505 replies to this topic

[advancedatheist]

http://www.marginalr...rd_questio.html

Awkward questions about natural resource prices

One of my great joys is going to lunch with Bryan Caplan and torturing him with my contrarian opinions.  I will even make up a temporary view toward this end.

Tuesday I told him that most commodity prices are, in real terms, higher than they were a decade ago.  Furthermore in many cases both the futures and the spot prices have been rising.

Many MR readers will know that Julian Simon won his famous bet with Paul Ehrlich.  Simon challenged Ehrlich to name five resources of his choice.  At the end of the time period, those resources had fallen in real price, so Simon won the bet.  But Ehrlich probably would have fared better had the bet expired today.

To be sure, most resources are still cheaper in real terms than in much earlier eras.  But has the time passed when real resources will get cheaper every period?  Is ever-increasing resource plenitude a thing of the past?  Market prices seem to indicate so.

Of course you might expect real price declines to resume for most resources.  You might cite a similar and premature commodity price scare from the early 1980s.  Or you might claim that the special circumstances of Chinese economic growth have led the demand for raw materials to rise faster than the supply, but only temporarily.  But would this be betting against market prices?  Could we still cite market prices as a sign of Simon's triumph over Ehrlich?  And could we become rich by selling commodities short?

Isn't it simpler to believe that market prices speak the truth and that the demand for raw materials will continue to outstrip the supply?

Now I am trying to decide whether this was a "contrarian, made up for lunch with Bryan" opinion, or a real opinion...And here is my earlier post on resource prices...

Addendum: Alex points out that the commodity price spike is less than ten years old.  Four years would be a better estimate, but this does not change the logic of the argument.  If one cites market prices as "sufficient statistics" of resource value, why not apply this logic consistently when real prices rise?

Posted by Tyler Cowen on March 3, 2005 at 07:26 AM

[advancedatheist]

http://www.insidebay...news/ci_2596764

Article Last Updated: 03/05/2005 07:02:39 AM

Natural gas reserves slashed

ChevronTexaco makes cuts for the third consecutive year
By John M. Biers, Associated Press

Citing disappointing drilling results in two locales, ChevronTexaco Corp. slashed its U.S. natural gas reserves by 13 percent in 2004, the third year in a row in which it suffered a substantial reserves hit in the region.

Pointing to problems in the Gulf of Mexico and the U.S. Midcontinent, the San Ramon-based oil company cut its stated by 680 billion cubic feet, which equals 3 percent of the company's worldwide natural gas reserves, according to its annual report filed Thursday.

The company reported downgrades in 2002 and 2003 for similar reasons.

U.S. natural gas stood out as particularly poor as ChevronTexaco reported its worst performance in years when it came to replacing production.

ChevronTexaco replaced only 18 percent of its production for 2004 and trimmed 6 percent of its overall resource base. However, ChevronTexaco rode high commodity prices to a record $13.3 billion in profits.

[Lazarus Long]

Has anyone else been hearing the random but consistent media blitz that has been coming from the government and financial sectors on energy costs?

I have heard a series of different *official* and respected analyst sources starting to warn the populace to expect fuel prices to rise across the board to drastically new levels going into Memorial Day weekend to unprecedented levels (as much as 50% -75% above current retail) with a likely hood of never returning to the current ones.

And these are free markets?

I got news for folks the price of fuel was suppressed for the elections and now I suspect we are about to experience payback.

[advancedatheist]

Has anyone else been hearing the random but consistent media blitz that has been coming from the government and financial sectors on energy costs?

The growing alarm about oil supplies coming from mainstream business news sources like Business Week, Forbes and Bloomberg must be putting all those free-market cornucopians in an untenable position. According to their belief system, CEO's and financiers are cognitively superior to scientists in matters of the environment and resources. For a long time resource constraints weren't interfering with business-as-usual, at least not enough to worry business elites, so the cornucopians' arguments didn't seem obviously wrong because we hadn't reached the limits yet.

So what are the cornucopians going to rationalize or confabulate now that their business heroes have to acknowledge that Peak Oil might be happening after all?

