The Rising Price of Oil

The Rising Price of Oil and the Quality of Your Asparagus

By Bill Bonner

05/31/11 Baltimore, Maryland – Well-traveled asparagus…and the US in recession…

Markets were closed in the US yesterday. We didn’t bother to look at what happened outside the US.

We were tired. After traveling to China, Switzerland, England and France…we had run out of gas.

But yesterday, Memorial Day in the USA, gave us a time to fill up the tank.

First, we fired up the lawnmower. Then, we got the weed whacker working. Next, it was time to start the tractor, attach the bush-hog, and begin cutting the fields.

Each of these devices requires oil and gasoline. So, we thought again about how our standard of living depends on the black goo… And we began to think of what would happen if the average suburbanite in Shanghai or Beijing also began to mow his lawn on weekends.

This is hardly a novel thought. Economists have been writing about it for many years. The emerging markets are bound to use more energy. And the price of energy is more than likely to go up.

Standards of living in the emerging world are bound to go up too as people put a little more energy into their lives. They will inevitably benefit from more locomotion and refrigeration. Maybe they will soon be using leaf blowers too.

But what will happen to standards of living in developed countries?

Of course, a lawnmower doesn’t take a lot of gas. Even if the price of oil doubled our lives wouldn’t change much.

But all of modern civilization depends on oil. And everything that we take for granted – asparagus trucked from California, leaf-blowers, and air conditioning – is set up not only to work on oil, directly or indirectly, but to work at today’s price. Double the price of oil and a lot of what we see today becomes uneconomical.

Fortunately for the United States of America and Canada, we have a lot of energy…and we use it freely, easily, and lavishly. If the price of oil were to double, we could cut back…and still live well. We might even live better. Because not everything that contributes to our standard of living contributes to our quality of living.

Take asparagus, for example. If oil is cheap enough, you can afford to ship asparagus from California to Maryland and sell it at a reasonable price. Standards of living go up – at least as measured by GDP. The grower in California earns money…his illegal immigrant workers earn money…the trucker earns money…the grocery store in Maryland earns money – voila, the GDP goes up.

But raise the price of oil and transcontinental asparagus may not make any sense.

We ate the most delicious asparagus in Zurich! Big, white, tender…juicy. “Where did it come from?” we asked our host.

“Why… It’s from Zurich, of course.”

He must have meant the canton. We saw no asparagus grown in downtown Zurich.

It was surely not cheap – nothing in Zurich is cheap. But it was good. Much better than the asparagus you find in the US.

We’re just guessing, but we suppose it was good because it was grown for a local market and did not have to be a variety that travels well. A trip from Sacramento to Philadelphia is tiring for anyone; if your asparagus is going to hold up…it has to be tough.

Perhaps, when prices of energy are higher, our asparagus will not be so well-traveled. Maybe, as our standards of living stagnate, our asparagus will taste better.

Regards,