Against the Smart Money?

Julian Sanchez | August 23, 2005

I'm a little less sanguine than Ron appears to be below about the Tierney/Simmons bet over the price of oil. The whole "Cornucopian" argument, after all, runs something like this: As resource A becomes increasingly scarce, the price rises until market pressure spurs some combination of a shift to subsitute resources B, C, etc. and technology to make more efficient use of A (or to allow resources X, Y, and Z, to act as substitutes whereas previously they hadn't been). The key thing here is that the argument has prices rising first as part of the mechanism. So if we were talking about, say, 2030 or 2050, I'd probably be happy to take the Tierney side of the bet. But the current technologies that use oil—millions of vehicles, and a network of petroleum filling stations to support them—aren't going to be replaced overnight with a wave of a magic market wand. If the killer energy app were developed tomorrow, it would still take a hell of a long while to make it a viable substitute for oil for most people. I find the Tierney/Simon argument generally plausible, but I don't know how plausible I find it on the timescale contemplated in this bet.

Addendum: OK, after having looked at some of the comments here, as well as my friend Tim Lee's post noting that the $200/barrel projection is way out of line with the futures market's estimate, I'm willing to buy that Simmons has taken the sucker bet here. My point was really just that it's too quick to assume that resource prices will drop over any particular time scale: The argument for prices dropping in the long term relies on the idea that they sometimes go up in the short term, and you need to look at the actual details of the case to make a decent guess at what the relevant time scales are.

Comments

|8.23.05 @ 7:07PM|#

I'd have to argue against you on this. Gas prices dropped relatively quickly after the oil shortage of the 70s. Also, getting new technology out to the filling stations can go quite fast. First, the places where oil is mostly consumed is high-population areas. These areas are also known for adapting new technology quickly. Yes, nowhere, Nevada may not switch so quickly, but they consume a lot less oil. Second, durring WWII we industrialized the ENTIRE nation into a war machine very quckly. When change is necessary, it happens quite quickly.

|8.23.05 @ 7:14PM|#

If the killer energy app were developed tomorrow, it would still take a hell of a long while to make it a viable substitute for oil for most people.

It doesn't need to be a viable substitute for most people. It only needs to be a viable substitute for the number of people underserved by the production of oil at the current price.

|8.23.05 @ 7:16PM|#

Transition costs have long been the elephant in the drawing room for those advocating a replacement for gasoline as the world's primary automotive fuel source. That said, ethanol-gasoline blends could probably be made widely available without an excessive amount of investment in a country's gasoline distribution infrastructure. It just has to become economical to make the shift.

|8.23.05 @ 7:18PM|#

Oh, and also, auto manufacturers have to jump on the bandwagon. Kind of a chicken-and-egg issue when you think about it. Though Saab is coming out with a version of its 9-5 sedan next year that runs on an 85-15 ethanol-gasoline blend.

|8.23.05 @ 7:19PM|#

I'd take the wager in an instant. 2010 is only 5 years away, and prices would have to roughly triple in 5 years. That's saying a 25% real dollar increase every year. That's a phenomenal increase and Simmons argument is not based on an oil embargo or war occurring, but simply the Saudis running low on oil while demand keeps increasing.

Tell you what I'll make you the same wager stakes can be a copy of Choice vs. gift of equal value.

|8.23.05 @ 7:39PM|#

Gas prices dropped relatively quickly after the oil shortage of the 70s.

That wasn't a natural shortage--that was the owner of the main spigot turning off the taps to us. We found other sources. What happens when there's no more sources to turn to?

First, the places where oil is mostly consumed is high-population areas. These areas are also known for adapting new technology quickly.

Great. What will this new gas-replacement technology be, that we adapt to so quickly and easily? And almost everybody can afford to buy within the next few years?

durring WWII we industrialized the ENTIRE nation into a war machine very quckly.

By taking technologies already in common use--not laboratory or theoretical or test models-- and expanding their scale, not by changing the fundamental power source of almost the entire economy.

|8.23.05 @ 7:39PM|#

Ethanol isn't going to do the trick; according to one economist, it takes 1.29 gallons of gasoline to produce a gallon of ethanol. Citation here: http://www.env-econ.net/2005/08/the_energy_bill.html

I've seen similar stats on biodiesel. Hybrids don't pay. If the assumption is that new technology will save us from what we expect to be a massive shortage of oil, we're basically looking at the need to replace the internal combustion engine...in five years. I hope I'm wrong, but I don't see it happening.

|8.23.05 @ 7:39PM|#

taryl:

Considering that oil prices have risen by 50% just this year, it's not really that far fetched.

|8.23.05 @ 7:46PM|#

And for those who say, "The people who live far from and drive great distances to their jobs can move closer--" we're talking maybe half the working population having to move into urban areas that aren't set up to absorb that many people that quickly, and those people, meanwhile, will have ahell of a time selling their suburban houses that nobody wants to live in anymore.

|8.23.05 @ 7:46PM|#

Tell you what I'll make you the same wager stakes can be a copy of Choice vs. gift of equal value.

...for instance, a steaming pile of dog poop.

|8.23.05 @ 7:50PM|#

That Pimentel study is going to make transitioning to biofuels so much harder because of the roadblocks that it's putting in people's heads. Let me summerize the flaws for those who can't view PDF files (taken verbitim from biodiesel.org):

1) The study overestimates the energy used to grow soybeans because it uses data from 15 years ago.

2) Soybean production practices are inaccurate.

3) The study includes labor has an energy input.

4) The study overvalues the energy inputs for soybean oil.

5) The study does not acknowledge that producing biodiesel also results in the production of glycerin.

6) The study overestimates the energy requirements for secondary inputs, such as steel and cement... Perhaps the reason this study reports unusually high values for these secondary inputs is that it uses a 1979 study to derive energy estimates for the energy required to manufacture construction materials and farm equipment. The U.S. manufacturing sector has increased energy efficiency dramatically over the past 25 years.

Emphasis added.

|8.23.05 @ 7:53PM|#

The killer app is telecommuting, and it exists today.

|8.23.05 @ 7:55PM|#

The killer app is telecommuting, and it exists today.

That will help some, but certainly not everybody. Many jobs require hands-on work.

|8.23.05 @ 7:55PM|#

Not David: This was covered in a previous thread. Other studies deliver far different estimates for ethanol's energy yield. See here and here (second link courtesy of Mark Bahner).

|8.23.05 @ 7:57PM|#

Also, telecommuting won't solve the problem of powering factories to produce goods, or shipping the goods to the stores and thence to the consumers. And plastic and petro-based products will become far more expensive, too.

|8.23.05 @ 8:06PM|#

The main problem with ethanol is that it has a veryy low energy density compared with gasoline. It only has 66% of the energy. Biodiesel has only about 5% less energy than petrodiesel, and diesel engines themselves are 40% more efficient than gas engines.

I've read about a new chemical process that turns cellulose into ethanol, but I don't have a cite handy. This would up the energy return... but corn is a really poor energy crop compared to sugar cane.

The best thing about biodiesel is that it can use existing engines and infrastructure.

But there'd still be the problem of all those gasoline vehicles out there...

|8.23.05 @ 8:19PM|#

What are we all so scared about? GDP per capita can fall 50% and then we'd have to live in material conditions similar to, say, the 1970s.

Wow, it was really rough back then.

Even then, it'd be temporary.

|8.23.05 @ 8:27PM|#

Greater reliance on nuclear energy could work (electric cars, transition costs, etc.). It's not the popular choice though.

|8.23.05 @ 8:29PM|#

What are we all so scared about? GDP per capita can fall 50% and then we'd have to live in material conditions similar to, say, the 1970s.

If this were simply a matter of having less stuff than we do now, I'd agree. The main problem will be transportation, or re-organizing society in light of the fact that it's no longer as cheap.

Uncle Sam|8.23.05 @ 8:33PM|#

Then maybe people will actually start trading in their suvs and hummers for more efficient vehicles.
We don't need to figure out right here what the solution will be. It will be.

|8.23.05 @ 8:40PM|#

That alone won't do it, Uncle Sam. The SUV drivers will be the first ones burt by rising prices, but they won't be the last.

And though personal transportation is the biggest part of this from our daily perspectives, it's certainly not all of it.

|8.23.05 @ 8:52PM|#

Eric et al, sorry, I missed that earlier thread: I was on the beach that day converting solar energy into skin cancer. I happily admit to not knowing enough about biodiesel production techniques and would be delighted to see it succeed. I still remain skeptical that it can do so by the 2010 deadline Tierney set for his bet.

|8.23.05 @ 8:55PM|#

You can run cars on biofuels like ethynohl and bioldeisel, its just more expensive than gas is right now. Ultimately, we can easily grow enough corn to run our cars, it will just cost more. How to replace the other million uses for oil, I don't know, but an end to the oil supply is not going to stop the internal combustion engine.

|8.23.05 @ 9:00PM|#

Julian would probably fit in well at New Republic. Virginia should come back and kick his ass.

The Peak Oil people did a good job of programming Jennifer. Her boyfriend (whoever he is) should make a point of keeping her away from religious compunds and charismatic leaders.

|8.23.05 @ 9:00PM|#

I love it how people think more efficient cars will automatically equal lower oil consumption. In most cases the opposite is true. People make descisions on the margins. If you lower the cost of driving a mile, people are going to drive more miles and use more gas because they get more bang for their buck. Actually, if you want to lower consumption, mandate every car get 5 MPG. Force those kinds of permile marginal driving costs on people and they will stop dring and gas usuage would go through the floor because no one could afford to drive anymore. Its perverse and counterintuitive but its what the laws of economics says will happen.

|8.23.05 @ 9:08PM|#

I still remain skeptical that it can do so by the 2010 deadline Tierney set for his bet.

So do I. Even if the high-end energy yield estimates for sugar-based ethanol held up, it would still take a while for the number of operational cars running on it to reach a level that significantly dents domestic oil consumption. That said, the Brazillians have had some success mass-producing "flex-fuel" cars that can take either ethanol or gasoline (see here), and barring something catastrophic happening to major Middle Eastern oil fields, I doubt that the doomsday scenario for oil will play out for basic supply/demand reasons.

|8.23.05 @ 10:10PM|#

Eric:

There are already about 4-5 million Flex Fuel Vehicles on the road. Most people don't know they're driving one, and E85 is hard to find outside the midwest anyway. There's only a single station here in California. Whereas biodiesel is much more common and can be run in existing engines (in addition to the energy density benefits already mentioned).

|8.23.05 @ 10:22PM|#

The problem with the current state of biofuels, John, is that it takes more energy to grow and process the corn than you get in return.

|8.23.05 @ 10:31PM|#

Nathan:

I have responded to that assertation multiple times. Please read up in this thread.

|8.23.05 @ 10:45PM|#

Personally, I'm planning on investing heavily in a pedicab & bicycle hauling company.
Besides, if this oil shortage truly plays out people will have to start walking more, which will lower America's obesity rate, thus reducing medical costs. There's a bright side to everything.

Mark Bahner|8.23.05 @ 11:32PM|#

"Simmons is betting Tierney 'that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel.'"

This isn't even close. Simmons is going to lose soooooooo badly it won't even be funny. To Simmons at least. (I'll be laughing like h@ll. These "peak oil" folks are so unbelievably clueless!)

To Julian Sanchez, I have my own bet offer:

I will bet you $20 that the price of oil a year from today will be less than it is today, adjusted for inflation.

Further, I will make that bet *every year* for as long as each of us lives. That is, each year, on August 23, 2006, 2007, 2008, etc. etc. etc., the price of oil will be less than it was on August 23, 2005, adjusted for inflation (as measured by the CPI).

There is one stipulation: the person who is, on net, ***ahead***, can't cancel the bet. Only the person who is behind can cancel the bet.

In other words, if the price is higher on August 23, 2006, adjusted for inflation, I'll give you $20. But I'll demand that the bet continue, and you can't refuse. If I win the following 2 years, then *I* can't cancel the bet.

Feelin' lucky, Julian?

:-)

Best wishes,
Mark

|8.24.05 @ 12:25AM|#

As someone who actually makes his living in extractive resource industries (minerals, in my case), I think that the Peak Oil people, while prone to hyperbole, are not nearly as clueless as many of the posters on this board seem to think. I do not see a major drop in real oil prices anytime in the near future, for the following reasons:

1) Demand in China is growing enormously. Much of the boom in commodities prices is fueled by China's voracious appetite, and that shows no real signs of slacking.

2) We buy goods in dollars, and in case you haven't noticed, the US is still busy turning its currency into Monopoly money. The baby-step interest-rate hikes the Fed has been engaging in have only slightly slowed the steady depreciation of the greenback. If the sheiks and ex-commissars decide to turn to the euro in the next 3-5 years, you can expect to see the prices the US pays for oil escalate accordingly.

3) Oil companies will indeed turn to old fields to extract remnant resources, but remember, it takes them more energy to extract that oil than from new fields, so their costs will rise accordingly. Also, the oil in old fields is generally low-quality and heavily water-contaminated, requiring extra refining (and additional costs). Oil shales and tar sands are possible sources, but they are also very high-cost and permitting those sources will take years.

BTW - since the CPI specifically excludes energy costs, using it as a measure to adjust for "real" inflation is worthless. The only purpose the CPI has is to rip off people on fixed-income payments by denying them COLA adjustments.

|8.24.05 @ 12:32AM|#

[The WWII transformation was made] by taking technologies already in common use--not laboratory or theoretical or test models-- and expanding their scale, not by changing the fundamental power source of almost the entire economy.

To amplify NathanB's comment, communications technology has gone through several invention/adoption cycles in the last decade. It's big, but not hard.

we're talking maybe half the working population having to move into urban areas that aren't set up to absorb that many people that quickly

Or, different transportation arrangements become socially acceptable. John, I believe, is correct in noting that better mileage doesn't mean less consumption. If, however, it became a goal to consume less, moreso than merely consuming efficiently, people could choose fewer trips and more combined trips. One could keep the gas hog SUV, but if it was only driven to the local strip mall where one got into an electric van pool to the exurban office park, fuel consumption is reduced about as many fold as there are passengers in the van. People might use more home-delivery of goods rather than drive the SUV to the mall. There's a plethora of ways to use way less and get the same stuff done using current technology.

telecommuting won't solve the problem of powering factories to produce goods, or shipping the goods to the stores and thence to the consumers. And plastic and petro-based products will become far more expensive, too.

The idea seems true, and probably inevitable. What matters more is the degree of cost increase. About 45% of USA oil consumption is in the form of gasoline, upon which refining is focused. If there was a reduction in the consumption of gasoline (achievable soon if you like my previous thoughts), refiners could keep the heavier feedstock fractions, in effect increasing their supply and mitigating the effect of the underlying oil "shortage".

And now for a soft pitch to batter joe...
If motorists we're actually directly charged full cost for the use of roads, miles driven (and thereby gasoline consumption) could reasonably be expected to at least flatten, if not drop significantly. USA subsidizing highways isn't much different from how charging "no cover" helps bolster liquor sales. If the bar wasn't making money on the booze, there'd be a price at the door.

