James Howard Kunstler: Investing In Infrastructure For An Age Of Scarcity

A few years ago, author James Howard Kunstler famously convinced petro-billionaire and Bush crony Richard Rainwater to build an off-the-grid rural compound because the fabric of American society would soon be threatened by skyrocketing energy prices. The Long Emergency, Kunstler’s pungent and highly influential book on the subject of peak oil, won a lot of other smart money converts as well. When a barrel of crude hit $147 last summer, he was looking more and more like a prophet. At the present $47, let’s just say the jury is still out.

But it’s hard not to have the sense that Kunstler’s ideas or worthy of careful consideration, even if one doesn’t share his certainty that oil will be critically scarce in the next ten or twenty years. For instance, his 1994 book The Geography of Nowhere was well ahead of the cultural curve in describing the gross miscalculations of America’s massive investment in sprawling suburbs. Now, even with OPEC cutting production, Kunstler still predicts oil supply shortages dead ahead. Will we feel the bite this year? Next? The year after? “Soon enough,” he says.

Naturally, this informs his ideas about what kinds of infrastructure investments the nation ought to be making. Recently, he discussed national transportation strategy, the tragic nature of imaginary money, and “evangenical roller rinks” with the Infrastructurist.

JR: So we’re starting a major new round of investment in our national infrastructure. Can we agree that’s a good thing?
JHK: Well, for instance, I think it would be a catastrophic mistake to devote a trillion dollars to fixing up the highways. I mean the days of “happy motoring” in this country truly are behind us. We should be planning for a period when energy resources are much more scarce. Throwing that kind of money at roads is not the way to go about doing this.

How would you be doing it?
I don’t know that I would undertake a spending program like this at all. That said, I’m a pretty strong advocate of repairing the national rail system. It’s obviously not the answer to everything. But it would certainly put a lot of people to work doing something that’s meaningful for society. The infrastructure is out there, waiting to be fixed. I’m pretty adamant that we shouldn’t be going the path of high-tech, maglev, high speed rail at this moment, because we need to prove that we can do this at the Hungarian level before we try to proceed past that.

That doesn’t sound very ambitious.
I perceive one our biggest problems being techno-grandiosity. We are so full of ourselves and so sure that technology is going to rescue us and that we’re so good at it that we can defeat every problem that faces us. It’s a fatal hubris, and it’s subscribed to by an awful lot people who have something to say about the course we take in this country.

In the past, you’ve been critical of Amory Lovins of the Rocky Mountain Institute on similar grounds.
Don’t get me started on Amory Lovins. His basic program for hypercars promotes car dependency. Why do that unless you think we’re going to continue as a car dependent society? That’s why the highway infrastructure thing is so bad, because we’re not going to be able to continue the way we’ve been going. The car is not going to vanish overnight, of course. But it’s certainly going to become a problem as people develop resentments because they can no longer afford to participate in it [as oil prices rise over time].

But you think the answer with rail is to keep it very simple.
Absolutely. The infrastructure is already out there! The track beds are there! And you need an entirely new track corridor for high speed rail, because the high speed trains can’t deal with the curves in the existing tracks. The idea that we would have to create a whole new set of right-of-ways is nuts when we’re not even utilizing what we have.  Another thing to keep in mind is that we’re going to be facing a lot of adversity in the years ahead, and we are a culture that will require psychological reassurance. We should have a project that’s achievable. We need to demonstrate to ourselves that we’re still competent.

And the simple version of the national rail buildout would do that.
This rail project is ideal for that purpose. As I’ve said, we’ve got the tracks, and the rolling stock is pretty easy to get. You could argue that GM should be making this stuff. But it’s terribly important that we fortify ourselves psychologically so we have some faith in our ability to face all the other really important challenges that lie in front of us.

For instance what to do with all this ill-conceived suburban development, a lot of which is falling into vacancy.
I was at a half-empty “powercenter” in Tulsa recently with a local wag, and he looked at a vacant big box store and turned to me and deadpanned, “I don’t think we need anymore evangelical roller rinks.”

A lot of smart people are warning that if we’re going make this kind of enormous national investment, it would be a political disaster for Obama not to have some very tangible things to show for it.
Well, 2009 could turn out to be a politically rocky year. It’s really not clear how things are going play out in terms of the energy picture, the oil picture, and the picture for finance and capital. I’m afraid what’s really going on here is that a huge amount of capital is gone and is never, ever coming back again in any form.

If that’s true it would have been nice to have converted more of it into real and useful things while it was around — like, say, a good national rail network and a better electrical grid.
It would have been nice, but what we were dealing with there was essentially a fraud–a comprehensive fraud. The money was only notionally there. The reason that it’s still such a problem is that it was so fraudulent that the people who created it are sitting on a lot of those toxic assets and can’t come clean about what they did. They can’t take it out of their vaults and say, “This is our bad bet,” because they swindled so many people and they know they’re culpable. Of course, now it’s not just an issue of so many banks having crap in their vaults. It’s pensions and fixed income funds.

