March 31, 2005

PLEASE READ AND PREPARE!!!

I have constantly warned of Americas economic decline caused by the rise of third world economies, like China and India, and our (the American worker) loss of comparative advantage under globalization. The truth is that there is not much that can be done change this reality, short of sabotaging the growth and success of the “third world”. However, there is another threatening phenomenon that is simultaneous and will exacerbate economic decline and that is the manifestation of “Peak Oil”.

Peak oil is the theoretical point where supply cannot keep pace with growing demand and hence demand forces up the price of oil inorder to ration or control the limited supply. The resultant is that gas prices will take a radical sustained long-term upward trajectory. Prices may oscillate back and forth by a few cents at the pump, over short periods of time, but the long term trend will be constantly up. Prices may often take one step back, in the short-term, and then take two steps forward in the longer term. Many geologist and Oil experts believe we are near or at the period of peak oil. In any case, this is inevitability as oil reserves are finite non renewable (in the short term) resource.

The question is what are the coming effects of this? Well, it can be catastrophic to our economic system. The first thing it will mean is raising inflation, which will reduce the purchasing power of the already falling dollar. That means a reduction in our standard of living. In order to keep inflation from running out of control, the fed will exercise monetary policy by increasing the fed fund rate, which will then raise interest rates which will constrict the amount of money being lent for investment and expansion, further slowing economic activity. Most ominous, however, will be the impact upon consumer confidence in the direction of the economy, as economics is often a self fulfilling prophecy driven by consumer sentiment, due to consumer consumption constituting 2/3 of GDP.

If this change is abrupt, it could spell disasters for the economy and we should prepare for a depression worst than the great depression of the early 20th century. If the change is gradual or if this nation can successfully gain direct or proxy control over a good percentage of world oil reserves, there are things that we can do to prepare for the new realities of a world without cheap energy. That preparation is in regards to real estate.

Real Estate has been the biggest creator of millionaires in America. Those who can intelligently and accurately speculate on future demand will win the real estate windfall. It does not take a rocket scientist to realize that urban sprawl will be one of the first victims of rising fuel prices. Automobiles, numerous highways and cheap oil have combined to create low density metropolitan areas as many people can afford to live long distances from where they work and find culture and entertainment. The rising cost of energy will make such lifestyles a luxury that only the rich can afford.

Smart growth will become the dictate of federal and or State governments. Smart growth is simply a buzzword for promoting population density, as opposed to sprawl. Dense population clusters are much more energy efficient and makes public transit more feasible. As the middle class are no longer able to afford long commutes, they will be driven inwards into the core of metropolitan areas, which generally have the highest job concentration. This will radically reduce the rising transportation cost of a household budget as well as reduce national consumption of energy as street cars, light rail, buses, and subways become more profitable and sustainable from increased population density.

The thing worth noting is who is disproportionately in those core areas today. African Americans are already concentrated in these core areas and are in a future enviable position if we own the land and homes in areas of rising demand. Forward thinking African Americans should not move outward into suburbia, but invest inward going forward. We need to look at our inner city communities not as places to escape from, but to invest into and build into livable viable communities. With increased transportation cost in a sprawled out urban landscape, the demand for suburban living will decline and the suburbs loss will be the central cities gain, as in the past the suburbs gain came at the loss of the central cities.

Also impacting on the declining viability and efficiency of the suburb is decreasing family size due to decreased fertility of American women. Many far out suburbs have communities with large lots, 4 bedrooms, three car garages and other amenities one would need for a large nuclear family. However, demographic trends show a steady decline in family size and the decline of the nuclear family (mother, father, children all living as one). Also, with people living longer and fertility rates dropping, the percentage of the population that are empty nesters (families were the children are grown and moved out) will increase, and they will not need the square footage of the homes they raised their children in. Thus, higher density Condos and Apartments in the core will rise in demand and development.

As African Americans, we can prepare for this changing future by investing and promoting our inner city communities. People will have to become less independent in the future world. We are going to have to family up and share resources and increase our density of living.

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