In order to reach different conclusions you do have to make different assumptions about the amount of natural capital and the degree of technological progress yes. However, that was what I was saying in the article – I was just providing a framework where you could make those assumptions.

“The counter argument put forward is that it will take more energy to extract energy and there’s nothing money can buy that will get around that”

I did not say there would not be any cost, in fact few economists think the transition will be low cost. – after all we only start using other forms of energy once oil is “scarce” enough (which is what makes the price go up).

However, the degree people are concerned about the problem of peak oil will rely on their assumptions about the rate of certain types of technological growth, and their belief in how large the natural capital stock is. The price mechanism is useful here, because it tells people when oil is becoming scarce by increasing the price – thereby leading to changes in society to account for this. The fear economists have is that governments will try to buffer the increase in prices – which will lead to bad investment choices by households and firms.

Ultimately, this post is only a characterization of technology – as I felt that the Sacks piece underplayed the role of technology in development. I also get the feeling that some people feel technology will save us and some people feel it will make the problem worse – with the above characteristation of “technology” you can make either argument, following from some transparent value judgments.

Good point – run out was the wrong term.

“this sums up the assumption that technology will provide a cheaper, substitute”

The substitute does not have to be cheaper than oil was at its cheapest point though – it merely has to be cheaper than oil at that point in time. As a result, it is possible that our productive capacity could be adversely affected. However, it is not the end of the world 😉

Still good comment Steve – I think you sum up the issue well

Great article, there’s a saying I heard that sums it up perfectly, that ‘the stone age didn’t end because of a lack of stones’. this sums up the assumption that technology will provide a cheaper, substitute.

I disagree that economists believe resources will run out. It is simply supply and demand. For example, the supply of oil will become less and less untill a substitute is more cost effective. Ordinary combustion engines can be converted to run on hydrogen (or LPG). So quite simply petrol will become so expensive that a car can achieve the same ammount of energy from the same ammount of money’s worth of hydrogen (or other substitute), that it becomes worthwhile purchasing a H-cell car, or coverting an existing vehicle to hydrogen. The difficult part is finding a cheaper way to produce hydrogen. How about a cheaper way to produce electricity? (nuclear – fission or fusion?) in order to produce hydrogen from water.

I read an article recently saying that now was the time to return to nuclear. It’s focus was climate change and that its better for the environment than burning coal/oil to produce electricity – but again maybe it’s also better than burning petrol in our cars?

Technology and the limited nature of non-renewable resources is an important issue in economics, the social sciences, and general policy making. It is an issue where each side of the political spectrum feels that the other side is ……