Last week, Prof. Hamilton at Econbrowser wrote a pair of posts:
Causes of the Oil Shock of 2007-2008
Consequences of the Oil Shock of 2007-2008
He argues that two fairly extraordinary claims can actually be justified both by the numbers and by not-outrageous economic models:
First, that last summer’s oil price shock was attributable entirely to supply and demand, not to a speculative bubble.
Second, that essentially all of the economic contraction that we are currently feeling was caused by the oil price shock.
I am not sure I believe either of these (and Prof. Hamilton himself does not believe the second). But just for kicks, suppose they are both true. What if all the attention we are paying to the financial system is misplaced?
Last night, as I walked across the asphalt to get into my mostly-plastic car, fired up its engine, and drove away on its rubber tires, a debating topic occurred to me. Defend or refute the following statement: “The total production of the human race is equal to how quickly we pull petroleum out of the ground.”
Or put more simply, I wonder whether oil could be our Easter Island palm.
“The total production of the human race is equal to how quickly we pull petroleum out of the ground.â€
I ran across this series of videos; maybe they’re old hat to you: http://www.chrismartenson.com/crashcourse. It’s almost 3-1/2 hours and mostly pretty riveting. There are some things I have quibbles with, but he does a good job overall.
Relevant to your thought experiment: one of his conclusions is that all of our progress — wealth, “complexity” of society, etc., depends mainly on one thing: net energy. I.e., as long as the ratio of energy we get out of the sources available to us divided by the energy it takes to get it is well above 1.0, we’re making economic and social progress. Early oil production had a ratio of 100:1; we’re currently at about 3:1. Oil sands and things are about 2:1 or 1.5:1… corn-based ethanol is about 1.0, plus/minus.
And… to have debt be a solution to anything requires the future to grow much bigger than the present. With net energy continually dropping, that’s an issue. You see where he’s going. Makes me think. Lots of data in his video (LOTS) and I am personally not sure how accurate it is, but I do like the fact that he bases his big-picture conclusions on relatively small amounts of reasonably verifiable data.
Nemo,
Plot OIL vs C, BAC, and GE for 2008-2009. I realize this is a weak demonstration, but I draw the conclusion that a speculative bubble occurred.
XOM didn’t and isn’t increasing E&P expenditures. Either there are no opportunities, or XOM thinks oil is worth more in the ground than it will be on the market in the next 2 to 3 years.
I also thought of Chris Martenson’s website when I read this idea. It is not out-of-the-question, and is definitely worth keeping in mind, at least as a major contributor.
Didn’t oil used to be bought and sold by long term contract before the London spot market was set up (1968?)
Wouldn’t it be a good idea to be pushing a lot harder toward 4th generation nuclear power plants right now?
I tend to believe that over time the real value of every commodity should decline since the essence of intellectual property is finding a way to take a raw input and make it do something better. The 4.9-liter engine of a 1979 Ford F-150 cranked out 114 horsepower. The 4.6-liter engine of a 2009 Ford F-150 generates 248 horsepower. Thirty years of design refinement has led to a big chunk of steel that is more than twice as efficient. Or, put differently, the amount of steel needed to generate 248 horsepower has declined by more than 50%. http://tauntermedia.com/2009/03/03/auto-disaster/
On the other hand, I suspect we are either at peak oil or awfully close. OPEC nation reserves are about as accurately accounted as AIG derivatives and Wells Fargo mortgages.
Not sure where that leaves me on the topic…