A reader writes:
I want to make four essential points on the subject of peak oil that Reihan and your friend Vaclav Smil are not fully appreciating:
1. Oil currently powers 94% of the transportation of people and goods in the United States. The near complete monopoly of oil on an essential area of human activity makes it vastly different from other commodities. When the price of natural gas goes up, people or utilities can switch to nuclear power. When the price of oil goes up, people still need to go to work and have no choice but to pay higher prices.
2. The big decisions that we make that determine how much oil we use are (1) where we choose to live; (2) where we choose to work; and (3) what car we drive. These things are not easy to change in response to higher oil prices. As a result of these two factors, oil consumption is both extremely inelastic and require major, long-term investments in order to change. There is no way around this; getting off of oil is going to take time, which is why waiting for the market to send the correct price signal will be a disaster for our economy.
3. As a result, both Reihan and Smil are understating how painful the transition away from oil will be, if we don't take steps to prepare for the coming oil crisis.
As oil prices rise, it's going to take money out of the pockets of American consumers and put it into the bank accounts of oil producers and oil-exporting nations. That's why in recent U.S. history, every major spike in the price of oil has been immediately followed by a significant recession, including the 1973 Embargo, the 1979 Iranian Revolution, the 1989 Persian Gulf War, and the 2007 demand-side energy crisis (the converse is also true: every major U.S. recession over the past 40 years has been preceded by a rapid rise in the price of oil).
4. You can't ignore the distributional aspects of what will happen to American consumers if we don't do something to get off oil in the near term. As oil supply stagnates while demand surges, rising prices will be an enormous transfer of wealth from American families to Venezuela, Saudi Arabia, Iran and indirectly to Hizb'allah and Hamas.
Will it be the end of civilization? No. But surely dealing with the coming oil crisis is a major policy concern for all people across the political spectrum.
More dialogue on this here.
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