[Mind]

As resources dry up and prices change, people adapt (that is the essence of the free market). This is where the economists have an edge on the physicists. The economists are system-level thinkers. If oil goes up to 200, 300, or 400 dollars a barrel, people will stop buying it, and find other ways to live. It is not rocket science. A difficult transition? maybe, but the knowledge of how to live without oil is all there. I know, because I spent many years doing it. Humans spent many thousands of years doing it.

Now I am not saying we are all going to be Amish-like in our existence. There are many avenues (conservation included) for replacing (or stretching) liquid hydrocarbon fuels, and economists know that people will explore all of these avenues, if allowed (ie, if they are not barred by tyrannical government action).

The fact the businesspeople haven't had to deal with peak oil during all their "pie-in-the-sky" economic predictions has absolutely no relevance to how the free market (people voluntarily trading for what they need and desire) will adapt to this problem in the future.

So what if a bunch of free market cornucopians have to eat crow. Peak oil is still peak oil. There is nothing short of absolute world tyranny that could have stopped the oil driven progress of the 20th century. It is the people who find solutions to energy problems that will be hailed as heroes while the people who look back and say "we should have", "we could have", and "see I told you so" will be forgotten.

[Lazarus Long]

Mind the point is this isn't a free market, it isn't even a well planned market.

It is a highly manipulated and tightly *controlled* market and it is should be obvious that an enormous amount of price fixing has been going on all along and frankly is still going on.

Do you think such monopolistic machinations serve the general good?

Or simply the personal interests of those in power that want to stay that way?

[advancedatheist]

As resources dry up and prices change, people adapt (that is the essence of the free market). This is where the economists have an edge on the physicists. The economists are system-level thinkers. If oil goes up to 200, 300, or 400 dollars a barrel, people will stop buying it, and find other ways to live.

A relative handful of people who can move into hunter-gatherer or organic subsistence farming situations will find "other ways to live." The odds don't look good for the rest of us, especially considering that modern agriculture burns about ten calories of fossil fuels energy to produce a calorie of food energy. Modern medicine likewise requires massive inputs from fossil fuels, so we'll have to give that up as well. The decades following Peak Oil will see the permanent shut down of industrial civilization, and you know what that means for "immortalism."

[wraith]

Well, hey Mark - don't be so pessimistic. There's always fission.

(I know, I know, but it's better than a permanent shut down of industrial civilization, isn't it?)

[advancedatheist]

Well, hey Mark - don't be so pessimistic. There's always fission.

(I know, I know, but it's better than a permanent shut down of industrial civilization, isn't it?)

Except that nuclear power needs a massive energy subsidy from fossil fuels to be practical. Purified uranium doesn't magically jump out of the ground in Africa or Australia, fly across the ocean and then assemble into atomic piles in the U.S. And all the Homer Simpsons who work at the nuclear power plant need gasoline to commute.

[kraemahz]

Not to mention that the mining of uranium is a great disservice to the people who live around the mine. They are inevitably poor and unable to fight off the encroachment of such a mine (and in the end probably need the jobs anyway), which uses massive amounts of local water that are left to evaporate in radioactive pools. And ends up leaving massive amounts of radioactive tailings that, if not stored properly, can get into the local water supply.

[advancedatheist]

Not to mention that the mining of uranium is a great disservice to the people who live around the mine. They are inevitably poor and unable to fight off the encroachment of such a mine (and in the end probably need the jobs anyway), which uses massive amounts of local water that are left to evaporate in radioactive pools. And ends up leaving massive amounts of radioactive tailings that, if not stored properly, can get into the local water supply.

That's why you need private military companies (PMC's) to keep the local peasants in line, as Michael Klare documents in his book Resource Wars. Despite all the libertarian propaganda to the contrary, a great deal of our material quality of life depends on using coercion against people in the out-of-the-way places whence we derive certain commodities.

[Lazarus Long]

There is a disconnect as well on a basic premise about what nuclear and oil provide in terms of energy and while they can be converted into similar results it requires entirely different technical infrastructures.