Uncle Sam|8.24.05 @ 1:02AM|#

I know of one way we can increase our efficiency by 10-20% but it does not appear to be politically feasible at this time. Maybe later.

|8.24.05 @ 1:03AM|#

The mises.org daily article may be of interest to some here:

http://www.mises.org/story/1892

Interesting excerpt:

"Yet, the history of the oil industry is replete with exaggerated demand forecasts, pessimistic supply limitations and sky-high prices. The median forecast of experts polled by the International Energy Workshop in January 1986 was for crude oil prices of $240 by 2005 (in today�s dollars). Four years earlier, the median forecast for 2000 was $400."

Uncle Sam|8.24.05 @ 1:03AM|#

I said it before:
The greatest threat to our future well being is he usual hsyterical reaction. That's why government doesn't work, it responds to people's immediate fears (often promoted by polititians) rather than to long term solutions. That's why the market, if unmolested, responds better, people with the smarts look toward long term profits by anticipaing future needs and taking risks. Something you won't find in the political arena.

|8.24.05 @ 1:19AM|#

"The Market" is not a perfect mechanism. And certainly it can be focused more on short term gain rather than long term solutions.

|8.24.05 @ 1:20AM|#

I have responded to that assertation multiple times. Please read up in this thread.

Ah... so you have. To follow up then. Biofuels are still a problem in that, even if you're energy positive, you're still not ever going to grow 1/1,000th the amount of corn needed to replace oil consumption. Unless you can get thousands of units of energy out of biofuels for each unit of energy you put into it all of the acreage in the midwest would produce a mere drop-in-the-bucket in terms of fuel need.

|8.24.05 @ 1:33AM|#

Nathan:

The solution to this problem is biodiesel produced from algae. As an example, soybeans only produce 50 gallons of biodiesel per acre per year. Some species of algae are 50% or more of oil by mass. They can grow quite fast, in brackish or wastewater. According to Micheal Briggs at the University of New Hampshire, we can get 10,000 gallons per acre/year out of algae.

Here's some info about biodiesel production and oil yields from various plants, including algae.

From the page:

* Soybean: 40 to 50 US gal/acre (40 to 50 m�/km�)
* Rapeseed: 110 to 145 US gal/acre (100 to 140 m�/km�)
* Mustard: 140 US gal/acre (130 m�/km�)
* Jatropha: 175 US gal/acre (160 m�/km�)
* Palm oil: 650 US gal/acre (610 m�/km�) [2]
* Algae: 10,000 to 20,000 US gal/acre (10,000 to 20,000 m�/km�)

Uncle Sam|8.24.05 @ 1:35AM|#

The market may not be perfect, but then, what is?
Certainly we have seen that political government is worse than imperfect, it is the ultimate manifestation of humanity's failings. The body count alone is testimony to that.

Uncle Sam|8.24.05 @ 1:42AM|#

Then again, the so called failure of the market is, upon closer examination, often a failure of political meddling in the market.

Think about politicians, think about beauracracy, think about war, and tell me, what can we really expect from such an institution as political government.

"It may be true that you can't fool 'all the people all the time', but apparently you can fool enough of them to rule a very large country"
Will & Ariel Durant

Uncle Sam|8.24.05 @ 1:44AM|#

And if you read my earlier post, I did not imply in any way that the market is "perfect", I said "the market, if unmolested, responds better".
See? Not "perfectly", "better".

|8.24.05 @ 1:47AM|#

Assuming the high end number of 20,000 gal/acre-year then the US would need 15.3 million acres of alge to meet demand circa 2003. That's a lot of alge.

Uncle Sam|8.24.05 @ 1:50AM|#

Is that not a good example of the "straw man"; where I say something then get a rebuke for something I did not say.

|8.24.05 @ 1:53AM|#

Will no one note that the going price for 2010 oil deliveries in the commodities markets is around 60 (2005) bucks? Oh, I just did it.

Uncle Sam|8.24.05 @ 1:54AM|#

Jonbuck-
Cool, and perhaps with a little bioengineering, we can improve on that, and maybe get algae to produce other interesting fuels.

|8.24.05 @ 2:37AM|#

There's a great article by Briggs on the UNH web site about just how much land you'd need to replace all the fossi fuels, compared to how much land we already use for farms. Article linked here.

How much land we would need for algae farms:

"That 15,000 square miles works out to roughly 9.5 million acres - far less than the 450 million acres currently used for crop farming in the US, and the over 500 million acres used as grazing land for farm animals."

Best of all, this production method does not need farmland. We could build them all over the place, especially deserts.

Briggs is a frequent poster over on the biodieselnow.com forums.

|8.24.05 @ 6:36AM|#

Algae method is still experimental. It won't meet the 2010 bet. Biodiesel in general might be able to go for B20 (20%biodiesel/80%Diesel) in this timeframe; this would do wonders for cleaing up smog and other related pollution and keep diesel engines clean, wiht out being too much of a production and distribution nightmare; a 2%-5% mix would be enough to restore lubricity in the UltraLowSulfer Diesel coming out soon. Last I heard the optimum price for Biodiesel was between $60 and $80 U.S. However a barrel of Malay Palm oil is currently less. I think the best crop for the U.S. market, barring algae, would be Jatropha Curcas, a hedge-nut, native to the Americas.

|8.24.05 @ 7:31AM|#

Even if algae or biodiesel were able to replace gasoline, ther's still the problem of refitting our cars and everything else before the gas gets too expensive.

communications technology has gone through several invention/adoption cycles in the last decade. It's big, but not hard.

The reason why this example, or the example of switching over from horses to automobiles, does not apply is this: in the case of our switching to new communications technology, or when the country switched from horses to cars, the old technology was still readily available while people chose to avail themselves of the newer, better, cheaper technologies. Whereas when Peak Oil problems start to hit us in full force, many people will be stuck between a rock and a hard place: can't afford to keep using what they've got, and can't afford to switch over to the new stuff either.

|8.24.05 @ 7:48AM|#

Skipping ahead because of the length of comments, so forgive me if I'm duplicating:

The point that many seem to be missing is that the profit motive is key. You can make plausible arguments (although I can counter them) that a free market won't supply the proper amount of national defense, or charity/welfare, as the profit motive in these areas is minimal.

Not so in energy. As many of the chicken littles correctly note, we depend on energy, and our demand tends to be price inelastic. Which means that there is enormous profit potential for whomever creates an alternative. Especially if, as the chicken littles predict, the price spirals uncontrollably upward. In such a market, producers have a massive incentive to be quick to market (just think back to dot.com and telecom booms of a few years ago), and, more importantly, capital markets will recognize this opportunity for massive profit and therefore will shift investments there, speeding up the roll-out.

Remember the project management triangle - on time/at quality/under budget. Pick any two. The implicit lesson - with enough money available, you can achieve any deadline you set. And there will be LOTS of money available for a cheap(er) alternative energy source.

|8.24.05 @ 7:59AM|#

producers have a massive incentive to be quick to market (just think back to dot.com and telecom booms of a few years ago), and, more importantly, capital markets will recognize this opportunity for massive profit and therefore will shift investments there, speeding up the roll-out.

Yes, but what is this technology that producers will be able to make and sell? From some of the arguments on these peak oil threads, you'd think there's already something out there that's every bit as good as gasoline, and the only reason nobody's done anything with it is that there just isn't enough profit to be made. Whereas in reality, the alternative energy sources don't provide nearly as high an energy yield as does gas, which is one reason they haven't really taken off.

Folks are talking about biodiesel. If it does work, how does it compare to gasoline? How many gallons of biodiesel do you need to get the same energy as you get from one gallon of gas? How much will this biodiesel cost? The article linked to above said it is "very efficient," but gave no details--how many miles per gallon? What is the cost per mile? How often do you need to refuel?

Remember: Peak Oilers do NOT say we're running out of energy; we're just saying that energy will get far more expensive. If gas, or its equivalent, remains readily available but costs ten bucks a gallon, that alone will be ebough to trash our economy. So far, none of the alternative energy equivalents being offered come anywhere NEAR gasoline in terms of cheapness. The technology will surely improve someday, but in the meantime we're going to deal with serious economic disruptions.

|8.24.05 @ 8:24AM|#

Jennifer, you must spend a lot of time worrying about how the butcher, the brewer, or the baker get you your dinner.

|8.24.05 @ 8:37AM|#

No, Mike, I don't. But if it makes you feel better to believe that only a paranoid neurotic could be concerned about the implications expensive oil will have on our economy, go right ahead.

|8.24.05 @ 8:37AM|#

Jennifer -

once again, I'll ask - what do you want done? You're good at pointing out all the risk in the future. I agree. The future IS risky. Nothing stays static state forever. Change is a part of life. If energy will be more expensive (entirely possible), what do you think government can do about it?

Notice that even M1EK's proposals (I think in another thread) were mostly concerned with de-regulating land use. That will make it easier for the market to respond to changing consumer desires. We may suffer a temporary decrease in our standard of living - but if so, it is unavoidable, because our current standard is built on shaky foundations of cheap energy. If the long-term median price for a unit of energy is significantly higher than what we've been paying, there is no way to avoid a downturn. But getting government involved will only make the drop worse, and lengthen the period that it takes to recover. Meanwhile, those who are well connected to the government programs will be making out like bandits.

BTW - I agree with poster above who claims to work in extraction - the bet is dangerous because of the way this administration has turned on the printing presses. Sooner or later, the Asians will stop propping up the value of the dollar, and we're going to suffer inflation like we haven't seen for 30 years. Bad news for the little schmo, who will lose his life savings. Good news for the political class - the $5 billion a month we spend on Iraq will be cheaper to pay off with our monopoly money...

M1EK|8.24.05 @ 8:41AM|#

"Or, different transportation arrangements become socially acceptable. John, I believe, is correct in noting that better mileage doesn't mean less consumption. If, however, it became a goal to consume less, moreso than merely consuming efficiently, people could choose fewer trips and more combined trips. One could keep the gas hog SUV, but if it was only driven to the local strip mall where one got into an electric van pool to the exurban office park, fuel consumption is reduced about as many fold as there are passengers in the van. People might use more home-delivery of goods rather than drive the SUV to the mall. There's a plethora of ways to use way less and get the same stuff done using current technology."

This ignores the fact that the suburb to suburb commute can't be served by carpooling, even if you meet at your local strip mall. Your cow orkers all have THEIR local strip malls too. In order to find a place where enough of you could meet to fill the van, you'd all be driving about 70% of the way to work.

M1EK|8.24.05 @ 8:43AM|#

For the purely economic argument on transportation, it might be worthwhile to note that when driving was expensive and the suburbs weren't subsidized (i.e. pre-WWII), the offices in every American city were NOT spread through the suburbs in low-density sprawl. Why is that? Is it because before WWII we were all choice-hating Communists? Or is it because the radial system is the only one that works when driving isn't cheap?

|8.24.05 @ 8:43AM|#

Quasibill--

There's a big difference between asking me what I want done, versus what I think will actually happen. I'm not advocating government intervention here--I could give you some theoretical scenarios where government could make things better, but I doubt they'd work in reality. The most realistic thing I can think to do is just let more and more people know what's going on--if everybody, or even the majority of people, knew about this, were concerned about this, and took steps to just ensure their own comfort, that would solve a LOT of the problem. But most people don't think there's any threat looming on the horizon, and so they won't do anything about it until it becomes far too expensive to do anything. Most people won't try to move out of the super-sprawl suburbs and into less gas-dependent communities until nearly EVERYBODY's trying to do it, and so the price of such places will rise sky-high. I hope/plan to be settled in one before that happens.

So I'm taking steps to try and cushion myself and those who matter to me from the worst of it. And that's it. I don't have time to save the whole country, even if I had the means to do so.

M1EK|8.24.05 @ 8:45AM|#

quasibill,

I also argued for a massive shift in spending from highways to rail. Don't forget that. (Rail can easily be electrified; cars on roads can't).

M1EK|8.24.05 @ 8:47AM|#

"And there will be LOTS of money available for a cheap(er) alternative energy source."

Not if the basic necessities soak up an extra N% of our national income because we're paying five times as much for the oil that it takes to get them.

Think of this as if we were a corporation. You'd want to invest money in your next product long BEFORE your current product loses its market share, because otherwise you don't have enough revenue coming in to pay for your R&D.

|8.24.05 @ 8:50AM|#

Thomas Sowell has coincidentally posted a two-part essay on the very topic of oil prices.

Link

|8.24.05 @ 8:52AM|#

M1EK -

Absolutely. The current suburban sprawl has less to do with free-market choices than it does central government planning. Government subsidized (and ED utilizing to make it cheaper) highways, tax credits for new housing starts, suburban (and originally rural, now suburban) zoning plans that require only large lots, laws requiring municipalities to provide services to far flung lots at taxpayer expense, etc. all warped the market to make it cheaper and therefore more attractive than it would have been for sprawl to occur.

Very few people realize how pervasive government regulation is, and how most problems that face us are the result of government intervention in the first place...

MP|8.24.05 @ 8:53AM|#

I love it how people think more efficient cars will automatically equal lower oil consumption. In most cases the opposite is true.

Totally agree. It's just like all of the people who believe that (more roads) = (less traffic).

And Jennifer, none of your worry-worting has convinced me that there is a clear governmental policy that should be implemented to prevent your pending social disaster resulting from higher energy prices. It's been hard to keep up, so I likely missed the post where you make the "what should be done by the government" argument. My net conclusion based on these threads is that the best approach is still to work towards eliminating market distortions caused by government so that the true costs can be passed directly to consumers.

Of course, I could be accused of being blinded by my libertarian impulses, but so be it.

|8.24.05 @ 8:55AM|#

Mac Daddy--

Just read the article. He seems to be making two main points : "price controls are bad" (which has no bearing on this thread, since we're not arguing in favor of them), and "there will be plenty of oil, it just might cost more." Which is EXACTLY was the peak oilers are saying. This business of saying "peak oilers claim we're running out of oil!" is nothing but a strawman--all we're saying is that energy prices are going to get a LOT higher soon. Much higher energy costs combined with no increases in wages or productivity equals some economic problems.

MP|8.24.05 @ 8:56AM|#

Well, it appears that Jennifer has addressed my inquiry in the midst of drafting my previous post. Thx.

|8.24.05 @ 8:57AM|#

none of your worry-worting has convinced me that there is a clear governmental policy that should be implemented to prevent your pending social disaster resulting from higher energy prices.

Jesus Christ. Let me repeat for the umpty-squat thousandth time: I am not advocating any government action or price controls, so stop pretending I am. What, you're saying that if a problem can't be solved by the government it's not really a problem?

|8.24.05 @ 8:59AM|#

Oh, and MP and I cross-posted again.

|8.24.05 @ 9:00AM|#

First, "we" aren't a corporation. I've never (as far as I know) been a member of a corporation with you. So that isn't a very useful analogy.

Second, you forget the power of capital markets. There is no need for a current revenue stream if you can sell your business plan to capital markets. And as I noted, they're going to fall all over each other chasing anyone who can propose an alternative if prices continue going up at the rate they have been. The possible profit involved would be astronomical.

Which brings the third point. I don't want my tax money to subsidize that research. Why not? Because I'm not going to be seeing the profit. Most likely, investment bankers and possibly an entrepreneur/engineer/scientist will. The only moral justification for them seeing such massive profits is that they took a massive risk. Using my tax money to subsidize them makes me "socialize" their risk, but they aren't going to "socialize" their profits back to me equally. So from a moral standpoint, forcing taxpayers to socialize a risk while not socializing the profits is wrong - it's exactly what the Whigs and later the Republicans were built on, and exactly the phenomenon that Marx observed and rightly criticized (while proposing to go in the wrong direction and socializing the profits).

