no third solution

Blogging about liberty, anarchy, economics and politics

Economist on Peak Oil Myth

January 5th, 2008

The Economist cites that oil is now nearly five times as expensive as it was in 2002, which leads the Peak Oil theorists to conclude that oil is running out. It’s not, and any serious economist can explain why the world will never run out of oil: at some price, alternative energy sources become profitable and more viable than oil. If the price of oil crosses this threshold, investment will begin to be directed towards these (and other yet undiscovered) means of producing energy. Russ Roberts uses pistachios to illustrate this point in one of his books.

One component of the rising prices is that oil is increasingly being found in hard to reach places, like the tar-sands in Canada. Another is increasing global demand, as countries like India and China industrialize. But the Economist notes that:

The biggest impediment is political. Governments in almost all oil-rich countries, from Ecuador to Kazakhstan, are trying to win a greater share of the industry’s bumper profits.

We’ve seen these efforts in the U.S., too, where many politicians want to increase the taxes levied on Big Oil companies. These taxes do not provide Americans with more affordable oil, instead, they reduce the incentive to invest in a commodity that is becoming increasingly more difficult to extract. Furthermore, the taxes levied on businesses are always passed on to individuals in one form or another, such as smaller returns on investments in corporate stocks, or higher prices at the pumps, to name a few.

Oil isn’t running out, yet. And it never will.

no third solution

Blogging about liberty, anarchy, economics and politics