Monday, 21 April 2008

Krugman on peak oil and commodity bubbles

Paul Krugman in his New York Times blog piece gives some column inches to the oil price, China's insatiable demand for commodities and gives an impressively downbeat view on the future.

Dismal science at its best. I read the original Economist article all those years ago with much interest. The story they presented was plausible but now represents one of the biggest mistakes in publishing history. I have certainly read every Economist piece since then with a high degree of skepticism.

Running Out of Planet to Exploit [New York Times]

Nine years ago The Economist ran a big story on oil, which was then selling for $10 a barrel. The magazine warned that this might not last. Instead, it suggested, oil might well fall to $5 a barrel.

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 complacency 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?

China gets a mention:

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.

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.

The one line conclusion with dismal brilliance:

Don’t look now, but the good times may have just stopped rolling.


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