M1EK|8.24.05 @ 9:13AM|#

"There is no need for a current revenue stream if you can sell your business plan to capital markets"

And nobody will have spare capital if oil is $200/barrel before any reasonable alternatives come on line. You just ain't getting it. If you're spending all of your 'disposable' income keeping the lights on, there isn't any money LEFT for R&D. And if all the other countries/companies/whatever are in the same boat (they will be), then you're just screwed.

M1EK|8.24.05 @ 9:17AM|#

By the way, I've already done what Jennifer's trying to do (cushion the blow) - I spent a ton of money to move into the central city and am down to one car (the Prius) which our family of 4 only puts 6,000 miles per year on, but don't fool yourself - it's going to be bad. If inflation hits 20% and unemployment hits 12% and the suburbanites can't sell their houses or shop at Wal-Mart, the macroeconomic effects are going to hurt everybody, even those of us who planned ahead and moved into the city before the rush. (IE, I could just as easily lose my job at Company X because consumer spending evaporates).

|8.24.05 @ 9:24AM|#

M1EK--

You're better off than I am right now--I'm planning to move to the city, but I'm still about a year away from having the money to do so. (Sooner, if the housing bubble pops.) And when the time comes I'll have one HELL of a time convincing my boyfriend to go along with it.

ed|8.24.05 @ 9:25AM|#

Electric cars juicing up on new-generation, smaller-scale nukes is one obvious answer. The hysterical and irrational dread of nuke plants is a thing of the past, and $4-a-gallon gas will persuade many former skeptics to open their eyes to this proven energy source. Americans do indeed vote (and think) with their wallets.

And no, this will not happen overnight.

|8.24.05 @ 9:28AM|#

JonBuck et al.

1. If ethanol worked as a replacement it would not need the massive tax subsidy and mandated usage it now has. Currently ethanol usage is just a big chunk of pork handout to ADM and the corn producers.

2. Subsidized ethanol production raises the cost of grain. Using ethanol will increases the cost of almost every item in the grocery store. So consumers are hit twice by subsidized ethanol production first by the tax subsidy, the second time by the increased price of their groceries.

3. If ethanol worked as a net positive energy source it would not need a subsidy or a mandated usage.

|8.24.05 @ 9:43AM|#

If people would really read the article, they'd find that Tierney's bet is the price of oil would rise at a lower rate than the average American wage will rise. He's not betting that the price of oil won't go up.

gaius marius|8.24.05 @ 9:43AM|#

Very few people realize how pervasive government regulation is, and how most problems that face us are the result of government intervention in the first place...

which i might agree with, mr quasibill, but that isn't going to stop -- in fact, it's going to accelerate as troubles beset us. if watching the bush admin totally abandon any libertarian taint upon reaching the halls of power didn't convince us of that, it should have.

Because I'm not going to be seeing the profit.

first let me say that your blind faith in technology, mr quasibill, is exhilirating. but it is faith in the instrument of man, and it will eventually be terribly disappointed -- regardless of how you may believe it has been rewarded in the past. eventually, the pavlovian response of technical management to crises will not yield a doggie-bone. :)

more directly to this quote, however, there are a lot of risks you participate in without seeing a profit that function to your immense benefit -- including the entire concept of a corporation under american law, which is implicitly underwritten in a thousand different ways by government risk mitigation. the truth is that our markets are liquid because we socialize risk through government to a very great degree, making it comparatively risk-light to put capital to use.

you're welcome to go back to the boom-and-depression days of the 19th c if you like, with its famines and riots. but you'll find few takers.

Jesse Walker|8.24.05 @ 9:44AM|#

This is an interesting inversion of Y2K, isn't it? People fear disaster, so they move to the city.

As a telecommuting resident of an honest-to-God urban core, I'm happy to say I'm already prepared!

gaius marius|8.24.05 @ 9:52AM|#

This is an interesting inversion of Y2K, isn't it?

panic! Panic! PANIC! :) fwiw, while the macro situation is inherently unstable thanks to the imbalances in capital markets built up by the american consumer debt mania, this particular aspect is a slow transition to higher oil prices.

we haven't even begun to discuss non-energy uses of petroleum -- which are arguably quite a lot more important than the energy uses and non-transferrable by any extant or proposed technical schema. plastics. pharmaceuticals. cosmetics. lubricants. petro is about vastly more than energy, and i suspect it will eventually be too expensive to burn when other uses are more vital.

btw, mr walker -- you should steal mr bahner's money. he clearly as no concept of market volatility, and you'd be taking candy from a baby.

|8.24.05 @ 9:54AM|#

See, only a statist could even contemplate the possibility that a technological transition might involve some expensive disruptions if it happens due to natural resource constraints.

And only a statist could think that the transition might be more sudden than expected, if those expectations were influenced by dishonest reports from the House of Saud.

Is Jennifer right? I dunno. But I'm willing to consider that possibility. Jennifer has not called for any coercive remedies and neither have I. Why is everybody so upset with her?

|8.24.05 @ 9:54AM|#

Jennifer -

I clearly get the message that you are not proposing government intervention, and I was not trying to imply that you were by linking to the Sowell article. I just thought it was an interesting coincidence that Sowell published some essays on the topic.

I am afraid that we must agree to disagree on the premise that future increases in oil prices = socioeconomic chaos (to use some hyperbole of my own). Call me blindly faithful, but I do pray at the altar of capitalistic free markets. I believe that, left unfettered, people will adjust to higher oil prices in ways that we haven't thought of yet, but that will make us all better off. Of course, I could be wrong.

MDH

gaius marius|8.24.05 @ 10:04AM|#

oh, and i forgot synthetic rubber. synthetic fibers. asphalt. synthetic proteins and foods. more than a third of all industrial chemicals. surfactants and detergents.

i think many people (maybe many here) have no idea truly to what extent the entire industrial age is built on oil -- a resource which was totally unexploited just 150 years ago. it's mind-boggling.

gaius marius|8.24.05 @ 10:06AM|#

Why is everybody so upset with her?

controverting the religion, mr thoreau. a big no-no in the house that balkunin built. ;)

gaius marius|8.24.05 @ 10:07AM|#

pardon my messy fingers -- 'bakunin'.

|8.24.05 @ 10:07AM|#

OOPS!

Tierney's proposed wager was what I stated. The actual bet was the price would be $200 a barrel or so, which in Tierney's terms would mean the average american wage would have to more than triple in five years to rise at a faster rate than the price of oil would rise.

I still agree with Tierney's position because I don't think people are as addicted to oil as we are led to believe.

|8.24.05 @ 10:09AM|#

I just figured out that a lot of libertarians are, in their own way, believers in central planning:

Jennifer says "Hey, there's at least some reason to believe that these trends will continue, and if they do prices will get out of control, at least in the short term. So I'm going to adjust by moving to an area with a shorter commute and buying a fuel efficient car and using fluorescent light bulbs and whatnot."

And everybody else is like "No! Stop worrying! Everything will be fine! The market will sort it out! We don't need to do anything!"

Wrong. You do need to do something. You are the market, or at least part of it. Don't sit there waiting for the executives at GiantCorp to select an alternative fuel source and spread it to the masses. Sure, the executives at GiantCorp will play a role. A big role. But individuals who anticipate problems and start keeping an eye on options will also play a role.

Me? I'm keeping an eye on options. Maybe living closer to my wife's job (I take the Metro to work, and yes, I know, it's subsidized). I keep an eye on fuel efficiencies. (I admit that our current car isn't exactly spectacular in that regard, hence we're keeping an eye on the options.) I use fluorescent bulbs and keep an eye on the thermostat. I am part of the market, and I'm not going to carry on until some executives decide what to diseminate to the masses.

Maybe the conviction that "they" will sort it out via the market is why even some libertarians have a tough time telling the difference between pro-business and pro-market stances.

|8.24.05 @ 10:11AM|#

Finally, is it really so ridiculous to think that projected reserves might be skewed by reports from the oh-so-transparent House of Saud?

M1EK|8.24.05 @ 10:14AM|#

"I take the Metro to work, and yes, I know, it's subsidized"

A hell of a lot less than the drivers on the 'freeways' in your area are.

MP|8.24.05 @ 10:24AM|#

thoreau,

Libertarians commonly use "markets will take care of the problem" as a substitute for "government interference will only make the problem worse". However, don't confuse "markets" with "corporations". The Laissez Faire approach does not imply that individuals do not have a direct responsibility to evaluate and make decisions. In fact, that's the whole point.

gaius marius|8.24.05 @ 10:31AM|#

Wrong. You do need to do something.

agreed, mr thoreau. this obvious and pervasive reaction of obstinate do-nothingism is part of why i feel quite comfortable criticizing libertarianism for what it is to so many -- a reductive philosophy of rank escapism, an attempt to stoically cut bonds, obligations and responsibilities to one's society and completely introvert into the self.

gaius marius|8.24.05 @ 10:33AM|#

Libertarians commonly use "markets will take care of the problem" as a substitute for "government interference will only make the problem worse".

a telling slip, i would say, mr mp.

|8.24.05 @ 10:42AM|#

Why is everybody so upset with her?

Without pointing my finger at anyone, I think it's exemplary of a trend I've seen among libertarians to reflexively oppose certain views on apolitical subjects when many of those who hold such views support statist policies to remedy a perceived problem stemming from that view. The global warming debate is a pretty good example of this. Though it should be said that Republicans and Democrats routinely play this game as well.

Regarding the opposition to using any taxpayer money to spurring the development or adoption of any alternative energy source, it should be kept in mind that even if Iraq had never been invaded, we'd still be spending tens of billions of dollars each year on our military presence in the Persian Gulf region. Not to mention that billions more are spent by both the public and private sectors to deal with terrorist threats that are directly and ideologically financed with oil money. This isn't to say that I favor massive government spending to deal with the problem, but I would say that if an alternative energy source emerged that could in fact drastically reduce the country's oil consumption, then the notiion of limited government support for the energy source shouldn't be ruled out-of-hand.

fyodor|8.24.05 @ 10:45AM|#

I just got here, so in lieu of reading everything said so far, I'll risk redundancy and suggest that I would think the Tierney side of the bet is based primarily or entirely on the belief that oil is just not really that scarce, that the supply is not really facing such a near-term crisis.

If it IS, I would agree with Julian and the Jennifer-ites that we might just go through some major and difficult adjustments before technology advancements and growth bring us back to where we are now.

But again, that strikes me as a big if. Though to be honest, I didn't read that whole NY Times article. From the little I did read, it seemed more speculative than informative, with much of its fearful and cautionary tone based on the possibility that the Saudis have less oil than they say they do. Since for various reasons I doubt I will get around to reading it all, can anyone tell me if it ever got around to saying anything more substantial than that?

|8.24.05 @ 10:53AM|#

Here's my personal plan, and I would encourage everybody to do similar things, though I am not advocating that anybody be FORCED to do so:

Although I prefer living in the sticks, I am going to buy a house in a particular city which I believe will be in good shape, due to the existence of mass transit, a location on the Metro-North train line to Manhattan, and port facilities besides. I am planning to buy a multi-family home, so I can supplement mine and Jeff's income with collected rents (and provide some cushion in the event one of us loses our jobs). I'm saving enough to make a big enough down payment that my mortgage payment will be small, so I could still swing it even if I had a decrease in income. If there's time I plan to get solar paneling installed--I think electricity will still be available, but expensive enough that solar panels become worthwhile. If gas became too outrageously expensive, Jeff would therefore be able to take a train to his job, and I could probably telecommute from mine.

And I'll probably buy two bicycles, one for me and one for Jeff. He doesn't have to ride his if he doesn't want to, but I think they'd be good things to have around.

That's it. I'm not hoarding a ten-year supply of food, or learning the basics of wilderness survival, or stockpiling guns and ammo. If you wish to believe that my plans are those of a paranoid neurotic tinfoil-hatter, then by all means continue to do so.

MP|8.24.05 @ 11:00AM|#

an attempt to stoically cut bonds, obligations and responsibilities to one's society and completely introvert into the self

It is not simply a "f*ck the rest of you" belief. My belief is that the sum total of the individual choices of selfish individuals making rational decisions will create a free, wealthy society. The primary foundation needed to support this is the complete transfer of responsibility of individual actions onto the individual. If I thought that the application of an individualistic philosophy would not have a net positive result on the society at large, then yes, I would have to question my morality.

|8.24.05 @ 11:05AM|#

If I could afford to live closer to my and my wife's jobs, I would, but we can't, so we don't. It would cost us, literally, double what we pay in rent now to live meaningfully closer (i.e., to where we could either walk, bike or take short Metro trips to work). Meanwhile, we own one car that gets decent mileage, commute together to work, we either walk to the grocery store or have stuff delivered, and cut down on unnecessary trips where we can, etc. That's about all the sacrifice I can afford at the moment.

M1EK|8.24.05 @ 11:08AM|#

"I think it's exemplary of a trend I've seen among libertarians to reflexively oppose certain views on apolitical subjects when many of those who hold such views support statist policies to remedy a perceived problem stemming from that view."

Shhh. I've been told on numerous occasions that if you mention this here, you are a discourteous jerk. Do you want to be a discourteous jerk? I didn't think so.

fyodor|8.24.05 @ 11:09AM|#

Jennifer,

Seems the main two things you're doing is moving into town and looking into solar energy. As long as you're okay with the former and don't spend huge amounts on the latter, I wouldn't say your plan is all that radical. If, OTOH, you really hate living in that city and/or you spend thousands on a solar system you may end up never using, I dunno. Well, it's your life. Incidentally, as bad as things MIGHT get, I still find it very hard to imagine that bicycles will become hard to come by, so I'd think there'd be no hurry to get them, although again, not much harm in buying them early if you can spare the room for them.

BTW, did you take any Y2K precautions? :-) I bought a few gallons of water myself....

MP|8.24.05 @ 11:14AM|#

Shhh. I've been told on numerous occasions that if you mention this here, you are a discourteous jerk. Do you want to be a discourteous jerk? I didn't think so.

M1EK, that's because you tend to take Eric II's long, reasonble, courteous sentance and distill it to "you're a liar and a fool!".

|8.24.05 @ 11:16AM|#

On the subject of Y2K:

A friend of a friend, on Dec. 31 1999, went to the store to get ready just in case. He saw that all the bottled water was gone, so he bought milk...

fyodor|8.24.05 @ 11:17AM|#

BTW, Jennifer, what are your sources other than that NY Times article that the oil supply really faces a major and imminent (and unanticipated by the current speculators) shortfall?

|8.24.05 @ 11:19AM|#

Julian et al --

For those who want actual prices and to pick a time period for a bet, go here:

http://inflationdata.com/inflation/images/charts/Inflation_Oil_20050819.gif

Real prices appear to go downward over most ten year period, but clearly not all.

|8.24.05 @ 11:19AM|#

"if watching the bush admin totally abandon any libertarian taint upon reaching the halls of power didn't convince us of that, it should have."

