Economics for Paul Krugman and other dummies

Another great reaction to a NYT columnist comes from Tim Worstall, who discusses several likely ways that we will adapt to rising oil prices. Flouting conventional wisdom, he does not predict the end of the world.

Here's a little of what he has to say:

Let's start by assuming that shortages are inevitable, that oil really will go up to, say, $ 100 a barrel and stay there. What will happen ? There will be substitution. At least three different types of it. We'll leave aside all the extra exploration that will come from such high prices, the new technologies that will be created to extract more from the same field ( you know that the majority of oil in a field is never recovered ? ) and all those sorts of things. We'll just address that concept of substitution in the manner in which an economist should. And we'll limit ourselves to transport, for as Quiggin notes, that's the one area where we don't appear to have an alternative straight out of the box.

1) We'll extract oil substitutes from other sources. From the Athabasca tar sands for example. Profitable at today's prices, at $ 100 a barrel this is a no brainer. According to the US Geological Survey there's half a millenium's worth of oil up there for the whole planet. Or ethanol, or bio diesel. No great change in society, infrastructure or technology.

So no worries. We already have lots of alternatives (some of which are totally, totally awesome), which will become more economically attractive as the price of oil goes up. Sorry, hippies-- western civilization is not going to collapse because we run out of oil. But, hey, maybe that whole "Global Warming-induced Ice Age" thing will work out for you.

(Hat tip: InDC Journal.)

--YAHYA AL-RIIFI AL-SAUDI