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I(nflation), Pencil: What a Simple Pencil Can Teach Us about Energy Prices and Inflation – Benjamin Dierker

You may already know me. I am a simple yellow wood pencil. I have already recounted to you the wonder and amazement of my genealogy. From the mines of Sri Lanka to the forests of California, my lineage is anything but linear – it is instead a complex global collaboration to bring my constituent parts together. I trust you know this tale well and do not need me to restate it here today.

But I have been thinking about another lesson that may interest you. As I look back on all the hands that passed along my components, I could not help but recognize how much energy it took to bring me about.

Yes, even me, a small wooden pencil, required millions of barrels of crude oil, billions of cubic feet of natural gas, thousands of tons of coal, and even nuclear fission to be brought into existence. I want to take you through my journey just one more time to instruct you on the importance of energy and how it can lead to insidious price increases on everything you use – from me, a friendly desk implement, to the baked chicken you had for dinner last night.

I have observed that my brethren are costing a lot more than in the past. I do not believe it necessary at present to explain monetary inflation, but like I said just before, an immense amount of energy was needed to bring me into the world, and therein lies one of the key non-monetary reasons for price increases.

Put simply, when energy is expensive, everything using energy costs more to operate. When we revisit my family tree, I trust this will be made quite plain.

I, Pencil, despite being made from simple woods with a handful of other components have been the beneficiary of energy in many forms. You may relate in a way. Surely just this morning you awoke in a bed with the air conditioning running, an alarm clock beeping, or your phone plugged in. The thing keeping all of those going is the electricity passing through your wiring, which came from a distribution network connected perhaps to a transmission line, which originates at a power plant (likely) burning a fossil fuel, probably coal or natural gas. If you have to get to work today, you will no doubt get in your car or jump on the bus – powered by gasoline or perhaps a battery charged up overnight by the same power plant outside of town. This is not very different from my own journey, but if you will stay with me, I will show you much more.

If you attempted to count up all the things you rely on that use power, you would run out of steam yourself. Likewise, I cannot tell you about every drop of oil and every volt of electricity in my past, but you may be interested in a select few examples.

Hold your own morning in your head as you consider the energy others rely on, and how much power they require beyond a simple alarm clock. In the cedars of Oregon, a host of loggers wake at their own homes very early in the morning; hundreds of men flipping on the lights, boiling water for coffee, driving to work in diesel-powered trucks. The gear they tote is made of steel and iron ore, it is fixed with metal screws, plastic casings, adhesives, and rubber. Gasoline and lubricants are needed to power and grease the chainsaws, while nylon and polypropylene ropes help the loggers climb and rappel the towering trees.

Oil and gas made all of these things possible, from the heavier machinery needed to mine the materials to use in synthetic fibers, and of course, the combustion engines powering operations. You may see already why an increase in the price of oil may begin to add pressure.

When the logs are felled, they are stripped with more fossil-fuel-powered equipment and loaded onto flatbed trailers hauled by semi-trucks and locomotives. These diesel vehicles head down to San Leandro, California. You know, of course that all the heavy metal, gears, tubes, wiring, and more in these trucks and trains rely wholly on a fossil fuel mining and manufacturing process themselves – consider how much power it took to mine and forge the 500 miles of track alone.

The millwork in California, where something akin to my slender form begins to take shape, runs on mainly natural gas and hydropower. The 17 percent powered by solar panels is a feat of energy in itself when you consider the mining, processing, manufacturing, supply chains, transoceanic shipments, and more to install the panels across northern California. The heat in the kilns to dry the wood reaches over 200 degrees Fahrenheit and the inks, tints, wax, and dyes are directly derived from hydrocarbons. When you get right down to it, a lot of energy is required even to make energy, because the extraction, transportation, refining, and combustion are all energy-intensive, and themselves rely on metals and materials which require energy to come into being.

As I look backwards at my ancestry, I see how energy made my family tree so. Today, I see how my kin cost more to produce when factoring in how much energy prices affect every step in the process. And the more we consider, the more you will see it.

The factory responsible for assembling me runs massive machinery all powered by fossil fuels, and an energy mix heavily reliant on mining, processing, refining, transportation, and combustion. The machines cycle through each slat of wood, making grooves, inserting the lead and glue, and laying another slat in order to produce a set of eight at a time.

Before, I told you about my graphite lead and its origin in Sri Lanka. That journey once again demonstrates the criticality of energy and how a simple shift in the global market for oil can suddenly impact graphite prices in North America. Deep in Sri Lankan mines, workers who arrived on gas-powered motorbikes use power tools to extract raw materials, which are loaded into trucks to haul to a packaging facility. Powered by diesel and gasoline, tractors and trucks load the packaged graphite onto bunker-fueled cargo ships destined for North America on a 42-day, 10,000-mile journey. When it arrives and is mixed with the chemically refined Mississippi clay it is sent through more energy-intensive machines. Then, this graphite-lead is baked at 1,850 degrees Fahrenheit, achieved by burning natural gas. Finally, as you know, the lead is treated with Mexican wax, paraffin wax, and hydrogenated fats – all of which were gathered from their source of origin, processed with machinery, and transported to this facility on diesel-powered supply chains.

I can repeat myself to describe the lacquer, the brass ferrule, and the eraser, but I think by now you already understand. It is a marvel I came to be at all, but even more miraculous that so much energy is expended in so many places just to bring me, a humble pencil, to your desk.

The lesson I imparted to you before remains one of the great mysteries and beauties of the modern world, that so many people and nations, operating on nothing more than their own interest, can work toward the end of a single creation, even though none of them could make me by himself. In a way, the energy needed to bring me about follows the same pattern. I doubt very much that any one man could produce a megawatt of electricity or a gallon of refined gasoline from scratch.

It takes men and women in geology, equipment manufacturing, land acquisition, legal practice, fluid mechanics, transportation, and more simply to bring a barrel of crude oil out of the ground. To refine that into gasoline and distillates is a herculean task, requiring civil engineering and construction knowhow, chemistry, and more. But then gasoline is simple; those who generate electricity with combustion, pressurization, electromagnetism, and more are really showing off.

You see, no one powers the system, because hundreds of thousands of people do.

I hope that revisiting my journey into the world was able to bring a bit more perspective to you. As you consider inflation and prices, do not forget that underpinning the modern world is a global market for hydrocarbons and critically needed electricity. If no one else has, I humbly hope that I, Pencil, have been able to show you just how fundamental energy is, even to a simple desk tool.

Benjamin R. Dierker
Benjamin R. Dierker

Benjamin thinks, writes, and talks about economics, law, and public policy. His articles are intended to present issues in a new light to readers and do not necessarily reflect personal opinion. No articles represent the views of past or present employers. 

This article was originally published on FEE.org. Read the original article.