If nothing else, we agree on that much. I have no faith in government, or that it will ever do the right thing. But I have faith that people are slowly (and in fits and starts) coming to a general understanding that government is at best a necessary evil. It may be that our civilization will crumble, as it is based upon the failed religion of statism. But then, even if living standards decline somewhat, or even a fair amount, it will be hard for "chaos" to manage the murder total of close to 200 million that modern states have accomplished in the last century (note that that number does not include casualties in military conflicts).

"first let me say that your blind faith in technology, mr quasibill, is exhilirating."

Don't know who you're talking to, but it ain't me. I have no blind faith in technology. I do, however, have blind faith in human nature. When "liberated" from the concerns of statism, human beings are, on the large part, decent, peaceful animals. Are there random sociopaths, etc.? sure. But less than 5% of the total. But when we start sacrificing personal morality on the altar of the state, the numbers increase drastically. Technology won't save us - human nature (freed from statism) will. To me, the best evidence is that we haven't wiped ourselves out yet, despite thousands of years of 'civilization'. I'm betting that that will continue.

"you're welcome to go back to the boom-and-depression days of the 19th c if you like, with its famines and riots."

I'm surprised that someone with your alleged knowledge of history wouldn't realize the cause of these depressions and famines. Hint - mercantilism.

|8.24.05 @ 11:19AM|#

Ethanol is a poor fuel for transportation, frankly. Mainly because the energy density is so poor (1/3 less than gasoline). Also, even if we did use it, corn is a poor plant for producing it. Sugar cane is far better, but the climate in the US is not suitable for growing it. The one caveat is a new process I've read about that uses bacteria to digest cellulose, so you can use the whole plant and thus get more ethanol out of it.

Jennifer:

If you read the article, you can tell that after all the numbers are through, biodiesel is only about 2% less energy dense than petrodiesel. So the mileage is comparable. However, you're right in that algal production methods are still years away from starting up. I look at soybeans and rapeseed as a stopgap. Briggs is currently working on commercial-scale algal methods.

I do think it's too late to avoid some level of economic distruption. But I won't predict how bad it's going to get. I'm trying to take some precautions, myself. I recently got the most fuel efficient car I could afford (A Toyota Corolla).

gaius marius|8.24.05 @ 11:22AM|#

If I thought that the application of an individualistic philosophy would not have a net positive result on the society at large, then yes, I would have to question my morality.

which is just what bakunin and proudhon thought, mr mp. as has often been said, many libertarians are really just rebranded anarchists.

that rationalization doesn't change what the idea ultimately is. in time, when its shown that no society can so function without becoming violent and destructive, the impulse to anarchism will become stoicism -- advocacy of the complete detachment in reasoned and moral apathy.

Uncle Sam|8.24.05 @ 11:24AM|#

"why i feel quite comfortable criticizing libertarianism for what it is to so many -- a reductive philosophy of rank escapism, an attempt to stoically cut bonds, obligations and responsibilities to one's society and completely introvert into the self."

That may be YOUR interpretation of libertarianism, mine is quite different. Humans are social animals and we are all dependent on each other in manifold ways. The libertarian question is: Shall our relationships be based upon fear and coercion, as it is through the political process, or shall our relationships be based in consensual association and mutual respect?
Speaking a self identified libertarian for 25 years, I lean heavily toward the latter.

gaius marius|8.24.05 @ 11:27AM|#

He saw that all the bottled water was gone, so he bought milk...

lol -- that's hilarious.

fwiw, i indulged in a bottle of dom perignon. not much for survival, but it was wonderful.

Uncle Sam|8.24.05 @ 11:27AM|#

>>"you're welcome to go back to the boom-and-depression days of the 19th c if you like, with its famines and riots."

I'm surprised that someone with your alleged knowledge of history wouldn't realize the cause of these depressions and famines. Hint - mercantilism.

|8.24.05 @ 11:29AM|#

"And nobody will have spare capital if oil is $200/barrel before any reasonable alternatives come on line. You just ain't getting it"

No, you ain't. Capital doesn't just disappear. If it's being spent, someone is receiving it, and either spending it or investing it. Money is nothing more than a lubricant in exchanging value. The only thing that truly destroys value is war (or its relatives). People have so completely bought into the myth of fiat money that they don't understand basic economics.

The government does not create any value when it turns on the printing presses. That's why inflation occurs. More money at the same gross value = money that is worth less.

Likewise, the change in price of any one commodity does nothing to destroy value. It merely represents that at a given time, that commodity's relative value to all others. As the commodity gets more expensive, marginal consumers shift their purchases elsewhere, where they find more value. This starts to create a drag on prices, and allows people to make decisions based upon what they need and value most.

Now, there can be painful corrections when "paper" value turns out to be overstated and people have over-leveraged themselves. But there's nothing any government in the world can do to protect people from their own decisions, absent a Wachowski Bros flick.

Uncle Sam|8.24.05 @ 11:30AM|#

>>"I take the Metro to work, and yes, I know, it's subsidized"

A hell of a lot less than the drivers on the 'freeways' in your area are.

|8.24.05 @ 11:32AM|#

It appears that Uncle Sam and I are on the same page.

Brrrr. Saying that just sent shivers down my spine. (nothing personal - it's the name and all...)

Uncle Sam|8.24.05 @ 11:34AM|#

>>that rationalization doesn't change what the idea ultimately is. in time, when its shown that no society can so function without becoming violent and destructive, the impulse to anarchism will become stoicism

MP|8.24.05 @ 11:35AM|#

which is just what bakunin and proudhon thought, mr mp. as has often been said, many libertarians are really just rebranded anarchists

And individualistic philosophy does not imply anarchy. An individualist can still believe in a minimal government which is granted police powers for the enforcement of both natural and property rights. It has not been shown that a society of this nature will devolve into chaos.

Uncle Sam|8.24.05 @ 11:36AM|#

>>It appears that Uncle Sam and I are on the same page.

Brrrr. Saying that just sent shivers down my spine. (nothing personal - it's the name and all...)

M1EK|8.24.05 @ 11:38AM|#

"What are the figures on this? Politicians frequently raid gas tax income to bolster the general fund.

Sources please."

First, your locality will vary on this, but most raid the general fund (property/sales taxes) to pay for arterial roadways AND often-times freeways -- whose primary purpose is NOT simple property access, but rather, moving around suburban commuters.

I write on this a lot (focus on Austin, TX) at this blog category archive: http://mdahmus.thebaba.com/blog/archives/cat_funding_of_transportation.html

One particularly relevant example: http://mdahmus.thebaba.com/blog/archives/000122.html


Second, in general: these guys do the best job of analyzing road subsidies: http://www.vtpi.org/

|8.24.05 @ 11:40AM|#

which is just what bakunin and proudhon thought, mr mp. as has often been said, many libertarians are really just rebranded anarchists.

Except for the minor detail that libertarians see an appropriate and useful role for the state, and anarchists do not.

gaius marius|8.24.05 @ 11:44AM|#

I have faith that people are slowly (and in fits and starts) coming to a general understanding that government is at best a necessary evil. It may be that our civilization will crumble, as it is based upon the failed religion of statism. But then, even if living standards decline somewhat, or even a fair amount, it will be hard for "chaos" to manage the murder total of close to 200 million that modern states have accomplished in the last century (note that that number does not include casualties in military conflicts).

until, of course, our apathy invites invasion. i rather think of men like al-zawahiri as a manner of western vercingetorix.

and one might note that the evaporation of basic services -- corporate agriculture, disease control, collective defense, so many more -- that accompanies the fall of civilizations radically reduces populations. the dark ages of the next interregnum will not be desirable.

When "liberated" from the concerns of statism, human beings are, on the large part, decent, peaceful animals

here, i suspect, is where we diverge, mr quasibill. man is moral in law.

Hint - mercantilism.

i don't think it's nearly that easy. booms and busts are problems of money supply and interest rates in a system of banking. without assiduous manipulation, booms and busts are a regular feature of monetarist economies. the proof is in the fact that the british empire (and therefore the western world) abandoned mercantilism for laissez-faire in the victorian era -- and we experienced regular debilitating depressions.

now, one can rightly argue that all greenspan's management has merely created a massive moral hazard and that bretton woods and everything after has netted us only a view toward one of the great economic disasters of recorded history. but one cannot say that mercantilism excuses the wild swings between boom and depression in the 19th and 20th c.

Uncle Sam|8.24.05 @ 11:47AM|#

In fact, I've never heard of any ideologically based anarchic society ever having bee created or attempted. The equation of anarchy = chaos was manufactured by statists with some reference to a few bomb-throwing Russian anarchists. Most people thinking of social chaos are referring to the collapse of a politically corrupted society and identify the ensuing chaos on the lack of "government" rather than the excess which brought about the collapse.

It is true that a many drug addicts experience physical chaos when they attempt to quit their addiction, but we do not conclude that everyone must take an addictive drug, and keep on taking it, to avoid physical chaos. The recommendation is to either avoid involvement with addictive drugs in the first place, obtain assitance in undergoing withdrawal, or gradually reduce ones dose until no longer needed.

No one wants to experience societal collapse, but political forces may bring it about against all our desires.

|8.24.05 @ 11:49AM|#

Fyodor--

I never believed in Y2K, so the only preparations I made were to make sure I laid in a good supply of booze and pot in time for New Year's Eve.

There are a lot of Peak Oil sources out there (and yes, I'll admit many believers are raving loons who have simply latched on to the theory as the latest armageddon du jour). In addition to "peak oil," you can also try Googling "Matthew Simmons" or "Hubbert's Peak." A guy named Matt Savinar runs a site which does a decent job of explaining the problem in layman's terms; unfortunately, he is also one of the uber-pessimists who believes that ALL technology is going to go--no electricity, hoard your food, etc. But if you're capable of reading an article that's half-bullshit and half good points, and figuring out which is which, you can check out his site at lifeaftertheoilcrash.net. I'd say his premises are sound, but he takes them WAY too far.

Basically, the argument Matt Simmons made in the NY Times and other articles is this (minus the technological stuff that only an oil engineer would understand):

The OPEC nations don't let anybody check their reserves for themselves; we just have to take their word for how much they've got. And since OPEC member quotas are based on reserves, all have an incentive to lie: the more oil you say you have, the more oil you can sell. The reason Simmons doubts the veracity of the Saudi claims has something to do with their extraction methods--they're claiming they have X number of barrels in reserves, but they're using extraction techniques which would make sense if they actually had something like .6X number of barrels.

(I'm going to use deliberately small numbers and ludicrous oversimplifications here, just to make my point. The following example is NOT meant as a primer for Oil Geology 101.) Let's say the largest oil field in the world has 100 barrels in it. And to tap into a 100-barrel field, it's easy--you practically just poke a hole in the ground and watch the pure oil gush out.

Once that field gets down to 90 barrels it becomes a little more difficult--you have to do things like use suction pumps, or push air into the reservoir to get the oil out. And now you're not getting pure oil; you're also getting back some of the air you pumped in.

Now you're down to eighty, so you have to start pumping water into the reservoir, and you're getting out almost as much water as you are oil.

Now seventy--air AND water are needed to get the oil out. And so forth--the less oil in the reserve, the harder it is to get, until you reach a point where the oil well is considered "dry"--there's still plenty of oil in there, but it would take more energy to get the oil OUT than the oil itself will supply. So no matter how much MONEY you can get for the oil, it will be a net loss of ENERGY.

Basically, Simmons is saying that, while the Saudis CLAIM they have a hundred-barrel field, they're using 70-barrel techniques to get the oil out.

Meanwhile, last year Royal Dutch/Shell admitted it had overstated its proven reserves by something like 23 percent. And other oil fields are peaking--they're still producing lots of oil, but not so much as they used to, and what they're getting costs more to get.

|8.24.05 @ 11:50AM|#

there can be painful corrections when "paper" value turns out to be overstated and people have over-leveraged themselves.

Peak Oil isn't talking about a loss of paper value; it's talking about a shortage of something of REAL value, before any suitable replacements are integrated into the economy.

|8.24.05 @ 11:51AM|#

Libertarians commonly use "markets will take care of the problem" as a substitute for "government interference will only make the problem worse". However, don't confuse "markets" with "corporations". The Laissez Faire approach does not imply that individuals do not have a direct responsibility to evaluate and make decisions. In fact, that's the whole point.

MP, I agree 100%.

But some people go beyond opposing coercive solutions and try to insist that there is no problem in the first place. And sometimes there isn't. But I'm not going to deny the existence of a problem simply because admitting it might bolster somebody's desire for a coercive remedy.

Other people use "the market will take care of it" as shorthand for "don't worry, 'they' will fix it." Yeah, well, you're part of the market too.

If the people on this forum kept saying "look at the technologies in the pipeline and how close some of them are to fixing it" I'd be fine with that. But when they say "Pipeline? Why do we need a pipeline? There is no problem!", well, I get suspicious.

Some problems are indeed over-stated. But some denials are a bit too knee-jerk as well.

Uncle Sam|8.24.05 @ 11:52AM|#

Not that I think the government should have been involved in building roads in ther first place. Had it been left to the market, most of us would be riding private mass transit much of the time to get around.

But people were impatient and the politicians were happy to oblige the expedient impulse.

gaius marius|8.24.05 @ 11:53AM|#

anarchists do not.

wrong, mr dean. proudhon and many anarchists simply believed what libertarians profess believe -- perhaps what you would split hairs into calling 'minarchism'.

the idea of totally destroying the state is more attributable to bakunin, and was not popular among anarchists even at the height of anarchist unrest.

Uncle Sam|8.24.05 @ 11:57AM|#

My neighbor recently sold his contractor sized pickup for a much smaller vehicle due to the price of gas. The miles he drives for his work are fixed by how many estimates he can do in a day. So there is once anecdotal citation that some people may be actually reducing their demand for gas in response to price increases.

Uncle Sam|8.24.05 @ 12:05PM|#

Amazing how typos seem to be invisible till posted then become all to visible. "one anecdotal.."

|8.24.05 @ 12:06PM|#

The most shocking thing about that inflation/oil picture is the fact that $38 in 1980 is now $96. Damn, I'm getting old.

|8.24.05 @ 12:09PM|#

M1EK,

It's interesting to contrast your plan for a worst-case scenario and mine. I currently live in the central city (on the edge, so it's about as suburban-without-being-in-the-suburbs as you can get) and work in the suburbs, a whopping 5-mile trip which I sometimes make by bus even though it takes twice as long as driving. I picked my residence for several reasons, two of which were transportation options and affordbility.

But over time one's needs change. My worst-case scenario now would be losing my job. And my current idea would be to sell my house (the values in the neighborhood skyrocketed and I wouldn't be able to buy my house today at my present rate of income) and with the proceeds I'd be able to afford a house in the sprawl near a commuter rail station with 100% cash. My transportation expenses wouldn't increase (without a job) but my property and sales taxes would decrease. I've already determined that I could do that now and still find a way to take mass transit to work if necessary (though the transit service levels in the burbs are so low it drives customers away) but the only reason I don't is I like living in the city enough that I'll put up with the mortgage as long as the property values are increasing enough.

As I've said on other threads, suburban transit could be greatly improved if the subsidies were transferred from the suburban roads to suburban bus service, but even city transit can't compete with the convenience of personal driving despite all the additional inconveniences of owning a car in the city. And I'm still convinced my city 'hood would have better transit service if the subsidies and price controls were eliminated. The cab service sucks because of the limited number of cabs the city allows which, despite the fare controls, winds up making it a quasi-luxury service so that it doesn't compete with the transit agency.

