Monday, December 31, 2007

2008: Pause

Time, once again, to engage in my annual predictions and prognostication. This year The Economist has unofficially endorsed my brand of futurology--relatively short term and thematically focused. But first, as usual, a review of how my 2007 predictions panned out:

I didn't get Iraq right--I predicted that the draw-down would begin, whereas in reality there was a "surge." I guess I'm still able to underestimate the incompetence of the Democratic Party. Mental note not to make that mistake again. I won't discuss my thoughts on the surge (e.g. the arming of the Sunni tribes for the future clash with the Shi'a establishment over oil revenues after the inevitable US withdrawal) now, but suffice to say I didn't get it right in '07. For what it's worth, I did get the "no war" call on Iran right.

I'll give myself kudos, however, for nailing the oil prediction. I said that oil would break 90 and flirt with 100, and that "peak oil" would officially break into the mainstream media. Right on all counts, not that I claim any kind of secret formula--it was just an "educated" guess based on what I see as obvious trends. The only area you could quibble was with my prediction that Russian oil production would fall--that isn't entirely clear.

I generally missed the credit crunch and was mildly wrong on housing woes and the Euro. And I overstated the problems facing Mexico--while there were some worrying pipeline attacks, the economy didn't "collapse" as I had predicted. So my 2007 predictions were poor with the notable exception of oil prices. Will this result in an overly cautious outlook for 2008? Yes and no. Yes in the sense that, considering that I fundamentally agree with the long term predictions of the "end is nigh" crowd, I think 2008 will fail to meet their expectations by far (hopes?). No in the sense that, given my fundamental agreement with "them" on the long term direction of our planet, I'm firmly bucking the trend of expecting immediate economic collapse followed by mass starvation by calling for the appearance of normalcy. Emphasis on appearance.

So what will 2008 hold? Let me consult my crystal ball...

Oil Prices: we'll break $100 firmly at some point, but won't hit any sky-high territory in '08 (that looks to be in '09, but now I'm breaking The Economists' rule of only predicting one year out). I think that we'll essentially plateau in production--maybe a small fall or small gain globally--and that increased demand in India and China will be met with efficiency efforts that clear off the low hanging fruit. Basically, I think we'll set ourselves up for a fall by doing the easy efficiency measures (but none of the tough and ultimately necessary ones) and pat ourselves roundly on the backs as production doesn't drop off a cliff and prices don't spike. This, of course, leaves only the hard and slow-to-pay-off efficiency measures remaining just in time for significant global production spikes and "export land" effects to really bring trouble in '09.

Iran & Iraq: slow news year. No troop draw-down of any significance (though possibly something symbolic in August-September time frame to give the appearance of "victory"). No war with Iran. No uptick in violence--in fact, the surge will continue "working" (as long as you define working as laying the groundwork for future bloody civil war).

The most significant story of the year: the economy won't crash. What the hell, I'll go out on a limb--we won't even have a "recession" as officially defined. On an earnest note, there is a lot more resiliency in the American and Global economies than is often accounted for, and there are many "low hanging fruit" measures to stave off the energy and credit wolves for another year. And if those real measures are too politically difficult, there is plenty of appetite for the fiction that the economy is resilient and recovering, as well as people in power who will benefit from the appearance of normalcy through the '08 elections. I'm not talking about Bilderberger/Bavarian Illuminati fairy dust, but rather simple and obvious things that can be done by the current Bush administration to ensure that it doesn't appear that a Republican administration is bad for the economy. So this time next year we'll still be listening with rapt attention to news reports tallying the Christmas shopping season and the resiliency of the American consumer. Unlike oil prices, I don't see this economic stability as a temporary reprieve before we go off the cliff. I think that media and public perception of our economy, as well as our actual economy itself, is already a matter of fiction and wizardry. This wizardry can continue, unabated, for quite some time. I agree with Ran Prieur's version of the "slow crash." That is, we're already crashing. This is what collapse looks like. The middle class gradually shrinks, the value of our pensions and investments gradually declines, things get gradually less affordable--and if it is executed properly this all happens just below the rate at which it reaches the public consciousness. A really sharp cliff in oil production could change this, but I think if we do our realistic best at mitigation efforts in energy use, this, too, will keep just under the "crisis radar." Diesel prices equivalent to $300/barrel oil haven't stemmed the commuting or truck transport industry in Europe, so I don't see why $300/barrel oil by 2010 or 2012 won't be anything more than another contributor to the slow crash. We are evolutionarily adapted to recognize and respond to surprise, short-duration crises, but we aren't evolved to be very good at even recognizing the slow, gradual ones that are visible at a distance.

