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Krugman admits peak oil is causing high prices. This is a first.

Many economists have blamed investors and speculators for driving up the price of oil and commodities. However, speculation or hoarding would cause storage of oil to increase. Oil in storage has not been increasing. Paul Krugman admits today that high prices are at least in part caused by resource limits.

The implications of resource limits on energy and food are that the good times are over.

Geologists, including me, have been warning of peak oil and resource limitations for many years but economists have not been listening until recently. They have continued to assume that substitute resources could be found. Paul Krugman has finally admitted that resource limits in oil, water and arable land may be the cause of the high gasoline, food and commodities prices.

 The second view is that soaring resource prices do, in fact, have a basis in fundamentals — 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.

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.

I find myself somewhere between the second and third views.

Over  5 years ago the political forces on Kauai decided that they would build a light oil fired power plant. I, and other environmentalists opposed the plans. I spoke about the coming of peak oil on KKCR,  the island’s community radio station. I told whoever would listen in public hearings that the price of oil was going to go up and never come back down. Of course, only the environmentalists listened.

The price of being able to say I told you so is a $50 dollar (and rising) fill up.

Here’s Krugman's key point that shows we‘re in trouble now:

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.

Peak oil won’t produce a catastrophe according to Krugman.

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.

Originally posted to FishOutofWater on Sun Apr 20, 2008 at 08:59 PM PDT.

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Comment Preferences

  •  Sorry, I'm still editing a bit...the outage (11+ / 0-)

    set me back.

    I've been working on a diary on the decline birds with many different sources and came across this shocker from Krugman.

    This article is shocking because main stream economists have been unwilling to face peak oil.

    "It's the planet, stupid."

    by FishOutofWater on Sun Apr 20, 2008 at 09:04:32 PM PDT

    •  It is breathtaking and horrifying... (11+ / 0-)

      ...to realize that many so-called brilliant people cannot wrap their minds around a very simple fact: resources on Earth are finite, especially oil. There were only so many dinosaurs, and therefore so many fossils, and ultimately so much oil. Did Krugman and others truly believe that 20th century fuel sources would last forever?

      As a child who grew up in the early 1980s, I remembered my parents' stories about the Carter-era gas shortages and always believed that our nation would innovate beyond using oil. But it's 30 years later, and here we are, with a planet on the brink and no easy answers.

      And yet parking garages continue to be built, and suburban sprawl devours the countryside, foolish plans laid under the assumption that 70-mile roundtrip commutes to the office will remain economically feasible.

  •  Conservatives Saw This 40+ Years Ago and (12+ / 0-)

    this whole insane conservative economics is a survivalist program of top ownership.

    They've been making sure they suck up and lock down as much of the planet and societies as possible while denying there will be any end to the party, before reality hits the masses.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Sun Apr 20, 2008 at 09:05:45 PM PDT

  •  Fish you missed the point (5+ / 0-)

    he is predicting a "Carter" administration. Things are are going to get bad and guess who gets the blame.

    Edwards Democrats ActBlue LA-01, NC-08, IN-06, KY-01, NC-09, IA-03, WA-08, DE-01

    by LaEscapee on Sun Apr 20, 2008 at 09:10:46 PM PDT

  •  I'm not an economist (3+ / 0-)

    but haven't we known this for decades?  Since we have, why is Krugman suddenly alarmed?

    ps--I added a couple of tags.

  •  Two words, (4+ / 0-)

    "Future Shock" by Alvin Toffler.

    Alright, 5 words.

    Domestic Violence Hotline 1-800-799-SAFE (7233) 1-800-787-3224 (TTY)

    by Sassy on Sun Apr 20, 2008 at 09:15:46 PM PDT

    •  Yes I wish more people would give him credit... (4+ / 0-)
      Recommended by:
      melo, Sassy, CanyonWren, SciVo

      for that seminal work he produced in the 1970's which foresaw this overload of information and proliferation of product and lifestyle choices.

      (Formerly) cheap fossil fuel has enabled all of this leading to the condition he termed as Future Shock as human evolution cannot kept pace with the stress created by the accelerating rate of change in our society thus far.

      Americans scramble to their doctors' offices en masse for pills to cope with these new ills, all the while enriching Big Pharma and the psychiatrists they court.

      What a mess.