Uncle Sam|8.24.05 @ 12:10PM|#

Thoreau
Lots of people are working on lots of things, a few of which I have read about. We all must acknowledge that there are always problems. We must also recognize that as long as there is a reason for doing so (survival and profit) many someones will address these problems.
What we really need to worry about is that, through the political process, the incentives for addressing these problems will be attenuated or even destroyed.
That is the problem I worry about.

Uncle Sam|8.24.05 @ 12:13PM|#

And then I read the Sowell article.

fyodor|8.24.05 @ 12:16PM|#

Jennifer,

Thank you very much. I understand you position much better now.

I wonder about that incentive to overstate reserves. Sure it allows them to sell more, but considering how much higher the price would be if they were honest, I wonder if it's really to their benefit to lie in that way.

And maybe there's other reasons for the extraction techniques they're using?

Well, I'm no expert, but it still seems rather speculative. And it seems that if there were truth to it, then the people spending money on oil would be as concerned as someone you admit is a wackjob. And while oil has obviously gone up, it doesn't seem to have gone up nearly as much as it would if oil traders believed this.

Just saying. I'll keep my eyes and ears open. Thanks again.

|8.24.05 @ 12:19PM|#

Some Simmons quotes, from an article in Resource Investor.com (address below):

The biggest worry I have as a result of doing the research on Saudi Arabia's oil is that there is a real risk that they have already exceeded sustainable peak oil production and the longer they produce at current rates the higher the risk that they could start into a production collapse. If that turns out to be true than the odds are 95% that the world has then exceeded sustained peak oil production. What the people that get into the peak oil debate often don't think about is that peak oil is not the maximum amount of oil you could produce in a single day, it's realistically the amount you could produce per day for at least a half decade. Therefore it could already be happening. And we'll never know that until we get better data.�

Almost every single aspect of using unconventional oil, whether it's coal or Canadian tar sands or oil shales are all incredibly energy intensive, so they use a lot of energy to convert them into usable energy, and they don't come out of the ground at high amounts. So it becomes a daunting task to begin offsetting oil coming out of a highly pressurized oil field, which can come out at a rate of 5-10,000 barrels per day per well, with unconventional oil sources, which are energy intensive and come out in small amounts.

http://www.resourceinvestor.com/pebble.asp?relid=12210

|8.24.05 @ 12:24PM|#

To be fair, Jennifer, while highly expensive extraction techniques cannot be used to bring down the cost of oil (if they did, then they would no longer be profitable and so people would stop using them and the supply would shrink and price would rise again), they can at least slow the shocks: If the price rises to the point where some expensive technique is suddenly profitable, then the supply bump will temporarily halt price shocks.

Of course, a wise person would look at that and say "Whoah, I'd better move toward a more fuel-efficient lifestyle. This is a sign that prices won't be going down any time soon." A libertarian, OTOH, would say "See! Nothing to worry about! La-dee-da! See no evil, hear no evil!"

Oh, and you might be asking WHY a person should move to a more fuel efficient lifestyle: Forget doomsday predictions, forget the environment, and forget about national security concerns. If prices are rising it means that a more fuel efficient lifestyle will (if done properly) save you money. And that's the sort of thing that libertarians tend to enjoy, isn't it?

M1EK|8.24.05 @ 12:25PM|#

"Sure it allows them to sell more, but considering how much higher the price would be if they were honest, I wonder if it's really to their benefit to lie in that way."

The theory is that this dampens the impulse for industrial economies to address their oil consumption. Even the US, supposedly, wouldn't be stupid enough to continue to subsidize suburban sprawl and SUVs (try to say THAT in a daffy duck voice) if we knew how low the reserves were.

Or so they say. Personally, I think We're Dumb Enough.

M1EK|8.24.05 @ 12:27PM|#

"As I've said on other threads, suburban transit could be greatly improved if the subsidies were transferred from the suburban roads to suburban bus service,"

Most suburban developments built within the last 20 years can't ever sustain bus service even if gasoline is $10/gallon. The pattern of roads makes it impossible for this to be feasibly done, especially since most of the prospective riders are no longer going to their doughnut-hole-city's CBD, but to a hundred different suburban office parks.

Uncle Sam|8.24.05 @ 12:40PM|#

As a libertarian, I believe I don't have to decide what others should do. I know they will respond according to their circumstances.

It's not a matter of whether I, as a libertarian, think there is a problem. If allowed to operate without molestation, market forces, through pricing, provide an environment for people to make decisions based on their local circumstances.

You say there's a problem? Probably. Is the problem what you think it is? Maybe.

Who knows what tomorrow will bring? Not me.

|8.24.05 @ 12:42PM|#

considering how much higher the price would be if they were honest, I wonder if it's really to their benefit to lie in that way.

Because the oil sellers have to straddle a fine line; keep the price high enough to make a good profit, but not so high that people get serious motivation to look into other energy sources.

maybe there's other reasons for the extraction techniques they're using?

I'm not an oil person, so I'll admit I'm basically taking Simmons and his buddies at their word (same way if Thoreau gave us some optical explanation, most of us wouldn't know enough to know if he's serious or bullshitting) but the understanding I have from my reading is this: it would be utterly ridiculous, if not financially suicidal, to use 70-barrel techniques on a 100-barrel field. Something to do with the structure of the reserve, and the chance of doing more damage to the field and destroying future profitability.

|8.24.05 @ 12:46PM|#

I can think of lots of reasons why the House of Saud might prefer to lie about its reserves. Sure, a report of dwindling reserves would drive up prices and bring in more money. But it also might prompt some people to ask questions that the House of Saud would prefer that their subjects ignore. Especially questions about the long-term viability of the arrangement.

|8.24.05 @ 12:56PM|#

If prices are rising it means that a more fuel efficient lifestyle will (if done properly) save you money.

The problem then becomes, what do the majority of Americans, who live in inefficient suburbs, do? Replacing incandescents with fluorescents can only accomplish so much. And it's not like there's this huge supply of old-style town just sitting there empty, waiting for the masses of suburbia to inhabit it. In fact, we will have to build it - along with building (or rebuilding) much of the transportation infrastructure to service it. Which is going to require huge amounts of (increasingly expensive) energy.

market forces, through pricing, provide an environment for people to make decisions based on their local circumstances.

I don't think the market, magical as it can be, is going to be able to react fast enough if anything like a doomsday scenario comes true. You're going to have millions of suburbanites simultaneously pissed off that their lifestyle, which was supposed to be "non-negotiable", isn't exactly viable anymore.

Uncle Sam|8.24.05 @ 12:56PM|#

Maybe Pat Robertson should set his gunsights on the House of Saud.

|8.24.05 @ 1:00PM|#

M1EK: You seem to have very limited thinking along the suburban transport alternatives. The van pool I suggested is a modified bus service, circulating between strip malls and office parks. Large employers may even offer their own pickup service to nearby mall stations as an employee incentive. The van (or bus) is large enough to use a wide variety of alternative fuels, even the grail of all-electric, as they make nothing but short trips between charging stations.

The trade-off is likely time; if people continue choosing to live far from work, the commute may involve several van transfers. Arranging the distribution network is precisely the sort of problem that USA is expert at solving. Take the expertise of WMT and apply it to moving people rather than underpants. Possibly with fewer vehicles circulating, the van pool model might not cost more time than the current system of gridlocked personal autos.

It took maybe a decade ('55-'65) for the auto-oriented suburban pattern to dominate. Why would you believe it would take any longer for some new arrangement to achieve primacy? As Jennifer should point out, the users of old technology can phase out gradually as the new is adopted. There will always be motor fuel at some price for those who want or need it.

If one refuses to see a solution, the problem is intractable.

|8.24.05 @ 1:07PM|#

M1EK,

I disagree with your analysis of suburban roads. Most suburban growth has occurred without building additional thoroughfares. That explains much of the sprawl, but it also means that suburban growth is still hub-and-spoke (radial), it's just that the hubs are bigger area-wise and the spokes are longer. But the road speeds are higher, too. If you're talking about door-to-door service, meaning a single boarding to get to your destination, then yes there is a problem. That same exact problem already occurs in cities and in Chicago 70% of riders have to transfer at least once. I suspect the same would be true of suburban bus riders.

Anyway, no need to get into an argument about such things. I think if transportation costs rose to a high enough level that ride-sharing-for-profit would start to grow. Unless state and local governments put up all sorts of restrictions such as fare controls, liability insurance requirements, minimum service levels, etc.

fyodor|8.24.05 @ 1:07PM|#

but not so high that people get serious motivation to look into other energy sources.

Hmm, seems this assumes that the Saudis are taking the threat of energy source alternatives very seriously, yet the doom & gloom scenario assumes that such sources would do us very little good. I imagine there's a window within which both assumptions could work simultaneously, but it strikes me as a narrow enough one to be unlikely.

I'm not an oil person, so I'll admit I'm basically taking Simmons and his buddies at their word(same way if Thoreau gave us some optical explanation, most of us wouldn't know enough to know if he's serious or bullshitting)

Show me that oil traders are considering the doomsday scenario, and I sure as hell will.

thoreau,

Now you're getting into other areas of speculation that go well beyond the notion that they would surely do this because it's in their economic interest. And sure you may be right, but it kinda falls into the area of anything's possible. Again, when people who know a lot more than I do about all this AND are betting their livelihoods on it are showing any clear signs of thinking this way, then that's when I will too. Maybe the recent increases in price reflect this, but seems just as likely they don't. To me, anyway. But then, I already don't live in the sticks and only commute 8 miles to work and have a decent on mileage Honda. So luckily there's not an extreme need for me to figure this out.

|8.24.05 @ 1:09PM|#

Dynamist:

This is the reason why I advocate biodiesel so strongly. It is a solution to a serious problem that in my view, is much less painful than switching to something that requires a whole new transportation infrastructure that something like hydrogen (ha!) would require. Diesel was, after all, originally designed to run on plant oils.

|8.24.05 @ 1:09PM|#

It took maybe a decade ('55-'65) for the auto-oriented suburban pattern to dominate. Why would you believe it would take any longer for some new arrangement to achieve primacy? As Jennifer should point out, the users of old technology can phase out gradually as the new is adopted. There will always be motor fuel at some price for those who want or need it.

One, because suburbia wasn't something people were forced into--the cities were still livable and affordable, but people chose to go to the 'burbs instead. To compare to Peak Oil, assume that suddenly the cities are too expensive to live in AND moving to the burbs will cost too much.

Secondly, the fear is that the old auto technology won't be phased out gradually enough to prevent serious problem--if you depend on your car to get to work, and now you can't afford to drive it, then how the hell can you afford a replacement if you can't even afford to get to your job? It's like the old joke about the farmer who hauled water a mile every day--I'd save a lot of time hauling water if only I had a well, but I don't have time to dig a well because I'm always hauling water.

And yes, there will be fuel available for those who "need" it. The problem is that many of those who need it the most won't be able to afford it.

|8.24.05 @ 1:18PM|#

"booms and busts are problems of money supply and interest rates in a system of banking"

Ah, I knew that you were a Keynesian at heart. Or, is it possible that you do truly understand that booms and busts result from government manipulation of money supply?

"man is moral in law"

then law wouldn't occur unless man were moral in the first place. Unless you consider "law" a god, and not a product of human consciousness.

"the proof is in the fact that the british empire (and therefore the western world) abandoned mercantilism for laissez-faire in the victorian era -- and we experienced regular debilitating depressions."

You're going to have to provide the "debilitating depressions" that occurred during that all to brief period of laissez faire in Europe (note that while the Brits were going laissez faire, we were going in the opposite direction, under the direction of Lincoln's Republicans, so your assertion that the whole western world was laissez faire at the time is patently false).

Dan|8.24.05 @ 1:18PM|#

A quick reality check: U.S. oil costs today amount to about 3-4% of GDP. That's it. The economy grows by that much every year. Think about that: the cost of oil doubled over the next five years, the net effect would be to slow economic growth by a percent or two. We're not talking about the collapse of civilization here.

And if the cost of oil doubled, certainly consumption would decrease, meaning the actual effect on the economy wouldn't even be a 3% hit on GDP. It would be much less.

I have confidence the market can solve the problem, because we can see many potential solutions today. For example, France gets 70% of its electrical power from nukes. The U.S.: 20%. About 25% of U.S. petroleum consumption is electrical production and other industrial uses, so simply offloading half of U.S. electrical demand to nuclear would cut petroleum consumption by by 10-15%. Of the 75% of petroleum used in cars, maybe 10% of that could be saved just through conservation. Eliminating unnecessary trips, car pooling, etc. That can be done literally overnight.

Next, we could convert some fraction of the fleet to run on alternative fuels derived from crops. They don't even have to be energy efficient. If we had to, we could use nuclear plants to provide the energy to make the crops, and then use the output in the current infrastructure. Biofuels then just become an energy storage medium, but one that allows us to keep the current infrastructure while we transition to something like hydrogen.

A little further out, we have hybrids. The average life of a car in the fleet is 9 years, so half the fleet is turned over in that time. If the new cars got an average of 50 mpg (and plug-in hybrids could double that), then you could cut petroleum usage by 25% within 9 years if you really had to (actually shorter, because the fleet would turn over faster if there was more economic incentive to do so).

All of this buys us time to transition to a new primary fuel source. It buys us decades, if need be. And if the car fleet is plug-in hybrids, it should not be much of a change to swap out the battery and gas engine for a hydrogen fuel cell.

The energy of the future could look lik this: Roughly 200 nuclear plants in a large 'farm' near Yucca mountain, producing hydrogen. Hydrogen is pumped in pipelines or converted to some solid stable form, and shipped around the country where it is distributed by local fuelling stations, much like gas. We KNOW this can be done. We've already done it. There are already fuel cell vehicles on the roads, and filling stations in California. The roadblocks right now are economic and political - hydrogen is more expensive than alternatives, the vehicles need to use up more cargo space for fuel, and there is still too much opposition to the nuclear power required to generate the hydrogen in large enough quantities to power significant fractions of the fleet. But if oil goes to $200/barrel, hydrogen becomes more than price competitive, and opposition to nuclear will melt away.

Thus, the worst-case scenario from 'Peak Oil', assuming it happens: A decade or two of lower growth by as much as 1% of GDP per year, followed by a period where we expend maybe 500 billion over 10 years on a new energy infrastructure. Once that happens, though, we'll be looking at a much more efficient, clean infrastructure, and probably a new era of cheap energy and high growth.

And in the meantime, there could be new breakthroughs, such as carbon nanotube solar generation, and a much greater transition to alternative power such as wind and solar. And these work extra well in a hydrogen infrastructure, because the main problem with most alternative energy sources is because you only get power when the sun shines or the wind is blowing, making them unsuitable for primary power sources. But if we use them to generate hydrogen, then the hydrogen becomes the 'storage battery', and the main problems with alternative energy go away.

So, a marginally more difficult 20 years coming up, but nothing catastrophic, followed by a future so bright we'll have to wear shades. And that's the worst-case scenario, economically speaking.