The demands of food consumption in the cities simply cannot be sustained if there were a failure to the volume of transport providing them sustenance, even if you provide an alternative means of growing the food at these levels without resorting to fertilizers and combines that demand oil in the manufacture and operation as well.

If that delivery system fails it must be replaced with a system of electric rail that currently does not exist and would likely require the entire period of diminishing supply in order to build, utilizing resources that the current market depends on and that should be diverted to that goal sooner rather than later but aren't being. In fact there is suppression on that demand.

Because making such a diversion would adversely impact the current oil/auto market and this would disrupt the economy today and so we are caught between the rock and the hard place and the leaders do nothing and the people acquiesce because they feel their self interest served by the status quo.

Replacing the global transport system with nuclear is not about building a few more reactors here and there as offsets for coal. Do the math for the ergs expended right now and realize the magnitude of nuclear power required to replace all gas/diesel/LP operating engines from every jet aircraft to every chainsaw.

Battery tech alone to make this energy portable also depends on oil and mining uranium does not mine all the other materials needed to make this technology work.

Oh and I almost forgot the clincher, this is all happening while global population is increasing by 50% and demand for the dwindling reserve is increasing by 300% due to emerging technologies coming online and contributing to demand.

As they want to come online and make demands we are going to experience the crisis of Iran/DPRK again and again and again if you presume the best alternative is nuclear. Even if you assume *we* can go nuclear can everyone?

If you assume they can, then nuclear proliferation to those you most do not want to posses the technology is a certainty.

If you presume no then you suppress the markets you depend upon to maintain the economic engines that drive our economy and even worse you will have to maintain an oppressive military posture to prevent nuclear development. The Iraq war alone squandered the oil and manufacturing demands of he civilian sector for this country for years. How many of these conflicts will it take to begin to disrupt global production and delivery causing a melt down of the economy as we see periods of phased economic brownouts?

If there is a hope to make nuclear a part of peaceful development then the transition has to be sooner rather than later and must involve guiding states like Iran into peaceful uses like Russia is suggesting in order to prevent what we see in the DPRK and China's dilemma there.

Still want to be blithe about nuclear Wraith? )

I am still a proponent BTW but I despise the Pollyanna attitude too many adopt with respect to nuclear and prefer to remember that every time you get in the cage with the tiger it can and just might kill you. Let your guard down for an instant and you are Roy Horn and a metaphor for Chernobyl.

[Mind]

Mark, you are right about the few number of people who know how to grow food naturally, without oil input. However, one person equipped with the proper knowledge can grow many times the amount of food needed for subsistence in one year (even one growing season). And, there are almost 4 tillable acres of land for every person on earth (not to mention the oceans). Let us say the worst case scenario happens and in 5 years the world is completely dark (according to the Peak oil club). All the people who used to make Brittany Spears CDs and crappy sci-fi films like Elektra will have to start producing food by hand...or die.

Aside: I do not think the world will be completely dark in 5 years or even 20.

[Lazarus Long]

Mind I and I suggest most serious students of the Peak Oil trend would agree that it is deceptive and hysterical to over simplify the downside.

It is a process of increasing demand along with diminishing supply but it will create large scale critical disruptions and in order to prevent a Road Warrior scenario it will be necessary to make large scale infrastructural decisions that are not market driven as much as governmental and that is anathema to basic libertarian policy.

The market is building (causing) a crisis that isn't solved by only marketing solutions, it is also historically and commonly addressed by migration and warfare.

Those factors do not offer their historic remedy this time as we do not have an adequate frontier to absorb excess population at a rate sufficient to reduce the crisis and in an adequate time frame, even if we are discussing 20 30 years.

Also warfare is itself a competitor that destroys any semblance of a free market and the demands of warfare squander critical resources at exactly the moment when they are most needed elsewhere for infrastructural redesign and development.

[Mind]

It is a process of increasing demand along with diminishing supply but it will create large scale critical disruptions and in order to prevent a Road Warrior scenario it will be necessary to make large scale infrastructural decisions that are not market driven as much as governmental and that is anathema to basic libertarian policy.