      I've always been very sensitive to the natural world and ashamed of my species for it's treatment of it and ... that's my cross to bear" Joni Mitchell 2007

      by codigo rojo on Sun Apr 20, 2008 at 10:36:23 PM PDT

      [ Parent ]

    •  Two Words: Soylent Green (2+ / 0-)
      Recommended by:
      Sassy, codigo rojo
    •  Future Shock (0+ / 0-)

      was an excellent intro to life in the modern world.  I was completely absorbed in his vision in the 80's.  He was able to weave together the big picture and give great insight into what was happening.

      I have a feeling there are more "waves" to come -- only they will look and feel more like tsunamis!

      Finding your own Voice -- The personal is political!

      by In her own Voice on Tue Apr 22, 2008 at 02:08:33 PM PDT

      [ Parent ]

  •  When will they note that an American/European (8+ / 0-)

    standard of living is wholly impossible for 7 billion people?  

  •  For someone who is now around 60 or 70 they (8+ / 0-)

    see the world's population go from 2 billion to perhaps more than 8 billion; in one lifetime.

    It is usustainable growth.

    Period.

    "Change doesn't happen from the top down,
    it happens from the bottom up." Barack Obama

    by shpilk on Sun Apr 20, 2008 at 09:49:21 PM PDT

  •  $50 dollar fillups will be the least of our (7+ / 0-)

    troubles .. it will be more like $100 fillups, before we know it.

    And the price of everything is going sky high.

    I'm growing food, seriously this year, on my little plot of land.

    "Change doesn't happen from the top down,
    it happens from the bottom up." Barack Obama

    by shpilk on Sun Apr 20, 2008 at 09:51:35 PM PDT

    •  Trucker's fillups are heading for $1000.00 (5+ / 0-)

      That's going to make everything cost more.

      Food prices will go way up because energy is used in all steps of agriculture from fertilizer to market.

      "It's the planet, stupid."

      by FishOutofWater on Sun Apr 20, 2008 at 09:57:38 PM PDT

      [ Parent ]

    •  I'm starting to think that... (6+ / 0-)

      ...neighborhood and community farming co-ops might be a good thing to start organizing.

      One household tills their yard to grow tomatoes. One neighbor grows potatoes. One grows squash, one string beans, one peppers and so on.

      It won't take too many yards to yield an abundance of nearly free produce.

      Weekly, neighborhood produce swap meets can be held where you bring your crop and trade for other crops. There will be plenty left over anyway so nobody will go away without a great mix of fresh produce.

      The next season everyone rotates crops so the soil doesn't get depleted by the same crop every year.

      Cooperative buying of mason jars, pressure cookers, gas stoves and propane tanks would allow efficient, community wide canning of fruit and veggies for the cold season.

      Some people might even want to tear down fences, join yards and raise chickens, ducks and other small  barnyard animals for community trading so there is good, organic animal protein to go with all the great veggies.

      Neighbors trading and bartering for food that the community grows on its own without the need for supermarkets and corporate agribusiness.

      Uh Oh!...that sounds like anarchism. Oops. Can't be having that!

      •  It's not "nearly free" (5+ / 0-)

        Sorry.  That just really irks me.  There's an entire set of narratives out there that go something like this:

        Food is easy and simple to grow.
        It doesn't take much.  Just some seeds, some land and some sun.
        You just plant some seeds, watch everything grow and harvest the bounty.
        It's so easy that even ignorant country folk can do it.

        That's just not true.  Getting actual crops from seeds requires spending the entire growing season tending to the needs of the crops, including a LOT of time critical tasks.  There's a lot of plain manual labor in there too.

        OTOH, if people spent as much time and resources growing edible plants as they did pampering their lawns and landscapes, our domestic food production would go up by a few percentage points.  If you pay for a lawn/landscape service or do it yourself - figure out how many hundreds of dollars/hours you devote annually to it.  The national total is stunning - especially water used to irrigate lawns and golf courses.

        Proud member of the Cult of Issues and Substance!

        by Fabian on Mon Apr 21, 2008 at 01:28:47 AM PDT

        [ Parent ]

        •  Community gardens are good, but it's hard work (4+ / 0-)
          Recommended by:
          GayHillbilly, Fabian, Calamity Jean, SciVo

          Zimbabwe is a stark example of how "land reform" can fail. Agriculture is hard work that requires knowledge and skill to do it effectively.