But here's the really troubling part: China consumes much more energy per unit of GDP output than does the U.S., making them especially sensitive to supply problems with oil. The big worry about shrinking oil supplies is not the western economy, but political instability. How agressive will China become in trying to secure its oil? How willing will it be to confront the U.S., destabilize regimes, and in general become a nasty world player? Tight oil supplies could lead to a world that is even more polarized and dangerous than it is today.

fyodor|8.24.05 @ 1:20PM|#

I don't think the market, magical as it can be, is going to be able to react fast enough if anything like a doomsday scenario comes true.

Rhywun, um, aren't you confusing your premise with your conclusion here? :-) Hell, if it's a doomsday scenario, then it's a doomsday scenario! I suppose the premise of the Peak Oilers is that because of suppliers gerry-rigging perceptions of the market that differ from the reality of the market, a sudden and intensive drop in oil supplies looms that no one anticipates except those with a proper armeggedon mentality. Surely, if we suddenly face a huge gap in what we thought we knew and what we will now know, a huge adjustment would be required, and even small adjustments involve pain and difficulty. The way the market normally works is that there's enough knowledge that economic players can adjust as things gradually change. This scenario assumes this won't happen because of withholding of knowledge that the scenario-makers can see, but not those with a direct stake. If suppliers can keep the secret of their low supplies secret long enough to create a doomsday scenario, well then we'll just have to have doomsday! The free market will still be the best way to dig ourselves out, but hell, doomsday is still doomsday! :-)

|8.24.05 @ 2:12PM|#

I shoulda known - my dispute with gaius over how libertarians differ from anarchists arises from the fact that I am using the current definition of 'anarchist' and he is using one from the early 1800s.

Of course, Proudhon believed that ultimately we wouldn't need a government either, placing him somewhat more to the anarchist end of the spectrum than the minarchist/libertarian, so I don't think gaius' attempt to smear libertarians and anarchists into one big Nietchzean lump really holds water, anyway.

For the record, this minarchist libertarian is not a utopian who believes that minarchy is merely a transitional state on the way to the big rock candy mountain of anarchy.

For those of you wondering, Proudhon is also the originator of the "property is theft" trope.

gaius marius|8.24.05 @ 2:20PM|#

I knew that you were a Keynesian at heart.

lol -- no! mr quasibill, no advocacy here -- i simply accept that this is how it is now, and keynesianism has major problems. (see massive housing/debt bubble!) totally abandoning physical currency is always a stupid idea in the long run.

is it possible that you do truly understand that booms and busts result from government manipulation of money supply?

they can, of course. but banking has the effect of multiplying the money supply and leveraging an economy even without abandoning specie. these problems of monetary booms and busts exist in any system with banks -- they are a product of variation in the velocity of money. (which is why the bible and qu'ran disavow usury, imo -- but that's a whole other ballgame.)

you cannot blame it on government alone -- government got heavily into the banking game in the last 100 years precisely because of what unregulated banking has produced in the 19th c. you think of the great depression, i'm sure -- but i think of 1818, 1837, 1848, 1857, 1861, 1873, 1893 and 1907, paralyzing cataclysms all.

Unless you consider "law" a god, and not a product of human consciousness.

or a consequence of god. we're on the verge of a much deeper argument here. :)

your assertion that the whole western world was laissez faire at the time is patently false

it was, shall we say, as laissez-faire as a society will ever likely be outside of utopian dreams. ;)

Uncle Sam|8.24.05 @ 2:29PM|#

"man is moral in law"
Pure assertion.

Law displaces morality.

Morality consists of internalized principles for behavior that promotes, or does not obviate, harmonious social relationships.

Law is the external threat which is dependent upon catching violators. That laws have obviously failed to prevent illegal behavior does not instruct law worshippers into its its failure, but instead leads to a demand more laws until the society is so laden with laws that mere survival requires people to ignore the law. That is the point when the hierarchical structure callapses into the chaos which then is pointed to as proof in the eyes of law worshippers that chaos is what you have when there is no government, even though is was the excess of government which brought about the collapse and the chaos.

People who believe in law do not believe in morality. They believe in obedience. An obedient citizen is no longer a moral agent, but a subject of the state. And the truly wicked, seeing where the power lay, seek out positions of power, for they are not willing to be subjects, but rather they prefer to be weilders of power.

gaius marius|8.24.05 @ 2:33PM|#

I am using the current definition of 'anarchist' and he is using one from the early 1800s.

which is the salient one, mr dean, though i'm not surprised at your cloudiness. if proudhon used the current definition, he would call himself libertarian.

"property is theft"

does not even begin to describe his complex views on property, which he saw as a the good and natural reward of individual effort (as you do).

you should really read him sometime, mr dean, you'd love him. seriously.

this minarchist libertarian is not a utopian

many others would beg to differ. :)

gaius marius|8.24.05 @ 2:42PM|#

Law displaces morality.

lol -- that is the death of the west, in three words. only in chaos can we be moral by being completely free to express our will.

An obedient citizen is no longer a moral agent, but a subject of the state.

thank you mr kant. but the truth is that obedience to a higher law -- and note that i do not conflate with with the state -- is the only morality.

go ahead and remove all law from society. try it. see what you get. see what an ideological commitment to totally free moral agents brings. just let me know before you do, so i can find a mountaintop in alaska to hide out on.

this is what no individualist will ever agree to, as true as it is -- we regularly need to be saved from ourselves and our judgment -- because we are deeply flawed beings who are, in the language of christianity, originally sinful. that is the wisdom of several ages (far older than western civ or even christianity) that we try so very hard to reject at every turn in the postmodern spirit of total emancipation -- but it's as profoundly true today as it always has been.

|8.24.05 @ 2:43PM|#

Why am I arguing against the Peak Oil position? The principal reason is that the arguments presented for the Peak Oil scenario fly directly in the face of how economies work.

Theories of gravity describe a real phenomenon. Theories of natural selection describe a real phenomenon. Similarly, economic theories describe a real phonomenon. Economic laws are real! They cannot be ignored. It is the Peak Oilers, not their detractors, who are making the extraordinary claims. They need to justify why economics fails in Peak Oil's presence. I have seen no such justification.

In this respect, the Peak Oil folks sound exactly like intelligent design folks, who are roundly thrashed in this forum. "Ignore everything you know of the science at hand. There is this unseen entity operating behind the scenes. And it will overpower any response and refute any argument." The position, especially as it is ungrounded in clear economic reasoning, comes across as a blind faith in the certainty of doom and the failure of free minds and free markets.

Finally, I hate to say it, but libertarians could use a party line. We won't get to set the policy of the government in the event the production of oil fails. And if folks see that even those wacky libertarians don't agree that the market will work, ... well, there are lots of other people who think they have lots of better solutions than trusting individuals and those messy decentralized mechanisms. Which do you think Congress and the voters writing letters to them will listen to?

M1EK|8.24.05 @ 2:49PM|#

"Why am I arguing against the Peak Oil position? The principal reason is that the arguments presented for the Peak Oil scenario fly directly in the face of how economies work."

No, they don't. The market for trees on Easter Island crashed. Various fisheries crash. Etc.

Economics can't trump physics, geography, or many other hard sciences. It's not magic.

Uncle Sam|8.24.05 @ 3:01PM|#

"If we are to solve the riddle of the business cycle, it is necessary to first look for common characteristics of the periods of boom and bust. And, as pointed out earlier in this paper, inflation seems to have been present in most of the boom periods. For example, in the years after Andrew Jackson killed the Bank of the United States and before he issued his famous Specie Circular in 1836, irresponsible state-chartered banks created vast amounts of paper money, much of which went to speculation on public lands, finding its way ultimately into the Federal treasury. As the supply of partially-backed money increased, Jackson became alarmed and ordered that public lands be paid for in silver and gold rather than paper. As note-holders rushed to convert their paper into specie, many banks, unable to meet any sort of reserve requirement, went under. In 1837, a panic began which brought hardships to many Americans and guaranteed President Martin Van Buren only one term of office."

http://www.libertyhaven.com/regulationandpropertyrights/bankingmoneyorfinance/boombust.html

|8.24.05 @ 3:03PM|#

I suppose the premise of the Peak Oilers is that because of suppliers gerry-rigging perceptions of the market that differ from the reality of the market, a sudden and intensive drop in oil supplies looms that no one anticipates except those with a proper armeggedon mentality.

I suppose the Saudies (to keep the price low?) can lie about their reserves, but as the supply drops the price will rise and the market will adjust.

And if folks see that even those wacky libertarians don't agree that the market will work

Very dubious libertarians, if you ask me.

This is an interesting inversion of Y2K, isn't it? People fear disaster, so they move to the city.

If we really do experience an economic catastrophe like the Peak Oil types predict, being in the city won't be a good idea. The catastrophe won't end with people bicycling to work; there will be riots and looting and starvation and such.

|8.24.05 @ 3:07PM|#

The market for trees on Easter Island crashed. Various fisheries crash. Etc.

Does that "Etc." include any commodity markets that crashed while in private hands?

|8.24.05 @ 3:11PM|#

M1EK has it right. Economics can only take you so far. It must give way to the fact that oil is a finite resource, and one that is critical to the way the modern world works.

So, what happens when oil production cannot meet ever-increasing demand? Or indeed, production starts an unrecoverable decline in supply? Within the answers to those questions are the predictions of Peak Oil advocates.

|8.24.05 @ 3:14PM|#

"But the current technologies that use oil�millions of vehicles, and a network of petroleum filling stations to support them�aren't going to be replaced overnight with a wave of a magic market wand."

Someone is going to have to explain why they would have to be replaced overnight. As the price of oil slowly rises, consumption slowly falls, extending the production curve and fueling research and conversion to other resources, further extending the production curve, etc. Why doesn't the market funtction that way in this case? (The answer is that it will.)

There is no reason - beyond the assertion of people who don't know anything - to believe in this bizarre hitherto unknown market phenomenon where demand does not fall with price, then suddenly everyone becomes a cannibal.

The Peak Oilers are fond of pointing out how much gas SUVs waste. SUVs are really just an affirmation of how much more people are willing and able to pay for the transportation and other things oil brings us.

The argument here isn't whether oil prices will rise, they may or may not,the argument is with those who predict a total failure of the market and provide no argumentbeyond hand waving to back it up.

"Reason - Free minds, free markets, and the occasional Doomsday Cult."

M1EK|8.24.05 @ 3:16PM|#

"Does that "Etc." include any commodity markets that crashed while in private hands?"

Oil is mostly in the hands of governments, and not only that, but mostly in the hands of governments we consider to be not very friendly.

|8.24.05 @ 3:18PM|#

There is this unseen entity operating behind the scenes. And it will overpower any response and refute any argument.

Demonstrating that some people choose the suffering of a religion while denying themselves the benefit of god. Athiests seem to put their faith in the Unknowable Hidden Conspiracy.

gaius & RC: I take pains to label my view as Classical Anarchist, which rarely seems to diminish the confusion I hope to avoid. I'm an anarchist at heart, but when people hear that they equate me with big-masked bombthrowers. The minarchist position seems achievable, but is still a compromise of my ideal.

Dan: I agree with your direction, but your math doesn't seem connected with the components of crude. The distillate fuel for powerplants is not easily convertable to more useful fractions, for example, so going nuclear may reduce oil consumption broadly, but will not help gasoline supply which is the essential component of peakoil doomsday.

|8.24.05 @ 3:20PM|#

Mike--

The problem with the economist argument in regards to Peak Oil is that it assumes there's some equivalent out there.

Sometimes there is--if you can't afford steak, buy ground beef. If you can't afford beef at all, buy pork or chicken. There are differences in flavor, but plenty of options concerning how you get your protein. The economist argument certainly works in this regard.

But what do we have right now to replace the internal combustion engine and the gasoline that powers it? None of the alternative-energy sources available with current technology even come CLOSE to matching oil, in terms of how much energy you get per dollar spent.

|8.24.05 @ 3:32PM|#

"None of the alternative-energy sources available with current technology even come CLOSE to matching oil, in terms of how much energy you get per dollar spent."

At $60 dollars a barrel, there are several, actually, but I don't think anyone expects that to phase you...

There are some that are profitable (efficient to use) at $15 a barrel, but that won't matter to you either, I'm guessing.

|8.24.05 @ 3:34PM|#

JDM--

What are they, how much do they cost, and how easily can they replace the role of gas-powered transportation in our society?

|8.24.05 @ 3:35PM|#

Oil is mostly in the hands of governments, and not only that, but mostly in the hands of governments we consider to be not very friendly.

Your examples of depleted resources were commodities held in the hands of _nobody_. If oil were held solely by one government, or a couple, or _solely_ by a cartel, I might start worrying about its not behaving as a market commodity.

But the fact that governments control most of the oil is a total non sequitur with regard to actual resource depletion.

M1EK|8.24.05 @ 3:43PM|#

Oh, come on. You don't think there was a chieftan on Easter Island?

This is rapidly devolving into Yet Another Case Where Reasonite Won't Acknowledge Something Because It Doesn't Fit Anti-Statism.

M1EK|8.24.05 @ 3:45PM|#

JDM,

There are _no_ alternatives to oil which work for transporting people by themselves in big vehicles around the suburbs. None. None on the horizon. Not fuel cells or combustible hydrogen, before you ask - those are, at best, a solution for moving a person in a tiny vehicle short distances per day a decade down the road.

|8.24.05 @ 3:46PM|#

But what do we have right now to replace the internal combustion engine and the gasoline that powers it?

In these three triple-digit comment threads there have been many posts offering pointers to alternatives at under $100 per barrel. Most of those alternatives actually produce oil (from sand or shale) or produce something that gasoline could be cut with to extend the supply of oil. All of these options will go into most of our engines today.

It takes a remarkable faith to assert that the sum total of all those possibilities cannot make up a marginal shortfall in the production of petroleum by heretofore traditional means.

|8.24.05 @ 3:53PM|#

Oh, come on. You don't think there was a chieftan on Easter Island?

If oil^H^H^H the trees on Easter Island were held solely by one government, ... I might start worrying about its not behaving as a market commodity.

Uncle Sam|8.24.05 @ 3:55PM|#

"lol -- that is the death of the west, in three words. only in chaos can we be moral by being completely free to express our will"

Strawman, that's not not what I said or believe.

Morality IS the higher law, but I suggest that calling it "law" misrepresents it somewhat.

Nobody I know of desires chaos. I'll say it again, humans are social beings. As such idividuals cannot be "completly free" and remain a social being. Chaos is the product of political systems, which free those in power from normal social constraints, not the product of individuals constrained by their social ties.

Please reveal to me one intentionally constructed anarchic (stateless) society in all of history which produced chaos. I've not heard of such a beast.

"thank you mr kant. but the truth is that obedience to a higher law -- and note that i do not conflate with with the state -- is the only morality"

But you do (conflate) if you believe that higher law can last in the care of political creatures, a unfortunate necessity in any hierarchical political system.

"because we are deeply flawed beings who are, in the language of christianity, originally sinful"

A Christian idea yes, but not a proven one (the origianlly sinful part. Yes humans are flawed that's why they need one another, to help make up for eachs' shortcoming. But human flaws do not disappear by having a "state" but rather, are given power. Name a human failing and I'll point out how dangerous it is to give it political power.
History shows us repeatedly the deadly results of giving political power to flawed humans.

