Partuclary since the only thing idiot magazine publishers
even seem to know about oil is the Wal-Mart warehousing price,
rather than the cost.
At last! A valid point.
In any case, The Economist asserted,
the world faced "the prospect of cheap,
plentiful oil for the foreseeable future."
Last week, oil hit $117.
It's not just oil that has defied the com-
placency of a few years back. Food
prices have also soared, as have the
prices of basic metals. And the global
surge in commodity prices is reviving
a question we haven't heard much since
the 1970s: Will limited supplies of natural
resources pose an obstacle to future
world economic growth?
(snicker) Why would anyone attempt to measure value in dollars? This is
not to say that population growth has not increased real costs. But the
use of the word "real" by latter day neoconomists is inappropriate.
How you answer this question depends
largely on what you believe is driving the
rise in resource prices. Broadly speaking,
there are three competing views.
The first is that it's mainly speculation -
that investors, looking for high returns at
a time of low interest rates, have piled
into commodity futures, driving up prices.
On this view, someday soon the bubble
will burst and high resource prices will
go the way of Pets.com.
There is some actual some reality to this point.
The second view is that soaring resource
prices do, in fact, have a basis in funda-
mentals - especially rapidly growing
demand from newly meat-eating, car-
driving Chinese - but that given time
we'll drill more wells, plant more acres,
and increased supply will push prices
right back down again.
This is not a reality in that there are real limits to the environment
past which population cannot rise without destroying the ecosystem. I do
not imply that we are there yet, but we are probably getting close.
The third view is that the era of cheap
resources is over for good - that we're
running out of oil, running out of land to
expand food production and generally
running out of planet to exploit.
Good points all.
I find myself somewhere between the
second and third views.
Then you have missed the primary cause of price escalations in that the
demise of fiat currencies is that primary. The dollar leads this demise
but the other currencies must follow or their economies will collapse.
All the REAL stuff is therefore much higher priced when measured in fiat
currencies. At the same time the cost of labor has declined keeping
the price of PRODUCED goods lower than would have otherwise been the case.
These are the real reasons for the apparent and relative increases in
commodity prices.
There are some very smart people -
not least, George Soros - who believe
that we're in a commodities bubble
(although Mr. Soros says that the bubble
is still in its "growth phase"). My problem
with this view, however, is this:
Where are the inventories?
You are discussing the smaller of the contributors to perceived price
escalation of commodities.
Normally, speculation drives up commodity
prices by promoting hoarding. Yet there's
no sign of resource hoarding in the data:
inventories of food and metals are at or
near historic lows, while oil inventories
are only normal.
The amount of fiat money in the world system has grown enormously. Why do
you not understand that the value of that money has declined dramatically
and is expected to decline even further. This decline and the speculation
on further decline is primarily what you are seeing when you look at the
apparent rise in commodity prices?
The best argument for the second view,
that the resource crunch is real but tem-
porary, is the strong resemblance between
what we're seeing now and the resource
crisis of the 1970s.
What "resource crises of the 1970's"? there was massive inflation in the
70's; massive devaluation of the value of dollars especially when measured
against oil and land.
What Americans mostly remember about
the 1970s are soaring oil prices and lines
at gas stations. But there was also a
severe global food crisis, which caused
a lot of pain at the supermarket checkout
line - I remember 1974 as the year of
Hamburger Helper - and, much more
important, helped cause devastating
famines in poorer countries.
Did you bother to look at the INFLATION of the 70's? Did you consider the
falling value of the dollar in the 70's and the import duties?
In retrospect, the commodity boom of
1972-75 was probably the result of rapid
world economic growth that outpaced
supplies, combined with the effects of bad
weather and Middle Eastern conflict.
Horseshit. It was due to inflation.
Eventually, the bad luck came to an end,
new land was placed under cultivation,
new sources of oil were found in the
Gulf of Mexico and the North Sea, and
resources got cheap again.
Nope. Paul Volcker destroyed the economy of the Unites States so as to
kill the inflation dragon and restore the value of the "God Almighty
Dollar".
But this time may be different: concerns
about what happens when an ever-growing
world economy pushes up against the limits
of a finite planet ring truer now than they
did in the 1970s.
That is the conclusion of "climate change" folks and it is not all wrong.
For one thing, I don't expect growth in
China to slow sharply anytime soon.
That's a big contrast with what happened
in the 1970s, when growth in Japan and
Europe, the emerging economies of the
time, downshifted - and thereby took a
lot of pressure off the world's resources.
Those economies "downshifted" because the American middle class was busted
by lack of employment opportunities. The producing countries had less
market for their produce.
Meanwhile, resources are getting harder
to find. Big oil discoveries, in particular,
have become few and far between, and
in the last few years oil production from
new sources has been barely enough to
offset declining production from
established sources.
And the bad weather hitting agricultural
production this time is starting to look
more fundamental and permanent than
El Niño and La Niña, which disrupted
crops 35 years ago. Australia, in particular,
is now in the 10th year of a drought that
looks more and more like a long-term
manifestation of climate change.
Suppose that we really are running up
against global limits. What does it mean?
Even if it turns out that we're really at or
near peak world oil production, that
doesn't mean that one day we'll say,
"Oh my God! We just ran out of oil!" and
watch civilization collapse into "Mad Max"
anarchy.
But rich countries will face steady
pressure on their economies from rising
resource prices, making it harder to raise
their standard of living. And some poor
countries will find themselves living
dangerously close to the edge - or over it.
Don't look now, but the good times may
have just stopped rolling.
Not a bad conclusion considering all the misunderstandings.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas
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