[Bas]

The market will allocate oil more efficiently than you and I can imagine (couldn't fit the whole sentence in the title bar)

To begin with, only the market knows, and will show us where oil is wasted the most; even CEO's of companies don't know exactly how much of the indirect costs of a product are related to the price of oil. The most oil wasting (intensive) products will rise in price the first and depending on elasticity of this product will fall by a bigger or smaller percentage than percentage of the price rise; among other things this is an indicator of how essential we regard a certain product. It is however difficult to see the future of alot of products because elasticity might change if real income drops significantly; the outcome will, however always be the most efficient.

The second thing in which the market might suprise us is how the individual producers of products will reorganise their production to deal with the risen costs. These possibilies are esspecially hard for us to see because they exist within all the different companies and factories. These companies (other than transport) probably haven't even made an inventorization of how to cut oil use since, until now, oil was so cheap that it wasn't worth the efford to do so.
Also this rationalizing of production typically happens in a recession (in which it traditionally happens), as companies which are making a profit don't really have the incentive to do so.

The point I'm trying to get across here is that the market may very well suprise some of the doomers in it's ability to reallocate the more scarce resources very effectively; I have the feeling that some people (quite naturally actually) are stuck in some sort of 'communist' plan-economy way of thinking about the economy.

MrBill; feel free to add to the argument.

Disclaimer: I'm not saying we won't still see recession upon recession, inflation, unemployment and a falling real income; this will no doubt happen within a couple of years / alot will depend on the rate of decline in oil production, something which actually can be overestimated as well.

[FishAreBest]

I see the Wikipedia entry for Jevons Paradox now refers explicitly to Peak Oil.

[Bas]

$this->bbcode_second_pass_quote('FishAreBest', 'I') see the Wikipedia entry for Jevons Paradox now refers explicitly to Peak Oil.

[gt1370a]

You're right to some degree, for example I read a presentation by the CEO of Dow Chemical who said they were looking at making some chemicals biologically rather than from oil. I don't know the physical or economic potential of actually doing this, but it's an example of what you're talking about...

But somehow I can't help thinking that if I'm able to drive a 6,000 lb truck 200 miles to have a Valentine's dinner with my girlfriend, for the equivalent $ amount of about 1-hour's labor sitting in a cubicle, that the market is somehow not efficiently valuing either the oil or my labor, or both....

[Colorado-Valley]

Well, the airlines apparently learned how to hedge fuel costs when oil was around $70 last year, but those just seem like delaying tactics to me.

As soon as oil hits $80 to $90, cracks will open and panic will set in.

I just don't think the infrastructure of the economy (I'm talking about the U.S.) is designed to absorb something like that. There's really no "Plan B" in America.

[Bas]

$this->bbcode_second_pass_quote('Colorado-Valley', 'W')ell, the airlines apparently learned how to hedge fuel costs when oil was around $70 last year, but those just seem like delaying tactics to me.

As soon as oil hits $80 to $90, cracks will open and panic will set in.

I just don't think the infrastructure of the economy (I'm talking about the U.S.) is designed to absorb something like that. There's really no "Plan B" in America.

[MrBill]

$this->bbcode_second_pass_quote('Bas', '')$this->bbcode_second_pass_quote('FishAreBest', 'I') see the Wikipedia entry for Jevons Paradox now refers explicitly to Peak Oil.

[Aaron]

$this->bbcode_second_pass_quote('FishAreBest', 'I') see the Wikipedia entry for Jevons Paradox now refers explicitly to Peak Oil.

[AWPrime]

The market will allocate the oil to the rich countries.

[Nano]

I'd like to see the virtual market handle real shortage first. Up to now all they've done is to hide the inflation. Buying time I guess...

But I agree $200 oil doesn't have to be a big problem. Drive a little less and most people 'll still be able to pay the rent and buy trinkets like they're used to if nothing else.

[Tyler_JC]

Oh?

You mean just like how The Market perfectly allocates food resources?







There are people that need only a little bit more of whatever product to survive and they don't get it. The product might be food, firewood, warm clothes, or rent money but regardless, they don't get their little bit more.

We will have the same situation with oil.

A nurse might need just one more gallon of gasoline to get to work on February 12, 2014 but she won't get it. Why? Because some military hummer or private jet or motorhome or plastics company will have already bought her gallon.

So now people in the hospital will die and any expected economic return we could have gotten from those people is lost to the world forever. (If you want to think about it from the purely economic point of view)

So did the market make the most efficient use of that gallon of gasoline? I don't think so...

[keehah]

The market will allocate the oil to the military industrial complex.

[Aaron]

$this->bbcode_second_pass_quote('Bas', '')$this->bbcode_second_pass_quote('FishAreBest', 'I') see the Wikipedia entry for Jevons Paradox now refers explicitly to Peak Oil.