M1EK|8.24.05 @ 3:56PM|#

MikeP,

No, "all of these options" won't go into "most of our engines today" - most of them are additives or replacements for DIESEL, which is only a tiny fraction of US vehicles.

|8.24.05 @ 4:00PM|#

"There are _no_ alternatives to oil which work for transporting people by themselves in big vehicles around the suburbs. None."

And how does this mean the world is coming to an end? You keep making arguments as if all oil everywhere is going to disappear in a very short timeframe. As the price of oil rises, people will buy smaller cars, hybrids, they'll move to the cities, telecommute, fly less, etc.

fyodor|8.24.05 @ 4:01PM|#

M1EK,

You don't think there was a chieftan on Easter Island?

Apparently you don't know exactly what happened on Easter Island. And y'know, I don't either. Maybe that makes it a not very good example of anything?

I'm always amused when people go back thousands of years to find a counter-example to established pattern and then act like it refutes those established patterns. There's probably an exception to every rule. You wanna go with the rule, or with the exception?

Uncle Sam|8.24.05 @ 6:20PM|#

We should all live long enough to find out.

|8.24.05 @ 6:31PM|#

No, "all of these options" won't go into "most of our engines today" - most of them are additives or replacements for DIESEL, which is only a tiny fraction of US vehicles.

Okay, I'll buy that diesel needs to stay separate. There are still plenty of pointers to new production of oil and ethanol, which do blend with gasoline.

But the diesel market is not small. It is fully one-third the size of the gasoline market.

And the price benefits of _any_ reduction from _anywhere_ in petroleum demand accrue to _everyone_ who uses petroleum. That's one of those pesky economic rules that the Peak Oil folks keep ignoring.

|8.24.05 @ 6:43PM|#

When it comes down to it... only time will tell whether we'll be swimming in oil, or having food riots.

|8.24.05 @ 6:54PM|#

JonBuck said that economics can only take you so far, since oil is a finite resource. Jesus H Christ, all resources are finite! We live on a freaking planet! Of course economics recognizes this. In fact, one very fitting definition of economics is the study of the most efficient allocation of finite resources which have alternative uses. Just because oil is currently the most important finite resource doesn�'t mean that economics doesn�'t apply.

Gauis made an interesting point a few dozen posts up (might be in a different thread). He said that oil has become the dominant commodity in our world in only 150 years. Before then, I would guess that coal was the dominant commodity, but I don�'t know. Perhaps the students of history here can correct me if I am wrong.

Would anyone have predicted the amazing changes in the world that were enabled by the previously unknown and varied uses of oil? I doubt it, because oil was (pick one) too rare, too expensive to extract, too expensive to refine, there were no economies of scale in the oil distribution channel, other substitutes were more plentiful and or more easily obtained, etc. Yet here we are today and I would suggest that the world is a better place now than it was 150 years ago.

I don'�t know what, if anything, will be the substitute for oil in the next 150 years. (Personally, I hope it is that MR FUSION thing from Back to the Future. Nuclear powered flying cars would be so cool!) However, I am confident that, as long as they are allowed to, oil and other markets will continue to function, prices will continue to send the correct signals to entrepreneurs, who will invest capital in new technologies and or find new and more efficient methods to utilize current technologies, etc.

I believe the world will be a better place in 150 years than it is now because of it.

|8.24.05 @ 7:27PM|#

JonBuck said that economics can only take you so far, since oil is a finite resource. Jesus H Christ, all resources are finite! We live on a freaking planet!

All resources are finite, but some sources are renewable. There's only enough food on the planet right now to feed us for maybe a year or two, but that's all right because it's easy to grow more. Oil is not renewable. And though there are other sources that we could use to provide most household electricity and heating such, none of them can address transportation (both personal and shipping), the use of oil as a manufacturing product, or the use of oil as a high-energy fuel to power machinery.

And most of those alternative sources, like solar panels, will require oil to manufacture in the first place. Which means they too will become more expensive. With technology as it is now, our society will experience a net loss of energy which no increase or decrease in perceived economic value can change, and technology probably won't be able to, either, soon enough to keep society from having a bad reaction to the energy loss.

Dan|8.24.05 @ 7:55PM|#

"There are _no_ alternatives to oil which work for transporting people by themselves in big vehicles around the suburbs. None."

Nonsense. There are hybrid SUVs right now which have electric motors which by themselves can produce over 200 hp. The Lexus RX400h makes almost 300 HP in its combined drivetrain, and gets 30mpg. 300hp will easily move any passenger vehicle - even a 5000 lb Hummer.

And once you have an electric motor in the loop, you can do amazing things. For example, with not too much effort you can increase the size of the battery, add a charging plug, and make a 'plug in hybrid'. Maybe a plug-in hybrid has an electric-only range of 100 miles in a small car like a Toyota echo, and a 30 mile range in a big SUV. But you know what? 30 miles is enough to get most people to work, or even to work and back. And it's certainly enough to get mom to the suburban mall and back, and to take the kids to school. And you don't have to worry about charging stations and running out of juice, because then the gas engine kicks in and charges everything back up again.

So with only an tiny incremental change in hybrid drivetrains, we could take a significant fraction of our personal auto use completely off the oil bandwagon. The day could be very near where you fill gas tanks only rarely, and they are used as long-distance supplements or emergency energy supplies. Hell, maybe roadside restaraunts will offer charging plugs so that you can reduce gas consumption on long trips.

And once we have a vehicle with an all-electric drivetrain, we've completely disconnected it from the energy source. Can't get gas at all any more? Well, the little gas engine generator comes out, and a fuel cell goes in. Can't afford a fuel cell? Maybe you plug in extra batteries and go all-electric. Or perhaps we use some other chemical energy source. The point is, once you're all-electric, you can change primary energy supply easily. Think of today's electric grid. When I plug in my toaster, its electricity may be generated by a gas turbine, a windmill, solar plants, a nuclear plant, or a coal plant. The toaster doesn't care, because the electrical grid gives me a layer of abstraction between the energy creator and consumer.

That's where we are headed with vehicles, and quicker than you might think. The number of hybrid models available will double in the next two years, and 'plug-in' hybrids are just around the corner. In fact, some people have already converted their current hybrids to 'plug in', and they are getting in some cases over 100 mpg.

As for SUVs being the problem today, do the math. Transportation makes up 74% of our current petroleum consumption. Of that, about half are light trucks. The CAFE standard for cars is 27 mpg, while for light trucks its 21mpg, about a 28% difference. So if you magically waved a wand and turned every light truck in America into a passenger car, you would lower our overall oil consumption by 11%. But of course, most light trucks are work vehicles or vehicles such as minivans that cannot be replaced by passenger cars. Depending on which year you look at, SUVs seem to make up roughly half of the light truck market. Some of those SUVs (including mine) actually get very good gas mileage. The number of real 'gas guzzler' SUVs that are not driven for a real need is actually quite small, and eliminating them all and replacing them with passenger vehicles would not likely save more than a few percentage points of oil consumption. And since our consumption increases by more than that every year, eliminating all the SUVs would simply move the curve a year or two down the road at best.

SUVs may make the oil 'problem' marginally worse, but if you eliminated them all tomorrow the problem would be essentially the same.

Mark Bahner|8.24.05 @ 7:57PM|#

"Oil is not renewable."

Oil is renewable. See JonBuck's comments on producing oil from algae.

Mark Bahner|8.24.05 @ 8:03PM|#

"And though there are other sources that we could use to provide most household electricity and heating such, none of them can address transportation (both personal and shipping), the use of oil as a manufacturing product, or the use of oil as a high-energy fuel to power machinery."

Natural gas can do all those things. If natural gas were used for ALL the energy currently used in the world (roughly 400 quads), there are more than 1000 years worth of worth of methane hydrates sitting on ocean floors all around the world.

The only question is the cost to get natural gas from methane hydrates. And the answer is, "Nowhere near costly enough that world oil prices could ever exceed $100 a barrel for 5 years or more."

|8.24.05 @ 8:06PM|#

With technology as it is now...

Why must technology remain as it is now? Why must all things remain equal? Why can't new technologies be created or existing technologies be improved? It seems your vision of the future is an extrapolation of the present. As I apparently unsuccessfully tried to illustrate, I think the future will be radically different than the present.

Before you ask, I have no idea what these new technologies will be, or how existing technologies will be improved. But I do not constrain my vision of the future to eliminate the possibility, in fact the probability, that they will become real.

However, as I have said, I could be wrong.

Dan|8.24.05 @ 8:51PM|#

And most of those alternative sources, like solar panels, will require oil to manufacture in the first place. Which means they too will become more expensive.

I hear this handwaving all the time from Peak Oil people as an example of how we're all doomed because we need oil to make the things that we'll need to get away from oil, so if we run out of oil we're helpless.

Here are the facts: currently, the industrial sector in the U.S. as a whole uses about 4 million barrels per day. At 200 dollars per barrel, the entire industrial output of the United States would have an energy cost about 800 million dollars a day, or about 292 billion dollars a year, or about 2.9% of GDP - an increase of about 2% of GDP.

The vast majority of this, by the way, is not oil used as an ingredient (in fertilizer, motor oil, etc). It's oil used as energy to power factories, heavy equipment, and to transport goods.


And if you're assuming that we'll run out completely, well, that won't happen. Because long before oil gets too expensive to use as a lubricant or ingredient in products, it will long have become too expensive to use as an energy source. Once we stop using it as an energy source, the residual sources still left will provide enough oil for a long, long time. Demand will then drop, and the price of oil with it.

And if need be, we know how to make synthetic oil. And the petro products we use for fertilizer aren't necessary - they're just the cheapest current thing. We'll still be making fertilizer if the oil is all gone.

|8.24.05 @ 10:18PM|#

Many resources are finite, not all. Scarcity is a handy assumption of economics, not an absolute physical law. Sunlight is essentially infinite, but limited in rate of delivery. Geothermal energy is less infinite, but how long would it take to cool the core of Earth to a comfortable 75 degrees?

If you think past the constraints of gravity, the infinite universe will supply infinite resources. The only true scarcity is in the minds of stasist doomsayers.

Mark Bahner|8.24.05 @ 11:23PM|#

"Sunlight is essentially infinite, but limited in rate of delivery."

And fusion is essentially unlimited *and* essentially unlimited in rate of delivery.

We simply need to figure out how to get the rate of delivery closer to much closer to zero than the present device that produces a more-than-breakeven level of fusion energy...the fusion bomb.

P.S. Estimates of the total natural gas available in methane hydrates are as high as ***400 MILLION*** trillion cubic feet. (In contrast, U.S. current natural gas consumption is about 20 trillion cubic feet, and total worldwide energy consumption--of all types--is equivalent to 400 trillion cubic feet.)

http://www.fe.doe.gov/programs/oilgas/hydrates/

P.P.S. So that works out to ***1 MILLION*** years of energy supply, at the current rate of energy consumption. (I previously wrote, "More than 1000 years," because I knew it was much more than that. Being off by a factor of 1000 isn't a very big deal when we're talking about a 1000 year supply or a 1,000,000 year supply.)

|8.24.05 @ 11:36PM|#

M1EK: A hell of a lot less than the drivers on the 'freeways' in your area are.

Not at the federal level...under the federal law, at least 2 cents of the federal gas tax is diverted to non-road projects. States have the opportunity to flex an additional 5 cents of the revenues to non-road projects - as Pennsylvania Governor Ed Rendell recently did earlier this year when he took money from planned road projects to aid the state's mass transit systems.

Each state varies as to how it pays for its share of road construction and maintenance. Here in Pennsylvania, the state pays for its roads with a combination of the state gas tax and fees from vehicle registrations and driver's licenses.

Mass transit systems across the state receive money from the state income tax, which means that people who never use them undoubtedly pay for them.

In view of the last conversation on this subject, I asked my contact at the Pennsylvania Department of Transpotation, who has worked on transporation funding for years and is an expert on this subject, these questions:

1. Are local taxes and property taxes used to fund roads? Answer: Generally no, except on those rare occasions when the municipality has specifically opted to use them for this purpose.

2. Are the funding sources for Pennsylvania roads a combination of federal gas tax funds, state highway funds and fees for vehicle registration and driver's licenses? Answer: Yes.

So, while you may have studied this topic quite extensively for the Austin, Texas, area, I would suggest not making nationwide generalizations, as what you have said about which form of transportation receives the greater subsidy is not correct for Pennsylvania.

Here in Pennsylvania, the more equitable match is between roads and drivers.

|8.25.05 @ 8:35AM|#

Show me that oil traders are considering the doomsday scenario, and I sure as hell will [consider it]

Here are excerpts from an article suggesting just that; however, the article was first printed in Salon, so feel free to say "Oh, well, they're left-wing so they can't possibly be right about anything." (The address is too loong to paste here without throwing off the margins of the thread; to find it, use the Google search terms "peak oil" and "Royal Dutch/Shell.")

March 15, 2005 �|� Four years ago, the analysts at John S. Herold Inc. were the first to call bullshit on Enron. On Feb. 21, 2001, three Herold analysts issued a report that said Enron's profit margins were shriveling, the company had too few hard assets, and its stock price was way too high. Less than ten months later, Enron filed for bankruptcy.

Today, the analysts at Herold -- a research-only firm that issues valuations on several hundred publicly traded energy companies -- are making predictions even bolder than their call on Enron. They have begun estimating when each of the world's biggest energy companies will peak in its ability to produce oil and gas. Herold's work shows that the best minds in the energy industry are accepting the reality that the globe is reaching (or has already reached) the limit of its own ability to produce ever increasing amounts of oil.

Many analysts have estimated when the earth will reach its peak oil production. Others have done estimates on when individual countries will hit their peaks. Herold is the first Wall Street firm to predict when specific energy companies will hit their peaks. . . .

Since last fall, Herold has done peak estimates on about two dozen oil companies. Herold believes that the French oil company, Total S.A., will reach its peak production in 2007. Herold expects 2008 to be critical, with Exxon Mobil Corp., ConocoPhillips Co., BP, Royal Dutch/Shell Group, and the Italian producer, Eni S.p.A., all hitting their peaks. In 2009, Herold expects ChevronTexaco Corp. to peak. In Herold's view, each of the world's seven largest publicly traded oil companies will begin seeing production declines within the next 48 months or so. . . . .

Herold's projections have enormous ramifications both for stockholders in the major oil companies and for every energy consumer on the globe. If Herold is correct, and the world's biggest oil companies cannot increase their production in the coming years, then several things appear certain:

* Oil prices -- which are already at record levels -- will continue rising as demand outstrips supply. In a few years, gasoline prices of $2 per gallon could seem like a bargain.
* State-owned oil companies like Mexico's Pemex, Venezuela's PDVSA (Petrol�os de Venezuela) and Saudi Arabia's Saudi Aramco may be unable to increase their production enough to meet burgeoning global demand.
* The producers who belong to the Organization of the Petroleum Exporting Countries, and Saudi Arabia in particular, may have even more leverage over the global oil market in the coming years.
* The United States will be ever more reliant on oil imported from countries filled with people who don't like George W. Bush or his policies. . . . .

Charley Maxwell, an analyst at Weeden & Co., a Connecticut brokerage, says oil industry officials are loath to discuss Herold's projections because doing so would "circumscribe their future prospects and the future growth of their stock, and executives have no interest in doing that since so much of their compensation is tied to their stock options." Maxwell, one of the most respected stock pickers in the energy business, believes the non-OPEC oil producers will hit their peak oil production in the next five years. And he applauds Herold's research, saying that no other reputable firm "has been willing to make this type of prediction."

