The Lure Of The Supply Side

It is no coincidence that the so-called New Economy and its "neoliberal" ideology is based on and calls for "supply side answers" to any economic problem. When these do not work the New Economy answer is "demand destruction," after which reduced supply is supposed to satisfy the reduced demand. In fact this only transfers demand to the future.

The best example of this is Russia's economic collapse in the 1991-96 period, during which "demand destruction" for oil and gas was very intense, with about a 45 percent cut in Russian domestic consumption. This of course permitted large increases of Russian oil and gas exports, reducing world prices and maintaining an appearance of abundance.

Today, after more than six years of strong economic growth, growing Russian domestic gas and oil demand, and diminishing oil production, have already led to declining net oil exports from

Russia. Declining gas exports may soon follow, perhaps as soon as 2009. In other words, "demand destruction" in Russia was temporary because no restructuring of the economy or society took place. With a return to economic growth and reduced poverty, domestic energy consumption increased annually at about 4.5-6 percent for oil and gas.

Russia's temporary decline - economic, geopolitical, and of its domestic energy consumption - was treated as "long term" by adepts and defenders of the New Economy. In fact the Russian case was perhaps unique, and is neither a model for us all nor a long-term model for sustainable adjustment to declining oil and gas reserves worldwide.

Energy transition requires restructuring and deep modification of the demand side to permanently reduce oil and gas intensity in the sure perspective of diminishing world production and supply. In turn it will become necessary to change today's energy and economic infrastructures, which go hand in hand with constantly expanding electrification. Supply side myths, such as the imagined abundance of cheap uranium and reliability of nuclear power which lead to a belief in electricity as a solution to diminishing fossil fuels and runaway climate change, must be smashed. World electricity demand in 2006 is growing at about 9 percent per annum, and is about 79 percent generated from oil, gas, and coal.

The energy-dependent economy, in constant growth and change, receives and generates successive overlays of new fossil energy dependent consumer technology, such as the so-called "communications revolution," feeding back to continued growth of energy demand. This produces an apparent imperative of finding supply side solutions, which are being set as the only way to avoid chaos and conflict. In fact the exact opposite applies.

The cult of economic growth, consumer technology innovation, and the confused and impossible desire for "universal prosperity" are collectively taken to be "progress." Anything going the opposite way is taken to be retrogression and failure. This may well be how supply side solutions to the "energy crisis" are thought about in the fossil energy intensive societies, but on the ground, in the Middle East and Central Asia, the hunt for cheap oil and gas results in military invasion, civil war, and devastation. This barbarous "strategy" of military domination to ensure future supplies of oil and gas is the ultimate "supply side policy," and events in Iraq and Afghanistan, Lebanon, and Palestine show that it is a failure. Impacts on world climate from burning a total of about 11 billion tonnes/year of fossil fuels are easy to see. The future damage by runaway climate change to human society - including the economy - is increasingly easy to forecast.

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