Monday, May 12, 2008

The Oil Nonbubble

In the 1970's there was a fake oil crisis which caught everybody's attention. At least for awhile, until the easily distracted Americans forgot and Reagan was elected, and we went back to driving SUV's as if there were no limit to the oil.

NY Times columnist Paul Krugman wrote a column delving into the current high oil prices to ponder whether the current situation is another fake oil crisis. He seems to think it isn't a fake crisis. The clue is that it isn't acting like a situation where commodity speculators are forcing the price upward. Therefore, he concludes, this is a real shortage of some sort.

Such as... peak oil. The peak oil situation says we will reach a point where oil supplies cannot in any way keep up with rising demand, and Economics 101 states such a situation inevitably means higher prices.

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