The way I read history, governments are largely responsible for resource wars, not individuals. That is why I look to government as the last resort. Besides using warfare as the first choice of problem-solving, governments are notoriously slow and innefficient. If the U.S. government does with energy what it has done with education, we are in heap big trouble. Even though I say this, I know that energy solutions will have to be driven by private and public cooperation, because the vast majority of people are conditioned to look towards government for solutions.

[Lazarus Long]

The way I read history, governments are largely responsible for resource wars, not individuals.

There have been resource wars since long before government, since the hunter gatherer phase of evolution. Many times it seems to me that in the process of social evolution it has been too convenient for vested interests to scapegoat those that at least try to serve the social good.

And this does not account at all for the corruption driven by self interest.

Me thinks thou doth protest too much. )

Government is so big and so much in control in a system such as ours that the potential for bad government to commit such grievous harm through the inertia for its action and the momentum of its errors makes it an all too convenient *all encompassing evil* to ignore, and this is too simplistic and easy a tactic to be constructive as opposed to just self serving for the many more arcane private interests that compete to strip those resources away from government.

However we ostensibly have a democracy and as such I would suggest that government is the responsibility of the populace whether they like this or not, whether prepared for the responsibility or not and as such it is not a they (government) we are really talking about. We have met the enemy and it is *us*, We the People are the government.

[advancedatheist]

The way I read history, governments are largely responsible for resource wars, not individuals.

Libertarians tend to argue that the state arose through some kind of accident or mistake, as if humanity had a kind of telos at odds with the existence of the state. But I've never heard a good explanation from a libertarian why states have always developed in complex societies ever since the beginning of agriculture, along with markets, class and work. Instead of being parasitical, the state may have a necessary organic relationship with the market and therefore can't simply be cut out like a cancer.

Hunter-gatherers, by contrast, embarrass libertarian theory because they live in state-free societies and they generally enjoy better health and well being in their traditional environments than people in agricultural societies, even taking into account the improved public health and nutrition over the past century. A few years ago I watched a show where a middle-aged Australian Aborigine was trekking across a desert, competing with "physically fit" white Australians and Americans in their 20's and 30's. The Aborigine won the race while the others had to drop out because of foot sores and exhaustion. And it's well known that the health of hunter-gatherers goes to hell quickly when they stop eating their traditional diets in favor of the foods produced by developed societies.

Besides, given the enthusiasm for evolutionary psychology lately, you could make the case that the hunter-gatherer society provides a better model for human fulfillment than all the other social models that have arisen since agriculture. (Hans Moravec argues along these lines in one of his books.)

I'm not saying that I'd want to live like a hunter-gatherer myself. But I do think that libertarians need to consider whether their goal of a state-free utopia is in fact compatible with the benefits of the kind of complex economy they also want.

Edited by advancedatheist, 06 March 2005 - 04:43 PM.

[kevin]

Government provides the basic mechanisms by which individuals can cooperate to form structures to accomplish goals which they would not be able to on their own or would be very difficult.

The evil is not government, which is merely a social mechanism exemplifying individual goals, but the senseless accumulation and consumption of goods and resources beyond what would be considered comfortable for no other reason than its accumulation and consumption.

In a society of relative plenty and where death due to starvation or violence is small, the next most logical placement of resources is the development of technology to enhance the quality of life by decreasing suffering from other causes. Unfortunately, we're still have the genetic baggage of 'fear of scarcity' and 'fear thy neighbor' despite these issues largely being under control in modern western societies.

There is certainly a place for government, just a more mature one which recognizes the need for a more cooperative and symibiotic approach if we are to sustain and advance the quality of human life.

Short of being able to safely gain control of our emotional responses via direct biochemical intervention (or otherwise), I don't see much hope of our governments transforming into the 'all for one, one for all' kind of institutions which are really what is required to take advantage of technology and information sharing. Perhaps one day we'll have an open source government..

[Mind]

Government provides the basic mechanisms by which individuals can cooperate to form structures to accomplish goals which they would not be able to on their own or would be very difficult.

