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.