          "It's the planet, stupid."

          by FishOutofWater on Mon Apr 21, 2008 at 06:32:52 AM PDT

          [ Parent ]

          •  A lot of knowledge, skill and equipment. (2+ / 0-)
            Recommended by:
            FishOutofWater, SciVo

            I remember someone suggesting that grain farmers switch over to produce.  [blink. blink.]

            Grain is harvested, dried and stored until transport.  There is an optimum time to harvest it, but often you have up to two months to do it.  And once dry, you can store it for months.

            Produce, OTOH, requires entirely different handling.  Harvesting is often done manually, the produce must often be washed, dried and chilled.  Then it must be stored under strict conditions(refrigeration, moisture) before it is sorted, graded, packaged and transported.

            It's shifting from an almost entirely mechanized model to a highly labor intensive operation with entirely different requirements and equipment needs.  Plus the markets are different as well.

            It's like saying that a factory that does rolled steel products should switch over to injected molded plastics.  It doesn't just happen with a flick of a switch.

            Proud member of the Cult of Issues and Substance!

            by Fabian on Mon Apr 21, 2008 at 08:24:57 AM PDT

            [ Parent ]

        •  It's totally easy. (0+ / 0-)

          And totally cheap.

          A weekend of work can set up a backyard garden.

          Sprouting vegetables from seeds brings the per plant cost to fractions of a penny.

          It's easy and fun.

  •  And it won't produce catastrophe? (3+ / 0-)
    Recommended by:
    FishOutofWater, codigo rojo, SciVo

    By what definition? For whom? Unbelievable. Globalization seems to stop at actually caring about other people and other countries.

    Seul l'incrédule a droit au miracle. - Elias Canetti Road2DC

    by srkp23 on Sun Apr 20, 2008 at 10:01:32 PM PDT

    •  I think it is already causing famine and war (6+ / 0-)

      in Africa...and Iraq.

      I would call that a catastrophe.

      Krugman doesn't. I'm far more pessimistic than he is because I see the rapid destruction of earth's ecology that's even more frightening than peak oil.

      "It's the planet, stupid."

      by FishOutofWater on Sun Apr 20, 2008 at 10:04:31 PM PDT

      [ Parent ]

      •  Darfur in Texas (0+ / 0-)

        I can imagine Darfur type migrations into Texas and other border states as the oil in Mexico dries up and the climate continues to dry and produce weather extremes.  The people who've been moved off their farms to industrialize Mexico will not have jobs, food supplies, water and, according to the IPCC report, will be migrating into the U.S. and bringing with them all the disease and misery we see in Africa.

        Of course, things may not be much better here as we won't have oil to fertilize, treat with pesticides/herbicides, run farm machinery, and transport food items.  Nor will there be water to irrigate (or refine remaining fossil fuel or cool nuclear reactors) or to drink for that matter.  Because this area of the nation will be drying also.

        The party's over for sure -- but how about life for billions of people?

        Finding your own Voice -- The personal is political!

        by In her own Voice on Tue Apr 22, 2008 at 02:18:50 PM PDT

        [ Parent ]

  •  Your diary got me thinking... (3+ / 0-)

    and is quite interesting btw as always, about oil demand in the other burgeoning industrialized countries such as China and their increased use and demand for automobiles.

    Guess what the top selling automaker is in China? GM's own Buick division and I think it's a safe bet to say it is known for making luxury and near-luxury autos more than it is known for producing fuel efficient cars.

    Buick’s sizzling sales have driven General Motors — even as it closes plants and lays off workers at home — to the top of the pack in China, the world’s fastest-growing automobile market. GM sold 665,000 cars and trucks in China last year. For now, only 1 in 100 Chinese own a car, compared to 9 in 10 in the United States. But the Chinese expect 130 million vehicles to be sold by 2020.

    It is human folly to think the rest of the world that has aspired to attain the American "blessed way of life" will want to make the sacrifices that will avert horrific global consequences.

    http://www.buick.com.cn/

    (warning it's in Chinese)

    I've always been very sensitive to the natural world and ashamed of my species for it's treatment of it and ... that's my cross to bear" Joni Mitchell 2007

    by codigo rojo on Sun Apr 20, 2008 at 10:19:12 PM PDT

  •  there may be no solutions (4+ / 0-)
    Recommended by:
    melo, Fabian, Calamity Jean, SciVo

    but there won't be any solutions even if they are possible until we admit we have a problem.  Its going to take several more Krugmans to truly get the point across.  