Implicit in your description is that people voluntarily form government structures that help them through the difficulties of life. The problem with most governments today is that they force people into the "basic mechanisms" whether they want it or not. I have no problem with governmental structures that arise from voluntary action...or governments that are strictly limited so that they do not trample human rights.

Also, you don't have to hope that governments will become open source...they will have to in order to keep up with the society they purport to govern. The more open governments become the more libertarian they will be. It will be good for everyone.

[kevin]

The problem with most governments today is that they force people into the "basic mechanisms" whether they want it or not.

We have certainly had to make do with a catering to the lowest common denominator even when doing so has negative consequences for all. I propose the solution is to raise the 'lowest common denominator'. We are seeing a transformation of the medical community as a result of patients becoming more educated and demanding more from their GP's and physicians. With these demands GP's are responding by making demands of their own of their patients... and thus the abdication of responsibility for one's health is no longer possible and it is being placed squarely where it belongs.

This same shift of responsibility from governments, who were quite happy to have the power and control when things were going good, back to individual is occuring across the board as, with increased access to information, people realize that the emergent problems of collective action in the form of global warming, pollution..etc.. can only be changed by individual action. The knowledge that we REALLY REALLY REALLY need to make our behaviors sustainable if we are going to have a world worth living in SHORTLY is ringing alarms all over the world and seeping into mainstream consciousness. It remains to be seen whether humanity is up for the challenge.

[wraith]

Still want to be blithe about nuclear Wraith? )

.

People here don't like sarcastic wise-cracks, do they?

[advancedatheist]

The problem with most governments today is that they force people into the "basic mechanisms" whether they want it or not.

You're going to have to use force in any sort of complex society whether you want it or not. Every society that has both agriculture and metallurgy also has a warrior class. Libertopia wouldn't be any different, though the justifications for shooting people will go along the lines of, "He was trespassing/breaking our contract/cheating me/holding my lover hostage, etc."

Judging from what I've read of the kinds of fiction favored by libertarians, it sounds indeed as if the killing in the absence of government just won't stop -- which sounds remarkably like what we see in the world's "failed states" with weak or nonexistent governments, even the ones libertarians have crushes on like Somalia.

[Mind]

You're going to have to use force in any sort of complex society whether you want it or not

But it does not follow that we should put up with arbitrary use of force by corrupt governments just because the "use of force" is unavoidable. We should strive for more peace and freedom and less brutal/deadly force. I think everyone can agree with that premise.

[advancedatheist]

You're going to have to use force in any sort of complex society whether you want it or not

But it does not follow that we should put up with arbitrary use of force by corrupt governments just because the "use of force" is unavoidable. We should strive for more peace and freedom and less brutal/deadly force. I think everyone can agree with that premise.

You are more likely to get a peaceable society from a social democracy than from the American style of government (especially the Antebellum South version favored by Lew Rockwell and his friends). American libertarians who are afraid that people with guns are going to threaten them are living in the wrong country. Ironically the guns' wielders will more likely than not be acting in a private capacity.

By contrast, the social democratic parts of the world don't even have the death penalty. They certainly don't experience shootouts with tax protestors.

[Lazarus Long]

QUOTE (Lazarus Long)
Still want to be blithe about nuclear Wraith?
.
Wraith:
People here don't like sarcastic wise-cracks, do they?

Me thinks thou doth protest too much too Wraith )

I live able to see the lights of the local nuke clearly ten miles down the valley and wind.

Let's just say that knowledge alters perspective. [wis]

[wraith]

I'm very glad I don't live near one. For the record, I don't like fission at all. But I think in a pinch, people might turn to it rather than bother with coming up with something better.

[advancedatheist]

So much for the argument that the minimal state makes for prosperity. This also relates to Peak Oil, because we use energy from fossil fuels to build these things.

http://story.news.ya...frastructure_dc

U.S. Infrastructure Deteriorating, Report Finds

Wed Mar 9, 1:27 PM ET

By Alan Elsner

WASHINGTON (Reuters) - U.S. roads, bridges, sewers and dams are crumbling and need a $1.6 trillion overhaul but prospects for improvement are grim, the American Society of Civil Engineers said in a report issued on Wednesday.

