Topic of the day: oil

Matt Yglesias wonders why some bloggers worry about Gas Prices.

The panic around the blogosphere, if there is one, and I actually hadn't noticed much of a huff, which is indicative of something, is because bad news sells.

But the important thing to remember about "peak oil" is that the downhill side of peak oil is a SLOPE not a CLIFF. There is no reason to think that we'll wake up one day and there is NO oil; it will simply get expensive. Even artificial political shortages created by oil leaders are self-bounded because they need to sell us the oil just about as much we need to buy it.

The practical answer to higher oil prices? It's pretty simple: smaller cars.

Comments

[Hans in Toronto]

Right you are David.

However, I don't think many will disagree with me when I state that there seem to be few things that people get more worked up about and are more hesitant to change over than gas prices. I fear a situation where politicians looking to score easy votes do whatever it takes to keep prices down, be it gas tax cuts, corporate welfare, or even subsidies. This could be justified by stating how dependent the economy is on cheap oil and therefore the benefits of such programs would outweigh the costs. Eventually, the costs of such programs would become too high, causing a sudden jolt as prices return to where they should be. Rather than a gentle slope, we would see an artificially manufactured cliff, causing far more damage to the economy than the slope would have.

In many ways I fear that this could be happening already.

[ChrisS]

But the important thing to remember about "peak oil" is that the downhill side of peak oil is a SLOPE not a CLIFF.

No one is arguing that there is a cliff. But the slope will only take us so far before costs wreck the economy. That's the cliff.

There is no reason to think that we'll wake up one day and there is NO oil; it will simply get expensive

And continue to get expensive.

The practical answer to higher oil prices? It's pretty simple: smaller cars.

Not for very long, though. There needs to be a gradual contraction of our sprawling transportation & housing system and more emphasis on high density housing and efficient transportation (e.g., rail instead of planes)

[fester]

I think that the reason why so many people complain about gas is that consumption is extraordinarily fixed in the short to medium term. As you note the first "easy" long term solution is to buy smaller cars, but this is a decision made only every three to five years for affluent households, and seven to ten years for just getting by households. The second large fix is to make the large scale, societal wide changes to infrastructure, housing patterns and commuting to work patterns with the attendant transition and relocation costs that this entails. Winners and loses will emerge from this change-over.

If we were living in an economy of higher real wage growth the pain of these transition costs are much lower, and the short term pain of consuming a great deal of an extremely inelastic product could be dealt with. However we are not living in that economy as real wages declined last year, and have barely moved in the past five years. People are getting squeezed from both lower incomes and higher (short-term) fixed expenses and gasoline is the easiest expense to complain about as everyone sees the prices posted quite prominently several times a day.

I have some more on the potential effects of sustained higher gas prices v. 2000/2001 may do on new home construction in the exurbs given a rising interest rate environment at my blog,">http://festersplace.blogspot.com/2005/04/squeeze-play.html">blog, Fester's Place

[Chris Burd]

Fester:

I agree generally, but there are some short-term adjustments to be made, higher use of transit/non-automotive transportation and a reduction in low-value trips being two obvious ones.

If anything, you've understated the wage problem. As far as I know, median US wages stagnated, at best, between the first oil crisis and the late 1990s, when they saw a few years of decent growth (still anemic by pre-1973 standards). Since then they've been flat, I believe. (OT, but it's strange how the popular image of "how things are going" economically tends to be keyed to the experience of the upper 20 or 30 percent of the income ladder.)

[Brian Miller]

Of course, in a world economy increasingly dominated by the boom in the low wage economies of India and China, expectations of increased wage growth seem optimistic.

And, given that India and China both abut some of the major remaining oil reserves (in Central Asia), another "cliff" factor is denial by China of U.S. access to this supply during a future political crisis.

Interesting times.

[Bayard Randel]

There has been some recent speculation that the world's largest oil field, Gharwar in Saudi Arabia, has hit peak production. Unfortunately, in order to meet high demand, this field has been overproduced using dangerous techniques which may have caused geological structures in the field to collapse, rendering much of the oil inaccesible.

If this is the case, that slope is starting to look a lot more like a cliff.

[ender]

While what you say is true there is a scenerio where there could be a cliff.

If on the downside the production is artificially boosted by working fields to the absolute max to try and maintain production the result of this short term effort will be damage to the fields. This could render the remainder unobtainable. This could lead to a plateau as production is maintained artifically leading to a cliff as the damaged fields dramatically decrease in production.

[prius driver]

One of the saudi princes who is also a chemical engineer said on NPR a while back "we just can't keep up with the demand from the U.S. for oil". Isn't raising prices the best way for a supplier to control unreasonable demand?
Now I am seeing more and more "for sale signs" on SUVs in Silicon Valley and alot more Priuses, (or Priai?).

[Jesse McCann]

If you go with the Latin declensions I think it would be spelled "Prii" (pronounced Pre-eye).