As evidence of how linked together all this is: CALPERS, the California state employee pension fund, which is one the biggest investors in the world, made huge investments in exurban land. Tracts around Merced, for example, that were driven up in price by all that notional money you’re talking about. Real estate was 20% of CALPERS’s portfolio and now its value has all plummeted, of course.
It’s a pretty darn substantial problem.

On a different note, you’re pretty outspoken about what you beleive our national energy strategy should be — namely, dramatically reducing our dependence on oil. What do you think of an aggressive strategy of building out nuclear power?
I think that’s probably the best bet for this country. There are drawbacks, but my understanding from the physicists I’ve spoken with is that the waste disposal and storage hazard is much less of a big deal than people seem to think it is. Maybe the proliferation issue is more serious, but I don’t think we’re going to be able to stop anyone from developing nuclear weapons who really wants to. In any case, we really need to have a robust public debate about it.

You predicted a major tumble in the stock market (if a few years on the early side). But you also seemed to think that the oil move to $150 represented real supply issues. But recently oil has been back in the $30s and $40s. What does this mean in your mind–does it undermine the idea that supply could be an issue anytime soon?
It means a lot of things. Mainly it means that the American public is going to be confused again, and they are likely to make bad choices because they’re confused. It means that the futures markets are disconnected from long-term supply and demand reality. It means that we’re foreclosing future oil projects because they won’t go through at these low prices. And, ultimately, that there is going to be a sharper and more severe snapback as we head into these predicted depletions. For instance, the EIA (Energy Information Administration) says there’s going to be a 9.1 percent depletion rate for oil production this year. Other groups are more conservative, estimating something in the 3 to 4 percent range. But if we’re not bringing any new projects on line, we’re in trouble. The supergiant oil fields that have been giving us something like half our oil for decades now are still petering out.

But supply tightness really just isn’t happening yet. I know you think it’s going to reappear sometime soon. How do you see that scenario going?
That demand will stay the same or rise in other parts of the world, even if it doesn’t in this country. We face a number of problems related to supply. One of them is what’s called the “oil export problem”,  which is the idea that oil producing countries are using so much of their own oil that their export rates are going down more steeply than their depletion rates. That’s pretty significant, especially for the US. We import more than two thirds of our oil. The major exporters to us like Mexico and Venezuela are in terrible trouble, as you know.

A lot of people are worried that Mexico is coming apart at the seams.
Mexico is a poster child for the dangers of an oil export economy. So much of their production comes from Cantarell, far and away their largest oil field, and it’s depleting very rapidly now. Their export rate is down something like 30 percent year-to-year.

That much?
It’s huge. They’ve been our number three source of oil for a long time, but in a few years they’re not going to be selling any oil to us or anyone else. Venezuela has different logistical problems. They’re in depletion, too, though.

But they also have a lot more oil with that massive tar sands deposit under the Orinoco region.
Venezuela’s tar sands are mostly bullshit. They’re not going to develop that. It’s out in the middle of the jungle, not to mention the cost of getting it melted and processed. I think that’s not something we should be counting on.

So your view is that the price rise in 2007 and 2008 represented the real long-term story and what we’re seeing now is some kind of weird deleveraging timeout?

It’s a deleveraging timeout. It’s a dumping of assets timeout. It’s an overshoot on the low end as much as we may have seen an overshoot on the high end previously. Apparently, most of the people who trade in a futures market use a set of abstact models for placing their positions and the models are based on nothing except past performance. The point is that traders are not, for the most part, trading on the basis of long-term supply and demand realities. So the low prices right now are quite unfortunate. The public is having their delusions reinforced that we don’t have problems with oil — that it was all a conspiracy on the part of ExxonMobil or whatever. And where it takes you is exactly where Obama seems to want to go, and that’s ramping up the highway spending.

Which you think will look like a stupid investment if/when gas prices go back up.
Yes. Beyond that, in the decades ahead I don’t think that oil prices will matter as much as you might think.

Why not?
Just because there won’t be that much oil around, and as a result our economy will be very different than it is today. The lack of resilience in our current societal arrangements will have taken their toll. We’re talking about an entirely different country, essentially, in a way that most people simply can’t figure into their political views.

Last year, I and many other people would have taken hundred-to-one odds that oil would never go below $40 again.
I dont think we realized how severe the shock to the financial system would be. Think about how stunning it would been even several months ago to learn that Lehman Bros, AIG, Merrill Lynch, and Citi would all down, more or less. And JP Morgan and Goldman Sachs are no longer investment banks.

Imagine if you’d predicted at the beginning of 2008 that New York would no longer have an investment banking industry by the end of the year. You’d have been laughed at.
Wall Street has dried up and blown away, and I still don’t think we’ve adjusted to what that means or reckoned with how broke we are.

Jim Kunstler writes a blog called Clusterfuck Nation. His latest book, World Made By Hand, is a novel.