One more thing--Rudy will win the 2008 presidential election. Why did I pick him? He's the worst possible result that I can think of, so it seems a nice balancing point the the appearance of optimism elsewhere in this post. Besides, none of the candidates will address the fundamental causes of the slow crash, so does it really matter in the long term? IF there was a candidate who could maximize our mitigation efforts, and IF there was a candidate who could slow the slow crash as much as possible, it still only seems that the result would be to push off the matter of dealing with the slow crash on later generations. My ultimate prediction is that we will never deal with our fundamental problems en mass, but rather will let them deal with us.


Urban Scout said...

Mad props on the oil prediction. I love your predictions. I totally think Rudy will win, more of a gut feeling than anything. Hey, it's been right the last two elections! Haha.

Josiah Rector said...

Of course we'll all be wrong on the particulars, but on the general predictions you express my own views pretty closely.

Kudos, Josiah

CG said...

"I think that media and public perception of our economy, as well as our actual economy itself, is already a matter of fiction and wizardry. This wizardry can continue, unabated, for quite some time."

Brilliant. I've thought this (though not as well articulated) for a long time. Mass hysteria. I just tell people to grow food.

Tom Konrad said...

Any updates on the Mexico forcast?

Collapse off, or just forestalled?

Jeff Vail said...

I'd have to say "collapse significantly delayed for several years." It seemed to me that many events were happening at the same time a year ago potentially capable of causing true collapse, but it didn't quite come together. Cantarell has stabilized somewhat, though at a lower level of production, so this has supported government revenue levels along with higher oil prices. The political crisis seems to have completely evaporated. And with the Bush lame-duck year beginning, there will be lots of talk and zero action on illegal immigration for now, so remittance income to Mexico seems safe.

There seem to be three factors that, if they come together, could bring down the Mexican state--food prices, oil revenues, and remittances from illegal aliens (you could throw affordable jet-fuel facilitated tourism in there, too). The food situation seems concerning, but hasn't really reached a critical point for now as the government is still financially solvent enough to throw money at the problem. The next tipping point that I see would be late 2009 (again breaking the one year rule...)--*IF* the new administration in the US manages to simultaneously pass incentives increasing corn-based ethanol production AND cut off illegal immigration (and therefore remittances), combined perhaps with continued high food-commodity prices and a decline in PEMEX production that at least keeps revenue neutral alongside rising oil prices, then there could be a perfect storm. The revolutionary political organization in Mexico, and the recent pipeline bombings, are only tools of a disgruntled populace (though this seems to be aided by the strong and still increasing disparity between upper middle class/rich and very poor in Mexico). If there is famine because the Mexican government can't throw money at the problem, then there could be a revolution, but I don't see that happening in 2008. Without exacerbating policies from the US, it seems that Mexico will be able to maintain stability beyond 2009 as well.

Here's my tin-foil prediction for the week: it really will be the Mayan calendar end-date (Dec. 2012) that brings Mexico down, and that will drag the US down with it! Well, probably not. I've frequently referenced the Mayan calendar prophecy as a joke (because I see no causality there), but 2012 does seem to be shaping up to be an interesting year (interesting in the Chinese proverb sense)...

