joined Forbes magazine’s list of billionaires because of his bullish bets on energy prices. Pickens predicted a year ago that $100 oil would probably occur by now. Today he is looking for $80 within six months, and he says growing chaos in Iraq would be a bad sign. ‘That could run prices pretty high,’ he said.

“Goldman Sachs’s Currie also notes similarities to a year ago, with global inventories at about the same level and U.S. government data showing an increasing bet on higher prices.

“‘At face value, this market is strikingly similar to a year ago,’ Currie said. ‘What is different? Supply is down a million barrels a day, demand is up a million barrels a day. The market is in a deficit.’”

If Bush is dumb enough to invade Iran, $200 could come in a hurry. But the idea that oil surges on a U.S. pullback from Iraq is debatable. The sooner we leave Iraq, the sooner Iraq will recover (I might add, just as Vietnam did), and the less jet fuel we will be wasting on needless missions.

Could there be a short-term spike when we leave Iraq? Perhaps, but the long-term benefits of us getting the hell out will be enormous.

Gasoline Demand Is Inelastic

It’s not so much that “high prices are acceptable to the American consumer,” but that the demand for gasoline is relatively inelastic. Consider the plight of taxi drivers and the Chicago Tribune article “Pinched Taxi Drivers Hope to Fare Better by Organizing”:

“His fares for the last two days were dismal, and now halfway through the day, Khalid al Hag had only $20 in his pocket.

“At this rate, he figured he would have to dip into savings to make his $520 weekly payment to the cab company for use of the car.

“‘I’m going to have to work at least 12 or 14 hours today and still I won’t get by,’ he said, gulping down a meal so he could get back into his cab, which lately he has been driving seven days a week.

“Other cabbies — independents who have to pay out of their pockets for gasoline and other expenses and benefits — flitted through the restaurant with the same laments. At $3.46 for a gallon of regular gas, high fuel prices are swallowing their thin profit margins…

“The drivers’ distress is why [Prateek Sampat, head of a taxi worker organizing project] thinks an effort to organize many of Chicago’s nearly 11,000 cab drivers, including 2,500 who own their own cabs, will succeed. Similar efforts are ongoing across the country.

“The organizing efforts are more of a cry for rights and recognition waged largely on behalf of thousands of immigrants who have quietly slipped behind the steering wheels of most of the nation’s cabs.

“Why are cabbies the focus of organizing efforts? Taxis are today’s Ellis Island for many immigrants, statistics show. And cab driver is the first line of work in the U.S. for many without good language skills and without credentials to land easier, safer, and better-paying jobs…

“The last fare hike in Chicago was in 2005. Soon after that, Chicago ranked 18th out of 23 cities in the U.S. for the price of an average cab ride, according to an industry study that city officials said still is relevant.

“The organizers presented figures compiled from a handful of drivers, showing that the drivers were spending an average $44 a day on gas last month and were earning $6 an hour when all of their expenses were deducted.

“But Ald. Thomas Allen (38th), chairman of the Committee on Transportation and Public Way, said he doesn’t sense any support within the City Council or from city officials for a surcharge. ‘Gas prices have kind of settled,’ he added…

“‘Every day when I go home, I ask myself the same question, “When am I going to stop being a cab driver?” And every day I say I’m going find something better, but I can’t,’ grumbled Omar Shire, 29, a Somali refugee, who has been driving for the last three years in Chicago…

“‘I work 14 hours a day, seven days a week. That’s all I do,’ he said, his voice rising in anger, his eyes wide. The city does not limit how many hours cabbies can drive.”

Is there a real choice here? The bottom line is you have to drive and you have to eat. While one can cut back eating expenses by switching from steak to hot dogs, there is no cheaper substitute for gasoline.

Monthly Crude Trendline Still Intact

The weekly chart has had a few busted trendlines, but the monthly still looks great:

Those watching crude may also be watching the U.S. dollar index and the yen versus the dollar.

Let’s take a look.

U.S. Dollar Index

Yen vs. U.S. Dollar

Forex traders will note that the chart of the yen versus the dollar is inverse of normal trading pairs.

It’s now do-or-die for both the U.S. dollar index and the yen versus the U.S. dollar. Both currencies have been anemic lately, compared with anything else. The U.S. dollar is on the verge of collapse, and the yen is at lows compared with the British pound and the euro.

With trillions in carry trade bets riding on the outcome, the impact of a major breakdown in either currency could be very significant. Out and out disasters are most often in the direction of the prevailing trend. Here, two competing losers also are going head to head. Resolution should come soon. The U.S. dollar is going to eventually break hard but one must be on the lookout for a major headfake with all the stops in too obvious places.

Regards,
Mike Shedlock ~ “Mish”

July 24, 2007

Is $100 Oil Coming? $200, Anyone? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.