Economic Optimism? Yes, I’ll Take That Bet
nytimes.com
nytimes.com
It was obvious that oil was a finite resource from the start, but it took the better part of 100 years of exploitation for US oil production to peak. Five or ten years doesn't seem long enough to reliably spot a trend on that scale.
I'm surprised Simmons expected such high prices. As the shock in 2008 illustrated, above a certain price, oil users cut back as much as they can, which lowers the price again. A sustained price of 200 2005-era dollars per barrel is a really high; that price would surely kill a lot of demand, which would probably prevent it from being sustained. Eventually, we may see $200/bbl, but it will probably be quite a while.
I know hindsight is 20/20, but still, I would have thought a better bet would be something about the average price of oil over (say) a five year period always being higher than the average price over the previous five year period. Then again, maybe Tierney wouldn't have taken that bet.
The "cornucopian" belief is that the effect of innovation is greater than the effect of finite resources.
That is, because we innovate, real prices decrease (with prices best measured in amount of human labor to obtain a benefit). Sometimes the price of a specific commodity increases (e.g., hours of labor to receive one liter of oil), but the cost of the benefit decreases (e.g., hours of labor to travel 100 miles).
I'd be very interested to see counterexamples, where the human cost of a benefit increases.
kb
So the counter-argument also remains the same: 'the market' moves in fits and starts, and there is very real and severe socio-economic cost to disruptions between the start of price shocks and the emergence of alternatives.
It's not unlike advocating a central bank to (theoretically) smooth out natural business cycles, not because the market would implode without it, but because you believe you can fill in a bit of the extreme troughs at the cost of taking a commensurate amount off the extreme peaks.
This doesn't really make sense, of course. A finite resource remains finite whatever we do. Evidently, as said some Saudi oil minister, "Stone Age didn't end by lack of stones"n however we face now a very different situation : the end of cheap petrol is near, but we still have no better or even just roughly equivalent alternative.
As some remarked, until now we always went from one main energy source to a better one (animal and human power to coal, coal to oil). We have no better energy source in view.
Sure, we could be optimistic, or pessimistic, however we know for sure that humans already met decadency by environmental destruction and resource exhaustion several times, therefore I don't think that we should just sweep it away with a "Malthus was wrong!".
The reason we're not all in electric cars is a combination of inertia and newness of the tech. But if the oil price doubled in the next 12 months, the Leaf assembly plant would be running at full capacity. But I disagree strongly that there is no alternative to oil.
Malthus was wrong and will continually be proved so. You can blindly just accept human ingenuity will drive things forward as long as people are allowed to keep the bulk of the reward for their efforts. It might be a leap of faith, but it's a better one to take than living with a doom and gloom mentality.
Malthus was wrong at some points in history, and right at others. The Sumerians, the Pascuans, probably the Mayans and some others proved Malthus right several times.
> You can blindly just accept human ingenuity will drive things forward as long as people are allowed to keep the bulk of the reward for their efforts.
No, this is so fantastically wrong that I don't know where to start. This is so utter bullshit I'd want to cry.
Human ingenuity can't replace resources. We've been awash with resources for a few decades, but that doesn't mean that times of scarcity won't possibly happen again.
> It might be a leap of faith, but it's a better one to take than living with a doom and gloom mentality.
No, I'd rather live with the truth, how uncomfortable it is. Blind faith is a terrible poison to the mind. As said George Bernard Shaw :
The fact that a believer is happier than a sceptic is no more to the point than the fact that a drunken man is happier than a sober one. The happiness of credulity is a cheap and dangerous quality.
One plausible argument I've heard with oil is that it's a fixed resource but rather there's a "resource pyramid" of oil-types varying by availability and difficulty of extraction.
http://www.theoildrum.com/node/6544
Sure, there's a nearly infinite amount of deep-water methane hydrate but exploiting is both next-to-impossible and would be environmentally devastating to attempt. Deep water oil and tar-sands are between this and conventional terrestrial light oil.
That said, I'm not entirely convinced that pretending that the oil supply is infinite is wise.
You may be right: e.g. abundant nuclear power and advances in chemical engineering may render oil unnecessary before it runs out. But suppose that we really will need to continue using oil for, say, the next ten generations (e.g. for fertilizer). Do you really believe that "the market", including American politics, Saudis and several bigcos, will ensure that there will be sufficient oil for the tenth generation?
Anyway you can't just look at the supply side and oil in isolation. It doesn't matter what you're talking about, plastics nor energy, there are alternatives to oil. Oil can increase in price until it reaches the price of the cheapest alternative, and that's a hard ceiling. And since the price of alternatives are falling all the time, I think we'll be in good shape by the 10th gen.
It is literally impossible for a bigco or the saudis to overcharge for a commodity,
Oil is worth thinking about in terms of short term economic wellfare, but I am confident that there will never be a Malthusian oil crisis.
FYI: Oil is not used in fertilizer.
Eventually these bubbles will burst and we'll see a correction again. Assuming that the Federal Reserve doesn't do its' part to keep it going.