Tuesday, October 18, 2005



Via Drudge: Breitbart is carrying brief comments from Alan Greenspan that speak volumes for the murky future of petroleum and its place in the world energy picture.

Noting first "the world would have to learn to live with high oil prices... for some time to come" Chairman Greenspan went on to note "the impact of high oil prices on economic growth and inflation was likely to be less severe than during the 1970s... Oil is only two-thirds as important as an input into world gross domestic product now as it was three decades ago."

Only two-thirds as important, even though during the same three decades oil production has better than doubled.

Macroeconomic study demonstrates that in free markets with minimal barriers to entry, demand equals price. And in the last few weeks, as prices spiked high, demand did in fact come down just a little. As it did, prices began to moderate.

A simple view? A simple truth. And good news all the way around.

There's a lot of worry these days about oil. Worry about supplies, long and short term. Worry about the environmental downsides of it's use. Worry about the power oil confers to friends and foes. Fretting about alternatives. Every day another brick is added to the worry wall, another tree in the forest of events is examined minutely while the forest goes ignored.

Alternatives? "Oil is only two-thirds as important as an input into world gross domestic product now as it was three decades ago." Why? Because alternatives have been developed and utilized. Because we get more out of every drop of oil than ever before.

Do you ever find yourself in traffic behing a '60's "muscle" car? Smell that? All those partly burned and unburned hydrocarbons? All the cars used to smell that way.

More cars, more factories, more goods. Less total pollution and far less per unit consumption. We will never run out of oil, because long before we do, using it will become prohibitively expensive and it will be replaced. It is already happening.

Economics in action. As basic as the tides and as irresistable. As new as today and as old as Europe's quest for spice.

So three cheers for high oil prices and the activities they stimulate; the innovation they prompt.

Three cheers for the dead hand of Adam Smith.

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