From the Institutional Economist blog we’ve just seen an article on peak oil. I agree with the author that markets will facilitate any movement from using oil to using a substitute. As yes, the market will help to develop further exploration for oil fields – which will provide more oil. But I feel two points are underplayed:
- The market facilitates this change by increasing the relative price of oil to other things. This is costly to society.
- A natural resource like oil is like “capital stock”. As it is non-renewable it is limited. By consuming oil we are consuming this capital stock – I wonder if the author would be as happy to see firms cut back their capital stock in order to increase production.
Ultimately, I think there is some oil in the ground and the best way to allocate when are where this oil is consumed is with markets. However, we should definitely not ignore the fact that, one day, the oil could run out and that would have a negative consequence on society – negative consequences that we can’t do anything about.
Peak oil theorists aren’t “economically illiterate” persee, they are just concerned about the fact that we could have this negative outcome.