VEGAS' CLOCK IS TICKIN'
Once cheap oil and money die, so will Las Vegas
BY DOUG FRENCH

Just when will this party called Las Vegas end? Right now, it’s hard to imagine a Sin City in the throes of recession or depression. The town has never been hotter. According to real-estate expert Steve Bottfeld, Las Vegas is a “brand name” city that rivals New York or Paris. Like the days of the Rat Pack, this is again the place where Hollywood and sports stars come to play. The young and hip must follow. But, will it last forever? 

In his book Adventure Capitalist, investment legend Jim Rogers calls Las Vegas, “astonishing for so enormous an accumulation of talent and money.” Rogers, who has circled the globe twice in recent years, writes that Vegas “is one of the great spectacles and sights of the twenty-first century.” But, “in a hundred years, maybe two, it will be desert again.” 

Local zoning guru Greg Borgel tells author Geoff Schumacher that Las Vegas will hit the wall in 15 years. According to Borgel, 3 million people are all the Vegas Valley can sustain. Borgel’s argument, presented in Schumacher’s book, Sun, Sin, Suburbia: An Essential History of Modern Las Vegas, revolves around the idea that the quality of life will decrease over the next decade-and-a-half to the point where people will no longer want to move here. With no growth, a quarter or more of the town’s workforce would be unemployed. 

In his book, Schumacher also mentions a terrorist attack as stopping growth or an accident with nuclear waste if and when the Yucca Mountain depository opens 90 miles north of town. Las Vegas growth skeptics always mention the shortage of water as well. 

But the wheels may already be in motion for a Las Vegas depression. Two things have made the American West grow: the availability of cheap oil and the availability of cheap money. This is especially true for Las Vegas. The economic engine called the Strip depends mightily on millions of tourists and conventioneers making the pilgrimage to Sin City to dutifully leave us their dollars. Cheap gasoline and jet fuel ferry them here. 

Cheap fuel also allows seemingly every other resident to drive miles and miles to work and back in a Hummer or SUV. Cheap fuel allows us to crank up the air conditioning in the summer. Cheap money has financed the building of a city at a break-neck pace creating the jobs both on and off the Strip that make Vegas thrive. 

But the era of cheap oil and cheap money may be over. 

Investment expert Dan Denning explains: “The aberration is cheap oil, which will prove to be the exception and not the rule of industrial development. The mistake is fiat money and low interest rates, which, when coupled with cheap oil, created an American economy whose current structure can’t survive higher energy prices.”

Peak Oil in its practical and considerably oversimplified terms, means that if 2000 was the year of global Peak Oil, worldwide oil production in the year 2020 will be the same as it was in 1980. However, the world’s population in 2020 will be twice as large and much more oil-dependent than it was in 1980. Thus, demand will outpace supply by a significant margin. As a result, the price will skyrocket and oil-dependent economies will crumble.

Denning points out that currently the real cost of energy is not reflected in what we currently pay at the pump, “because we are not including the accumulated political and military cost of coddling, aiding and dealing with oil-rich and unfriendly nations for the last fifty years.” 

In his speech at the Las Vegas Gold & Precious Metals Investment Conference, Denning pointed out that there “is no reason that a city like Las Vegas should be here.” Cities throughout history have formed where they are needed. But, up to this point, Las Vegas is a case where humans overcame resource scarcity. 

While energy prices soar, America’s trade, current account and budget deficits will cause the dollar to fall in value, ensuring that interest rates will rise. 

Writing about Las Vegas, Phoenix and other southwest cities, author and oil geologist Byron King believes: “These desert-town places are toast, post-peak oil. Literally and figuratively. That 10-minute drive to the store, or to work, or to the hospital will become the Bataan Death March in a world where oil is scarce. And the American culture is sooooo not getting it.” 

The clock is ticking on Las Vegas; will you leave the party in time? LW

Doug French, associate editor of Liberty Watch: The Magazine, is an executive vice president of a Nevada bank. He is the 2005 recipient of the Murray N. Rothbard Award from the Center for Libertarian Studies.