Another energy industry veteran, John Olson, co-manager of Houston Energy Partners, an energy hedge fund, agrees. Olson believes that Herold's predictions about peak production are "very significant. It is perhaps the first cannon ball over the bow of a big tanker."

M1EK|8.25.05 @ 9:02AM|#

Geeber,

You are incorrect - many roads in Pennsylvania are funded locally - including some roads which are classified as arterials (i.e., not roads whose sole purpose is property access). Years ago when another Pennsylvanian claimed otherwise, I located minutes from the State College city council meetings where money was authorized for such a project in about ten seconds of searching, so this was clearly not uncommon (State College is where my family is from and where I went to school, so I was familiar with the roads in question).

In fact, I am unaware of ANY state where at least SOME of those arterial roadways (note: arterial is a good shorthand for "major road") are paid for out of local funds.

I suspect that your friend in the highway department may be engaging in semantics - i.e. those roads aren't "Pennsylvania roads", they're "local roads".

M1EK|8.25.05 @ 9:08AM|#

Geeber,

Also, I should note, that of the states in which I've spent signficant time, Pennsylvania provides overall the LEAST subsidy to drivers - they are clearly one of the better ones overall. Any official (construction/maintenance) subsidies are quite low, but I argue with the idea that they are zero. Then, of course, you can start to talk about all the OTHER subsidies to driving, as the VTPI likes to do; I tend to focus on JUST construction/maintenance as in most states it's more than enough to make the point.

Other states in the region are much worse - for instance applying local sales taxes explicitly to roadways as is done in the DC area. For instance, Virginia's 1/2 cent authorized in 1986 and an attempt at more in 2002 which failed.

M1EK|8.25.05 @ 9:22AM|#

"Maybe a plug-in hybrid has an electric-only range of 100 miles in a small car like a Toyota echo, and a 30 mile range in a big SUV."

Dan,

More like 10 miles in the Prius and 1.5 in the big SUV. Not much room for optimism on improvements there either.

|8.25.05 @ 10:02AM|#

Did anyone else notice the jump in oil prices in 1973 as represented in the graph that Matthew Hogan posted? The rate of increase in oil prices was relatively stable up until 1973 and then, pow, skyrockets up and begins a dramatic rollercoaster appearance.

It took me a second to remember what happened in 1973. The end of Bretton Woods, and the beginging of floating currencies. Just wanted to point out that the wild fluctuations seen in oil prices may not be just a matter of supply. Furthermore, US inflation is just one of many factors disturbing price trends. Unfortunately, to interpret the data properly we would have to know a half dozen or more inflation rates.

I'm not saying that oil reserves are not decreasing, simply stating that price may not be the best measure as a result of floating exchange rates. If only we had the old pound sterling to utilize....

GinSlinger

Uncle Sam|8.25.05 @ 10:41AM|#

Obviously, all government transportation subsidy should be brought to an end, roads privatized where feasible, let things sort out in the market. Then we won't have to argue over which gets how much subsidy.

Dan|8.25.05 @ 12:41PM|#

More like 10 miles in the Prius and 1.5 in the big SUV. Not much room for optimism on improvements there either.

No. Plug-in hybrids use higher capacity batteries. The cost is currently about $1000 for every extra 10 miles of range you want to have, over and above a standard battery range of maybe 10-20 miles for a small car like a Prius. If a range of batteries are offered, you can tailor the car to your specific needs. For example, my commute to work is about 10 miles. Round trip, 20 miles. For the kind of vehicle I prefer (small SUV), I might get 10 miles of all-electric range off the standard battery, and it might cost me $1000 for each additional 7 or 8 miles. So if I get a 'level 3' battery, I get an all-electric range of 34 miles for an additional $3000 of purchase price. Now I can commute to work and back, and have a little extra charge to stop at the store or pick up the kid. No gas burned at all. Or perhaps I'll choose to just buy the standard battery for now, and be happy with the fact that I don't burn any gas on the trip to work, but the engine will be working as a standard hybrid on the way back. So now instead of getting 30 mpg, I'm getting 60mpg for my commmute. And trips to the store or school or mall still go gas-free. And if gas prices skyrocket, I can take my vehicle in and get the extended range battery.

Of course, if everyone does this, we'll have to beef up the electrical distribution grid. But we know we can do that if we have to - we could have 100 new nuclear plants operating in the U.S. in five years if we really had the will to build them.

These solutions are already here, they just haven't made it into the market yet. If gas continues to climb, you can bet there will be plug-in hybrids on the road in a couple of years.

Oh, and I just read an article yesterday that said that two different teams had independently created new batteries using carbon nanotubes and buckyballs that achieve energy densities an order of magnitude better than the best current batteries. And last week an annnouncement was made of a process for creating inexpensive sheets of carbon nanotube material.

An order-of-magnitude improvement in energy density for batteries will solve our vehicle problems overnight. The GM EV-1 electric car was a practical commmuter car that had a range of something like 110 miles. Put a nano-battery in it, and suddenly you have a range of maybe 1100 miles. Or more to the point, now you can power bigger, faster electric cars that people actually want with ranges comparable to today's gas cars. No hybrid technology or fuel cell required.

So we already have multiple paths away from gasoline consumption in cars (hydrogen, plug-in hybrid, all electric). We KNOW we can do those three at a minimum, with no new breakthroughs. Some have engineering challenges to be solved and cost issues to be solved, but with already three different parallel technology tracks, I feel pretty confident we'll find a good solution. And that's not counting any other new breakthroughs which may change everything again (another example with the carbon nano-tubes - they apparently can easily be made into efficient, cheap solar collectors, and they are stronger than steel. Imagine if your car body had an outer layer of this material, making your entire car a solar collector. Park it in the sun, and every hour it sits there it picks up another couple of miles of all-electric range...)

These new materials also promise to make cars lighter and stronger, which helps enable all the other technologies. Shave 500 lbs of weight off an electric car, and it will accelerate better and go further.

The future's right around the corner, and it's going to work out fine.

|8.25.05 @ 12:51PM|#

Here in California, the commies in Sacramento want to use the gas tax for the general fund. It is supposed to be only used for highways.

|8.25.05 @ 1:28PM|#

M1EK has it right. Economics can only take you so far. It must give way to the fact that oil is a finite resource, and one that is critical to the way the modern world works.

Economics is all about things like resource allocation.

So, what happens when oil production cannot meet ever-increasing demand? Or indeed, production starts an unrecoverable decline in supply? Within the answers to those questions are the predictions of Peak Oil advocates.

If supply doesn't meet demand, prices rise, demand falls. Then prices will fall.

As prices increase, various alternatives to gasoline will become more viable.

And, as prices increase, the discretional use of gasoline will decrease. Likely the Chinese and Indians will have to reduce their purchase of oil, reducing demand.

The bottom line is that economics will help ensure relatively smooth transitions.

Uncle Sam|8.25.05 @ 1:44PM|#

In matters of survival and comfort, economics is everything.

M1EK|8.25.05 @ 2:03PM|#

"More like 10 miles in the Prius and 1.5 in the big SUV. Not much room for optimism on improvements there either.

No. Plug-in hybrids use higher capacity batteries."

Dude, I OWN A PRIUS. The electric-only range on the existing battery is puny. I was GIVING you a huge plug-in battery with the 10 miles.

There's also a limit to how much battery you can just dump in the thing. Remember that the GM EV1 (pretty good piece of work actually) was a TWO-SEATER with a range of about 50 miles. The Prius is a HUGE car compared to the EV1.

M1EK|8.25.05 @ 2:05PM|#

Don, a high schooler could have come up with what you wrote. The problem is that THERE IS NO ALTERNATIVE TO CRUDE OIL OUT THERE. NONE. And building the expensive not-really-alternatives like solar/nuclear/wind requires a lot of that oil energy, which is going to get more expensive.

The only way to have solved this problem was to have invested a lot of CHEAP oil in the development of those alternatives. EXPENSIVE oil used for it is going to cause huge economic disruptions.

Dan|8.25.05 @ 3:00PM|#

Dude, I OWN A PRIUS. The electric-only range on the existing battery is puny. I was GIVING you a huge plug-in battery with the 10 miles.

Dude, I wasn't talking about converting existing Priuses by simply adding a plug-in charger (although you can get a plugin hybrid conversion kit with a 10-30 mile all-electric range for your Prius). I'm talking about new vehicles designed from the start to be plug-in hybrids.

Remember that the GM EV1 (pretty good piece of work actually) was a TWO-SEATER with a range of about 50 miles.

The EV1 is old technology. It used lead acid or optional Nickel Metal Hydride batteries. It made 137 horsepower, and had a range of 55-95 miles. But even with that technology, a plug-in hybrid would be fantastic. Put that drivetrain in a vehicle with four seats and a gas engine that weighs maybe 50% more, and you'll have a practical vehicle with an all-electric range of maybe 25-50 miles. That's more than enough to remove the gas engine entirely from 90% of commuter driving.

But today's electric cars and batteries are much better. Mitsubishi will soon be selling a new electric car that has four doors, four seats, looks like a normal compact, and has a range that will exceed 250 miles. Lithium ion batteries and polymer batteries have a much higher storage density than NiMH batteries do, and their costs have come down to the point where you'll start seeing new electric cars with those batteries in them. And as I mentioned before, even better battery technology is on the way.

All-electric is still a ways away, because if a car dies when the electricity runs out, it's only practical if it has a range of hundreds of miles. That severely constrains power and size. The beauty of a plug-in hybrid is that the constraint of battery capacity drops by an order of magnitude. So for the same size battery you can run a much bigger, more powerful vehicle (the kind Americans actually want), while still getting an electric-only range of maybe 50 miles with the newest batteries, which is enough to almost completely eliminate gasoline for city driving and commuting from the suburbs. Depending on the usage profile, a plug-in hybrid might get 500 mpg or better. The gas engine may only even start once or twice a month, when an unexpected trip comes up. For other uses of course, a plug-in hybrid makes little sense. If you drive 500 miles a day, the incremental gain from a plug-in hybrid is tiny, and not worth doing.

That's what's beautiful about the free market - people are free to buy the kind of vehicle that makes sense for them. Gas prices will dictate the parameters of that decision, but people will still decide. And if half the people get off the gas bandwagon, that will leave enough gas for the people who decide they really need it.

The technology is waiting. We know we can build it if the demand is there. The existence of alternatives and a free market where prices are allowed to float with supply and demand is all you need to predict that a solution to a problem will be solved by the marketplace.

M1EK|8.25.05 @ 3:59PM|#

No, you wouldn't get 25-55 by slapping another battery in a Prius. You're continuously and willfully overestimating the limits of current and near-future technology. If a carfull of batteries could only give the EV1 a usable 50-mile range (real user reports said 50-60), then adding another set of batteries (LESS than the EV1 had in total) to the MUCH HEAVIER PRIUS isn't going to get it much further than 10 miles.

M1EK|8.25.05 @ 4:01PM|#

Oh, and if you design a plug-in hybrid 'from the ground up' in order to get beyond my 10-mile estimate, you're having to get past all the work done by Toyota, to which nobody else has even come close. You're going to be back in the land of much lighter and smaller cars that perform so badly that nobody beyond a few folks will tolerate them (i.e., you'll have an EV1 with a small gas engine on it).

The message here is that nothing on the horizon has the energy density of gasoline. NOTHING.

dan|8.25.05 @ 6:27PM|#

No, you wouldn't get 25-55 by slapping another battery in a Prius. You're continuously and willfully overestimating the limits of current and near-future technology.

Then it's a good thing I said 10-30, isn't it?

And if you disagree with me, tell These Guys. From their link:

We're making PRIUS+ happen. We now have three working converted prototypes (both described in Fact Sheet above, shown in photos and in details at vehicles):

• The Calcars first proof-of-concept (100+ miles/gallon plus electricity, 10-mile electric range, now with temporary lead-acid battery pack, soon to be replaced by nickel metal-hydride batteries).
• 
  
• Two EDrive/EnergyCS prototypes (100+ mpg plus electricity, 30 mile range, with lithium-ion batteries.
• 
  
  
  Hmm... 10 miles and 30 miles. Where have I heard that before?
  
  Oh, and if you design a plug-in hybrid 'from the ground up' in order to get beyond my 10-mile estimate, you're having to get past all the work done by Toyota, to which nobody else has even come close. You're going to be back in the land of much lighter and smaller cars that perform so badly that nobody beyond a few folks will tolerate them (i.e., you'll have an EV1 with a small gas engine on it).
  
  You're simply wrong. Toyota's hybrid drivetrain (and it's a very good one) is optimized for standard hybrid driving. They only put in as much battery as they need. Which isn't much. The Ford Escape hybrid is a 3600 lb SUV, and the hybrid battery is the size of a briefcase. Plug-in hybrids have different requirements, and would use much larger batteries (and better ones). This makes them more expensive and uses up more interior volume, which is why standard hybrids don't use them. I already pointed out to you that Mitsubishi has an ALL-ELECTRIC car that has four seats and baggage space (about the size of a Toyota Echo), and has a range of greater than 250 miles. If you can build an all-electric with a 250 mile range, you can build a plug-in hybrid that's much bigger and heavier with perhaps a 50 mile all-electric range.
  
  The message here is that nothing on the horizon has the energy density of gasoline. NOTHING.
  
  So it's a good thing that that's not a requirement, isn't it? Would it be horrible if our cars, instead of getting 350-500 miles on a tank of gas, only got 200 miles on a larger tank of hydrogen or a battery? A gas tank with that kind of range is small enough to fit flat underneath the car. Would it be the end of the world if my gas tank had to be twice that size? Or even four times that size? Don't forget - we have that nice engine bay sitting empty now, since the electric motors are in the wheels. So if we get half the range on a tank four times the size, we can get away with 1/8 of the energy density of gasoline and still have a perfectly practical car with the tank or battery sitting where the engine used to be. In fact, if the gas tank or battery fits completely in the engine compartment (we can also get rid of catalytic converters, emission hardware, mufflers and headers, maybe even the transmission, and other components), then perhaps we'll wind up with cars that have MORE interior space, even with energy storage tanks that are many times larger than gas tanks.
  
  The real question is not whether we can come up with something that has the energy density of gasoline. The question is whether we can come up with a power source that has enough energy density that we can figure out a way to package it in a practical vehicle with decent range. NiMh and LiPo batteries both meet that requirement, and newer battery technologies will do even better.
  
  I'm not a huge advocate of electric cars, btw. I think they have all kinds of drawbacks that make them a poorer choice than the alternatives today. The point is that they exist, and if the alternative to using them was the destruction of our infrastructure and global depression like the Peak Oil people talk about, you can be damned sure we'll use them. So it's nice to know that it can be done.

Uncle Sam|8.25.05 @ 9:53PM|#

M1EK seems to be naturally contentious.

M1EK|8.26.05 @ 9:20AM|#

Dude, MAKE SHORTER POSTS.

"The Ford Escape hybrid is a 3600 lb SUV, and the hybrid battery is the size of a briefcase."

This seems likely to be false, since the hybrid battery in my Prius is bigger than my briefcase.