Methodological Overview - Economics and Ecology: United for a Sustainable World - page 9

and not merely pass it forward to future generations. This is a tall order for
any society, no matter how adaptable or lexible it may be. This topic is our
attempt to assist that transition.
Lessons from Our Energy History
Setting the Stage
In October 1973, the Organization of Petroleum Exporting Countries (OPEC)
oil embargo of the Western world ushered in what came to be known as
Oil Shock, thus beginning what we in the United States called the “Energy
Crisis.” To the common observer, the media, and to most politicians and busi-
ness policy people, the main indicating variable became rapidly rising prices
for petroleum and petroleum-derivative products. Until then, prices of crude
oil had been held between $2 and $3 per barrel for well over 10 years—from
before 1960 into the early 1970s. Starting in 1973, however, prices began fitful
increases, reaching a high of $34 per barrel in the very early 1980s.
Because oil provided at least 40 percent of the energy needs of the world,
the resultant shock waves to the world economy were, not surprisingly,
severe. Data for both unemployment and inflation rose into double-digit
figures by the end of 1974. We were experiencing the dreaded stagflation, ,
or the simultaneous presence of both unemployment and inflation, which
Keynesian economic orthodoxy held could not happen. But, why not view
the whole energy experience simply as a price shock, albeit to an important
resource, which, nevertheless, would be overcome in due time with the typi-
cal involvement of technology?
The answer to this question lies squarely in the bailiwick of economic
theory and revolves around the fundamental pervasiveness of energy as
the primary resource, or driver, in all economic processes. Furthermore,
the more complex and technologically advanced economic processes
become, the more critical to society's economic well-being is its necessity
of relying on available supplies of fossil fuel. As with every relationship,
there is a trade-off; namely, with every increase in the reliance on fossil
fuel, there is a mounting vulnerability of an economy or economic sector
to price shocks.
As it turned out, there were many fundamental lessons to be learned,
well beyond merely dealing with the price shocks to an industrialized-
world economy. At the outset of Oil Shock, even professionals, who should
have known better, did not completely understand the permeating role of
energy—in particular, fossil fuels. Moreover, the tools we were accustomed
to using when analyzing such situations were woefully inadequate for the
task. An anecdote will best serve to underscore this point.