[cube]

I find it laughable how so many people are quick to point out the flaws with the free market system.

If the magic tooth fairy gave these people the opportunity to be a dictator of their own nation where they can "test" their new economic theories, there would probably be a mass famine. History is filled with examples of rulers who honestly tried their best, but the end result was hell.

Some of the most amazingly efficient systems on this planet are the ones with the least amount of "management".

[Bas]

$this->bbcode_second_pass_quote('AWPrime', 'T')he market will allocate the oil to the rich countries.

[Bas]

$this->bbcode_second_pass_quote('pstarr', '[')b]The market will allocate oil more efficiently than you and I can imagine. That is real upbeat and academic sounding. Wow, are you ever smart.

But how about those little darlings craning their necks up for a meal? Sometimes efficiency is not the only measure.

Maybe this will be your last smart-ass post?

[Bas]

$this->bbcode_second_pass_quote('Tyler_JC', 'O')h?

You mean just like how The Market perfectly allocates food resources?

[Nano]

$this->bbcode_second_pass_quote('cube', 'H')istory is filled with examples of rulers who honestly tried their best, but the end result was hell.

[MrBill]

I am not sure I would use the term free market. Markets are rarely free of government and other trade distorting interference. I would use the term market economy as opposed to a centrally planned economy. And which one is superior in terms of mitigating the economic effects of post peak oil hydrocarbon depletion because peak oil itself is a geological fact and not an economic problem that can be solved by anyone.

Countries are not poor because they have market economies. Generally they are poor because the market economy is not functioning properly. Wars, droughts, famines, overpopulation, bureaucracy, incompetence and corruption are the main reason why countries are poor. Usually the more centrally planned the economy the poorer the country. A lesson learned by China. Their economy only started to grow when the communists released the energy of 1.3 billion people by opening up to a market economy and started making stuff that they could sell. Stuff someone was willing to buy.

If Africans are starving it is not due to market economics. The Lost Continent has many natural resources, which is why China is there right now trying to do trade deals to gain access to them. But when corrupt Nigerian politicians have stolen more money from their oil & gas sales than the entire Marshall Plan used to rebuild Europe after WWII there is a reason why Nigeria is as poor as it is and not another Norway. That is a failure of governance. Not the market. The market is paying Nigeria for their oil & gas. It is up to them to re-invest that money into infrastructure to help their economy grow for the benefit of their own people.

The hundreds of billions of dollars of aid and soft-loans that have been given to Africa and other developing countries should have been more than enough for these countries to reform their economies. Certainly, many Asian countries, by comparison, have improved their citizens' lifestyles through market economies and trade during the same period of time.

But if you were to address The African Union of countries or ASEAN group of leaders and suggest in your arrogance that you know better than them how to run their economies they would rightly deride you as a condescending, imperial, neo-colonialist. The fact is that these are sovereign countries and they can do what they like. They are free to make mistakes. And then their people suffer. However, not because of an efficient market economy, but due to its absence.

A well-functioning market economy has millions upon millions of variables that no central planner can even begin to fully comprehend. That is the main reason why any interference on their behalf usually ends in disaster. That is why there will be no Manhattan Project to deal with peak oil. There is no solution to peak oil. There are only a million reactions and counter reactions to the problem of peak oil to mitigate its economic effects. Any government interference in that process will have unforeseen consequences.

If oil & gas gets allocated to the military-defense complex instead of being used to build public infrastructure that is not a failing of the market economy. That is once again a failure of government. And if you live in a nominally democratic country, or even a two party state like the USA, then by default a failure of the voters to exercise their democratic rights responsibly. To blame voter apathy and ignorance on the market is just wrong. It is intellectually lazy. Its proponents are academically dishonest.

If the market economy has its failings, such as producing gas-guzzling SUVs, then this just reflects back on poor consumer choices and bad government. Market solutions to curbing SUV buying include raising the cost of gasoline through carbon taxes; road charges that tax usage; subsidizing public transport; not subsidizing road construction; taxing engine size; and other measures to change consumer attitudes. Every one of those measures is being done now, as we speak, in other western market economies with mixed levels of success.

The fact is that even in Western Europe with its enviable levels of public transport that petroleum is still too cheap to get all consumers out of their cars and into trains, trams, buses and the metro. So even with gasoline at least twice as expensive as in the United States consumers are making poor decisions. And because consumers are voters as well their governments are not making the right choices either.

Only physical scarcity will end people’s reliance on hydrocarbons. Not a Manhattan Project. Not a Marshall Plan to build alternative energy infrastructure projects. Not a centrally planned government response. And not wealth transfers from the haves to the have-nots. Peak oil has no solution. We can only let the market get on with mitigating its economic fall-out. And that is why Bas’ question is so important and why many responses against him are so wrong.