The economic numbers for the first quarter of 2008 showed that while the U.S. is not yet in a recession, we're sure darn close. The quarter's scant 0.6 percent growth rate suggests that ridiculously high commodity prices (oil, corn, pork bellies) should fall back to earth as Americans cut their spending, reducing demand. But as recent earnings reports show prices have skyrocketed. Since last August, the price of a barrel of crude has gone from $70 to over $110, despite six months of stagnant economic growth. The same is true for other commodities like copper, where trading volume has remained stable, suggesting that the price hike is not entirely due to speculative investors.
While economists make fine arguments in support of the belief that the rise in commodity prices is a symptom of bad monetary policy, it's also hard to dismiss the fact that high prices could simply be a matter of supply and demand - or at least expected supply and demand. One Wall Street Journal writer suggests that there are many similarities between today's economic conditions and those in the '70s, including low interest rates, a weak and falling dollar, market interventions, and high oil prices. But, he says:
there is an important difference between our troubles today and those of the 1970s. In that decade, aggregate supply sagged as oil producers scaled back production and anchovies disappeared off the coast of Peru. The 2000s have been about demand expansion. Millions of workers in China, India and Vietnam, among others, have joined the world trading system.
So, while there may be other factors influencing the rise in the price of oil, metals, and food. A fundamental reason for this price increase is a matter of basic economics: supply and demand. Indeed, despite oil prices that would encourage massive production, oil giant Chevron said it pumped less oil in the first quarter of this year than in the first quarter of 2007. And when ExxonMobil announced its production expectations, investors were shocked to hear that the company said it would pump no more oil over the next few years than it does today despite increasing its exploration and production budget by 25% to between $25 billion and $30 billion a year over the next five years. Business Week explains how astounding the announcement is:
Ponder that for a minute. Texas-based Exxon is the largest publicly traded company in the energy business. In fact, it's the most profitable company in the history of capitalism, earning a record $40.6 billion on sales of $404 billion last year. Yet even with prices at the pump near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year.
It would be as if Steve Jobs said that though people were willing to spend nearly four times more for a Mac than they had been eight years ago, Apple would not build any more. Why is one of the best run oil companies, and most profitable company ever, declining to increase in production? Business Week explains, "Since 2000, Exxon's oil output from two of its largest regions, the U.S. and Europe, declined a startling 37%. That's 500,000 fewer barrels a day in just seven years." In other words, its getting harder and harder to find oil. The most money being made in oil exploration is by those who can drill miles beneath the ocean floor.
While it may not be accurate to say that the world is running out of oil (a cartel dedicated to keeping prices high has too much to say about the world's oil supply to suggest the world is running out), it is accurate to say that for the moment supply is having trouble keeping pace with demand.
While supply remains stagnant, demand has spiked. "World consumption is projected to rise 35 percent, to around 115 million barrels a day, in the next two decades," according to The New York Times. Most of the growth will come from China, India and oil-producing countries in the Middle East."
As developing countries prosper, their citizens seek to emulate developed countries. They eat wheat instead of rice; meat instead of beans. They commute in cars from their homes miles away from the office. They buy cell phones and other electronics, increasing demand for copper and microchips. Some commentators suggest that those of us in the developed world must either quickly abandon our energy guzzling, wasteful ways or get used to a lower standard of living. Most likely, we'll have to do a little of both.
But how should American Christians react to a world in which those resources we've become used to having mostly for ourselves are suddenly in demand across the globe? Can we learn to share our global resources? Must we see a lower standard of living in our future?
Many Christian traditions have taught the lessons of simple living. Living simply, and thereby consuming less, does not necessarily correspond to a decrease in living standards. Those skills in simple living, it seems, are more needed these days as billions more people are now competing for a shrinking supply of resources. While some researchers foresee nationalistic competition in a scramble for limited resources, possibly resulting in war, Christians can be leaders not only in wisely exploiting creation but also in justly sharing it.
Of course, actually accomplishing that task takes more than words. But in a world where energy and other resource dependencies have allowed terrorists to breed and genocides to freely proceed, where people go hungry because they can't afford food, the ability to do more with less is another resource in which demand outweighs supply.