    But there may be more pieces in place to start working on the problem of convincing people there is a problem than I originally thought, I was watching weather channels earth day programming and some on HGTV.  It doesn't even scratch the depth of the problem, but at least its telling people there is a problem and they should start making changes.  The problems were shown as serious, requiring preparation now, new technology and some old fashioned responses such as community gardens, rooftop gardens in cities, etc.  It was soft sell, but it floated the ideas that the world would be much more hostile 50 years from now.

  •  That shining city (2+ / 0-)
    Recommended by:
    FishOutofWater, Neon Vincent

    on top of the mountian!

    30 years of greed has a lot to do with this!!!!!

  •  From a physicist's perspective (5+ / 0-)

    all this was predictable. They don't ask physicists to run things. Pity.

    The entire industrial revolution depended on fossil fuels. Unless we figure out a way to be directly solar powered (instead of solar powered from fossils), there must be an economic collapse. Well maybe nuclear powered, if you count geothermal as nuclear... because there ain't enough good uranium nearby to make fission of much long-term use.

  •  Massive Oil (0+ / 0-)

    Here are links to articles about two massive oil finds. I don't claim to be an expert, but it seems to me if you put these together with Alaska, we would have enough oil to not have to import any for 6 plus years.  The point though would be that having access to this oil would force OPEC to come down in their price, meaning we would be able to import oil at a more reasonable price.  So in essence, we would have cheaper energy for more than 6 plus years (12-15?).  Meanwhile, we could be investigating alternatives which would come on line down the road, allowing us to make the transition to new energy without hurting the working poor so much.

    It is easy to say screw the oil companies and high gas prices or no gas will force us to change to a new type of energy, but in the real world, the working poor are trying to survive.  Let's do this in a way that impacts them the least.

    http://www.nytimes.com/...

    http://www.nextenergynews.com/...

    •  In the real world, we won't change (0+ / 0-)

      ...until we have to. I think that we should put a flexible tax on gas to keep its price at the pump from ever again going below its current level, with a gradually rising target price. That way, any new finds would translate into giving us more time to adjust our behavior gracefully, instead of just more time to procrastinate.

      Price signals on the open market really do work at changing behavior, and smart planning will use that fact. As usual, regressive Sen. McCain has it completely backwards, this time with his proposal to suspend our already-small gas tax.

      I believe that we have a common interest in defending human dignity.

      by SciVo on Mon Apr 21, 2008 at 11:39:33 AM PDT

      [ Parent ]

    •  Doubtful (0+ / 0-)

      The article from the New York Times says "...full production might not come on line for five years or more."  That's plenty long enough for us to be in deep trouble before we get any significant help from that oil.  

      The other article, from Next Energy News, is about oil in relatively impermeable shale.  The oil will flow out slowly, and getting it will require expensive and difficult horizontal drilling.  

      I hope you are right about these two finds giving us some time to put alternatives in place, but I fear you are being overly optimistic.

      Renewable energy brings national security.

      by Calamity Jean on Mon Apr 21, 2008 at 04:33:03 PM PDT

      [ Parent ]

      •  If we had passed drilling in Alaska 5 years ago (0+ / 0-)

        when it was voted on, we would have that oil on line.  I am all for the environment, but oil prices are hurting the working poor disproportionately, I think we  need to provide affordable gas as much as is within our control while we seek other alternatives.  I think horizontal drilling is relatively less expensive when oil is selling at $120 a barrel.

    •  Richard Heinberg for a balanced, realistic (0+ / 0-)

      perspective on these issues.  But beware, even the balanced perspective is pretty grim in terms of being able to continue living the lifestyle we have had in the US and other first world countries for the last 50 years!

