Free Markets & Peak Oil
Peak Oil has become a recent interest of mine, along with thinking about how we’ll convert our petroleum based infrastructure into an alternative fuel platform. And, frankly, my powers of imagination have been strained and left wanting.
Many economists, especially free-market fundamentalists, ridicule the very notion that “Peak Oil” should ever be taken seriously. After all, free-market fundamentalists tell us, The Market will resolve the problem, given the magical powers Supply & Demand™ economics.
I don’t know if current oil prices are a symptom of larger forces at work (i.e., a tacit acknowledgement by the market of the fundamentals of Peak Oil), or if the current price of crude is due to isolated geopolitical events; however, as Paul Krugman joked, Peak oil is “a dismal theory that keeps getting more plausible.”
As a theory, though current events may portend as evidence of its relevance, if not its eminent existence, Peak Oil is nothing more than the “media’s new version of shark attacks,” according to the NY Times’ Freakonomics blog. And, true to free-market fundamentalists, we’re told not to worry our pretty little heads, because the magical powers Supply & Demand™ mechanics will fix everything:
One might think that doomsday proponents would be chastened by the long history of people of their ilk being wrong: Nostradamus, Malthus, Paul Ehrlich, etc. Clearly they are not.
What most of these doomsday scenarios have gotten wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it. Add to that the march of technological innovation (like the green revolution, birth control, etc.). The end result: markets figure out how to deal with problems of supply and demand. [Emphasis added.]
I don’t doubt that market forces will come into play at some point, but that’s not the fundamental issue. At the heart of the matter is, What comes after oil and how do we push our way through the inertia that will keep us from acting (i.e., abandon the oil infrastructure that we’ve built since the industrial revolution)?
As I said, my imagination has been strained and left wanting.
In the meantime, I’ll wait to see how this 2005 wager turns out:
I don’t share Matthew Simmons’s angst, but I admire his style. He is that rare doomsayer who puts his money where his doom is.
After reading his prediction, quoted Sunday in the cover story of The New York Times Magazine, that oil prices will soar into the triple digits, I called to ask if he’d back his prophecy with cash. Without a second’s hesitation, he agreed to bet me $5,000.
[...]
Mr. Simmons said he favored a [simple] wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he’d bet that the price in 2010, when adjusted for inflation so it’s stated in 2005 dollars, would be at least $200 per barrel.
[...]
[T]he money [for the wager] is being put into escrow in a joint account; the winning side will collect $10,000 plus any accrued interest on Jan. 1, 2011.
As I write this, on April 12, 2008, the price of a barrel of oil is hovering at around $112.
LONDON: Commodity prices mainly rose this week, led by crude oil, which struck a record high above $112 a barrel on the back of falling American energy stockpiles and the weak US currency, analysts said.