Jeff Vail said...

My predictions always seem to require clarification. I'll define my prediction that oil prices will break $100 'firmly' at some point as a full calendar month when the price never dips below $100. Maybe next year I'll remember to use a more specific word than "firmly."

piterburg said...

What do you make of this:

In your opinion, is 540% EROI real?

piterburg said...

"We are evolutionarily adapted to recognize and respond to surprise, short-duration crises, but we aren't evolved to be very good at even recognizing the slow, gradual ones.."

Jared Diamond seems to be making the same point in "Collapse"..

matt said...

This is what collapse looks like. The middle class gradually shrinks, the value of our pensions and investments gradually declines, things get gradually less affordable--and if it is executed properly this all happens just below the rate at which it reaches the public consciousness.

I completely agree.

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Anonymous said...

im hearing alarm bells all over the web warning that the economy is going to fold domino style in the very near future. do you still maintain yr predictions of no major economic collapse this year in light of recent developments?

Jeff Vail said...

I do, for a couple of reasons:

1. I think that the U.S. economy is much more resilient than is commonly thought. 24-hour news stations, especially in an election year, are keen to pick up on economic "crisis" as a big story. Living in Colorado, I don't see it--sure, there are some housing related issues, but in general things seem to be going well. I'm sure things are more dire in select areas with bigger housing problems, but I think that it's at least as much news hype as actual "crisis." I *do* see an ongoing, but very gradual, decline in the middle class in America, but not a "recession."

2. I think the global economy is going strong, buoyed largely by the biggest unsung story of the past few years--the rise of a new middle class in the Third world, China and India in particular, that creates a consumer class independent of the US consumer. This makes the world economy must less susceptible to recession in the US than in the past.

3. To the extent that I think we are already in the midst of a "slow crash," I don't see a recession in 2008 because the state of the economy is already a matter of fantasy. Look at the "stimulus" package: $150 billion that we'll borrow to help us keep spending now. As much as I disagree with Huckabee, he is exactly right when he says that we'll pay China interest on the money so that we can buy more imported products from China, in an effort to stimulate *our* economy! Between stimulus packages, reformatting the Consumer Price Index (energy counts less in 2008--not because we use less, but because it costs more!), other Open Market operations like "liquidity injections," and other functions of the Plunge Protection Team, etc. If you accept my assertion that we're already in a slow crash, then the question is not "will we enter a recession in 2008," but rather will it become apparent that we've been in an ongoing decline for quite some time, or will the "powers that be" continue to be able to pull the wool over the eyes of the majority?

The "Powers that Be" (in this case, not some Bilderberger or Illuminati fantasy land, but rather the Fed, he Treasury, etc.) will make it seem like things are going fine for a variety of reasons (legacy, election year, institutional vetting, etc.). The New Media may have an interest in trying to highlight the "recession," but not by revealing its reality, but rather to fill air time. Either way, it's probably more important for us to recognize this facade than to worry about whether the current iteration of the slow crash qualifies as a "recession" under the current tests, or not...

Jeff Vail said...

Well, it looks like my prediction that Rudy would win the presidential election has already turned out to be wrong. Not that I'm upset! I picked him because he seemed to be the worst possible option to me. Between McCain and Romney, I definitely prefer McCain on the Republican side.

Take a look at this analysis of Candidates' clean energy policies from Tom Konrad:

It turns out that McCain has the best policy proposals among the Republicans.

Among democrats, Barak Obama has the best platform--and, he's also the mainstream candidate that I'd most like to see in the White House.

I should also point out that I'm sticking by my prediction of no "recession" in 2008. The government will pull every rabbit out of its hat that it can to, as I predicted, maintain the "appearance of normalcy." One example of this, see my latest post on how they're hiding real inflation to justify further "stimulus," which only results in compounding future problems to save normalcy in '08 (that could be a campaign slogan):

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