      Heinberg's Museletter

      Finding your own Voice -- The personal is political!

      by In her own Voice on Tue Apr 22, 2008 at 02:04:24 PM PDT

      [ Parent ]

  •  This is a dollar and credit related crisis. (0+ / 0-)

    Compare oil prices in dollars and euros.
    Oil: euro dollars and gold
    I agree with your position that we are in a declining "easy oil" point in history, but this latest rack up in oil prices  looks awfully like a financial issue, not an underlying commodity issue. Also, don't you know Krugman is no longer liked on this site? ;-)

    "Are you coming to bed?" "I can't, someone is wrong on Dkos!" - paraphrased from XKCD comics

    by the fan man on Mon Apr 21, 2008 at 04:44:45 AM PDT

    •  No. Gold is also in short supply. (5+ / 0-)

      Oil prices are rising in Euros, too. We are strongly affected because oil has gone up while the dollar has plummeted, but there's still a resource crisis.

      Look at the global food situation. No matter what currency you look at basic grains have become more expensive and supplies are short.

      It's not just an American problem.

      "It's the planet, stupid."

      by FishOutofWater on Mon Apr 21, 2008 at 05:00:29 AM PDT

      [ Parent ]

      •  According to Krugman, oil inventories (1+ / 0-)
        Recommended by:
        CanyonWren

        are near normal. No doubt the underlying reality of short supply is there, but this run up looks suspiciously like speculation and a dollar/credit issue. I don't know enough about gold to comment on the  price increase, but how do you explain the gold/oil match (you'd pay no more for oil from 2000-2007 if you paid in gold)?

        "Are you coming to bed?" "I can't, someone is wrong on Dkos!" - paraphrased from XKCD comics

        by the fan man on Mon Apr 21, 2008 at 05:15:22 AM PDT

        [ Parent ]

        •  If prices are too high inventories build (2+ / 0-)
          Recommended by:
          GayHillbilly, SciVo

          because demand drops below supply.

          There's no doubt there's a problem with value of the dollar. There's also no doubt that gold is in demand when there's an international crisis. However, gold is used in electronics and tech products.

          Because gold is hoarded it's hard to use it as a benchmark for anything but global instability.

          Global food shortages are the problem of most immediate concern. Peak oil is contributing to food supply problems because biofuels production is taking arable land away from food crops. moreover, expensive oil means food is more expensive to produce and ship.

          "It's the planet, stupid."

          by FishOutofWater on Mon Apr 21, 2008 at 06:18:34 AM PDT

          [ Parent ]

          •  Here's an article to chew on if you have time (0+ / 0-)

            Against the grain: weak dollar hits the poor

            If you have time, let me know what you think. It speaks to my points. Thanks for replying.

            "Are you coming to bed?" "I can't, someone is wrong on Dkos!" - paraphrased from XKCD comics

            by the fan man on Mon Apr 21, 2008 at 07:15:40 AM PDT

            [ Parent ]

            •  Outside intervention won't fix the dollar (3+ / 0-)
              Recommended by:
              GayHillbilly, Calamity Jean, SciVo

              Financial markets respond in anticipation of events, both good and bad. The dollar has tanked because our government is managing our economy poorly. The budget and trade deficits are critical problems driving the dollar down.

              Deficit financing of the Iraq war and occupation has been managed by the Fed keeping interest rates low. That helped cause the housing bubble.

              Now the Fed has to keep rates low to prop up our financial system. Low rates encourage further declines of the dollar.

              We have to clean our own house. The dollar will get stronger if we manage our accounts better.

              The first step is to get out of Iraq. Military expenditures are bankrupting us.

              "It's the planet, stupid."

              by FishOutofWater on Mon Apr 21, 2008 at 09:30:01 AM PDT

              [ Parent ]

        •  Probably not (1+ / 0-)
          Recommended by:
          FishOutofWater

          ...oil inventories are near normal. No doubt the underlying reality of short supply is there, but this run up looks suspiciously like speculation...

          If it was speculation, oil inventories would be going up.  The fact that inventories are near normal reveals that it's a supply problem.

          Renewable energy brings national security.

          by Calamity Jean on Mon Apr 21, 2008 at 03:54:38 PM PDT

          [ Parent ]

    •  I think most disagreed with Krugman respectfully (1+ / 0-)
      Recommended by:
      FishOutofWater

      ...and only on specific points. It's just a vocal few who got their hate on.

      I believe that we have a common interest in defending human dignity.

      by SciVo on Mon Apr 21, 2008 at 11:46:12 AM PDT

      [ Parent ]

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