The group's first report since 2001 looked at 15 categories of public infrastructure, assigning each a letter grade. Overall, the nation's infrastructure received a D, down from a D+ four years ago.

"If we treated our own homes like we treat our infrastructure, we'd all live in shacks," said ASCE president William Henry.

Donald Plusquellic, Democratic mayor of Akron, Ohio, and president of the U.S. Conference of Mayors, blamed a lack of political will over many years compounded by the policy of tax cuts pursued by President Bush (news - web sites).

"I don't know of a single tax cut that's replaced a bridge. When that bridge fails killing people, nobody's going to care whether those people were Republicans or Democrats," he said.

[advancedatheist]

As business reporting goes, you can't get much more mainstream than Bloomberg:

http://www.bloomberg...kB3VPE&refer=uk

Crude Oil and Gasoline Surge on Signs OPEC Won't Rein in Prices

March 8 (Bloomberg) -- Crude oil surged to within $1 of an all-time high in New York, and gasoline rose to a record, on speculation that OPEC will do little to rein in prices at a meeting next week.

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, is scheduled to meet in Isfahan, Iran, on March 16 to discuss second-quarter output. The International Energy Agency, OPEC and the U.S. Energy Department cited economic growth in the U.S. and China when they boosted their oil-demand forecasts last month.

``The only thing that will get us to move decisively lower is a global recession that would reduce demand,'' said Kyle Cooper, an analyst with Citigroup Inc. in Houston. ``OPEC is pretty powerless to lower prices. If OPEC boosts output the bulls will say that there will be less spare capacity'' ...

Oil prices will rise through 2008 and stay high thereafter as demand increases and concern mounts that global production is nearing its peak, according to analysts at Lehman Brothers Holdings Inc.

[advancedatheist]

Yes, the Peak Oil denial game is definitely over!

http://news.ft.com/c...000e2511c8.html

IEA says world must turn away from oil

By Kevin Morrison and Javier Blas in London
Published: March 11 2005 12:17 | Last updated: March 11 2005 12:17

The rapid rise in global oil demand should lead the industrialised world to promote alternatives to oil as well as energy conservation, the International Energy Agency said on Friday.

The warning, from the West's energy policy adviser, signals a sharp turnaround by the IEA, which has previously tried to cool oil markets by blaming prices on speculators and short-term supply disruptions.

“The reality is that oil consumption has caught up with installed crude and refining capacity,” the Paris-based agency said. “If supply continues to struggle to keep up, more policy attention may come to be directed at oil demand intensity in our economies and alternatives.” The agency's view carries special weight because it was created in the mid-1970s after the Arab oil embargo to advise consuming governments about energy security and how to conserve oil so as to protect their economies from fluctuations in its price.

[advancedatheist]

http://www.gulf-news...rticleID=155687

Published: 11/3/2005, 07:13 (UAE)

Indonesia's crude output falls to 34-year low in February

Reuters

Jakarta : Indonesia's crude oil production fell to 942,000 barrels per day (bpd) in February due to technical problems on several wells, an industry source said yesterday.

The output is the Opec (Organisation of Petro-leum Exporting Countries) member's lowest level in 34 years.

The country's crude and condensate output averaged 892,000 bpd in 1971, according to US Government data, the last year that total production fell below 1 million bpd. The data shows the country's struggle to stem its production decline, which forced it to import crude during several months of 2004 and called into question its membership in the Opec.

"There are some technical problems in several oil wells that caused the output to fall in February," the source said.

Another industry source said Caltex Pacific Indonesia, the country's biggest producer, pumped more than 482,000 bpd in February, compared with 473,000 bpd in January.

"There were no significant new oil finds in Indonesia in 2004. Oil contractors are mostly maintaining current production from existing fields," the second source said.

Net importer

"In the end, it will be difficult to add production in 2005. There will be no doubt that Indonesia will be a clear net crude importer in 2005," he added.