Crude logic

There is a puzzle over oil prices – and it is not what is driving them up. That particular question can be answered quickly enough: demand for oil has increased, especially in booming China, and that lift to prices has been intensified by that old culprit, market speculation.

So far, so simple. The real mystery, however, is this: why is expensive oil not changing the way we behave? Throughout this decade, economists have confidently predicted, and politicians have blithely assumed, that costly crude would lead to people consuming less and make greener energy cheaper – and therefore more popular – by comparison. This was not an outlandish argument; indeed it was made by no less a figure than the Nobel prize-winning economist Gary Becker. In an article for Business Week in May 2004, headlined Let’s Make Gasoline Prices Even Higher, Mr Becker called for petrol to go up to $2.50 a gallon. That would cut the amount Americans used by about 10%, he thought, and help spark investment in competing technologies such as hydrogen. “General Motors and others believe they can make hydrogen fuel cells competitive with gasoline engines within five to 10 years,” he reported.


Spool forward four years. In the US, gasoline is about to hit $3 a gallon, while British motorists are likely to be paying