So the thought occured to me on Sunday that the North American economy is incredibly dependant on easy access to cheap oil. Ok. That thought had occurred to me sometime ago. What actually occurred to me is that with oil prices rising so dramatically, we may well reach a breaking point soon. Consider
North America’s economy relies on goods being made incredibly cheaply at vast distances from their intended point of sale. This means that huge amounts of oil are used up simply sending goods to their point of sale. The plastic toy truck you’ve just bought at Walmart is quite likely to have travelled thousands, probably tens of thousands of kilometres to reach you.
At what point, I wonder, does the price of oil outstrip the savings of having that toy truck produced in China? Worse yet, think about what happens as we reach that point. Walmart, Dell, all the large retail outfits are always squeezing their suppliers to lower costs. There are enough suppliers that there is probably for a fair number who are willing to make a deal at a break-even, or even loss price point to get a foot in the door, but that can only go on so long. What happens when that toy truck that has been $1.89 for the last ten years (or getting gradually cheaper, as Walmart loves to advertise), suddenly starts going up in price?
Most big-bix stores are in suburban/exurban strips because land is cheaper. They are destination locations that their customers are willing to drive a fair distance to in order to find a more convenient and cheaper shopping experience. But what happens when the cost of gas to get to and from that store outweighs the savings on the goods bought? We can’t discount the convenience factor. Corner stores (or, convenience stores) have long proven that we’re willing to pay more for convenience (ie – a 2-minute walk to the corner store rather than a 10-minute drive to the supermarket to buy milk & bread), but at some point, I imagine, the cost must outweigh the convenience. This is likely to be different for different people, but some sort of median (or is it average I mean here? I always get them confused) could possibly be established, and quite likely, has been by Big-box-employee economists.
Now, I’m imagining the worst case scenarios, but what happens when these cornerstones of the American economy start to close because no one can afford to shop there anymore? What happens when goods start to disapear off shelves because no one is willing to pay the newly increased costs for them? What happens when the seemingly once-inevitable globalization based on cheap oil simply vanishes back into regionalism, purely because it costs to much to travel between regions?
It’s probably worth remembering that there was another era of heady globalism – the belle époque of the late 19th Century, fuelled by cheap energy (coal, at that point). I’m sure companies thought that would never end too, but it collapsed with World War I, and really, didn’t reappear until the 1960’s or 1970’s.
Are their papers/studies that have been published about this sort of scenario? Does anyone have any thoughts on what might happen when/if this occurrs?