Monday, May 12, 2008

Econ 101

Paul Krugman's New York Times column this morning addresses the so-called "conservative" contingent, specifically that group's tendency to engage in fantasy and wishful thinking on the topic of oil prices and energy policy generally.

“The Oil Bubble: Set to Burst?” That was the headline of an October 2004 article in National Review, which argued that oil prices, then $50 a barrel, would soon collapse.

Ten months later, oil was selling for $70 a barrel. “It’s a huge bubble,” declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble “look like a picnic.”

And so on and so forth, right up until today, when somewhere in your local newspaper, on your local TV station, or on this board, you're going to see some conservative claiming that $125 oil is the result of "speculation."

(A)ll through the period of the alleged bubble, inventories have remained at more or less normal levels, Krugman explains. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.

This is Econ 101. If production is declining, and supplies are tight, but demand keeps growing, the price goes up. Supply. Demand. Price.

And that price isn't likely to go down any time soon because most of us are not really in a position where we can choose to burn less gas. It's going to take us a while to rearrange our lives so as to be in that position.

So if this situation is so fundamental, basic, and easy to understand, why are there so many Americans (especially conservatives) who just can't understand it?

Krugman has the answer to that question too. The explanation of this seeming paradox is that wishful thinking has trumped pro-market ideology, the teacher says, somewhat annoyed that he has to tell his audience of wide-eyed, mouth-breathing innocents things that should be obvious. After all, a realistic view of what’s happened over the past few years suggests that we’re heading into an era of increasingly scarce, costly oil.

Ah, yes. Increasingly scarce, costly oil. Charlie Brown faces life.

And a realistic view of what's happened over the past few years on the energy front also leads us to another, related, equally inescapable conclusion: that the earth's climate is changing rapidly and radically for the worse due to human activity, meaning the prodigal burning of non-renewable fossil fuels.

The solution is obvious. So also is the nature of the problem conservatives are having getting their little heads around the true state of affairs.

Because we can no longer afford happy motoring, and because happy motoring is destroying the planet in any case, we need to do things differently. We need new policies.

I'm not hoping for an unapologetically progressive Obama administration. I know he has to work a delicate balancing act between the corporate power structure and the needs of us little people. But at a minimum, we need to have someone in the White House and people in Congress who have passed Econ 101 with a "C" or better, rather than a bunch of anti-scholars whose economic principles are based on delusions, fantasies, and infantile desires for wish fulfillment.

Long story short: we can't go on this way.

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