You’d think that, and I’d agree. It’s what should have happened. But there’s no evidence that it did. And to paraphrase Rummy, you’ve got to work with the people you have, rather than the people you’d like to have.
OK, but what’s the magic point on that graph where everyone knows that this is a long-term price increase, rather than a short-term spike? For the vast majority of people who don’t pay more attention to the world than they absolutely have to, I’m thinking that the answer is, 2006. If then.
I think I probably tripped across it while reading Packer’s The Assassins’ Gate. I’ll look when I get home.
Most times, that makes perfect sense. But the oil market isn’t most markets, either in terms of its behavior or in terms of its strategic importance.
If the price of widgets goes up because more people want to buy widgets than there’s currently factory capacity for, then widget companies will build new factories, or new widget manufacturers will emerge, or widget alternatives will be developed, or people will decide they really don’t need widgets all that badly. The market corrects itself over time.
Then there’s petroleum. Petroleum’s cheap to ‘produce’, i.e. pump out of the ground, if you’re sitting on a lake of it. If not, then you’re SOL. If the people who are sitting on those lakes of petroleum can pump 86 million barrels a day, but demand is only 60 million bpd, there’s a lot of excess capacity. Ditto if demand jumps to 70 million bpd, or even 80, although now the margin’s tighter. Since supply still exceeds demand, not a whole lot happens to prices. Yet.
But when demand hits 86 million bpd, things go crazy. Maybe this country can pump an extra million bpd by this time next year, or maybe developing ANWR could add another million bpd to the supply by next decade, but if demand’s been increasing by 2-3 million bpd per year, it doesn’t matter. The only truth is that price will rise until demand reduces itself to match supply - and since, at any fixed price, demand will keep on rising, the price will keep on rising.
The U.S. is the great power in the world today, and I want it to continue to be so, even if the current government has fucked-up ideas about how to use our power. But I think that the dues to staying in the great-power club include dealing with stuff that might threaten your great-powerhood before it socks you in the nose.
Oil is $75 a barrel now, and it could go up quite a bit from here. $150, $200 a barrel? No reason why not. Any idea how that would affect our economy? I don’t either, but it ain’t gonna be pretty. Everything we make, everything we buy involves extensive transport networks. Leaving oneself open to that sort of disruption isn’t how a great power responds to that sort of threat; the proper way is to gradually introduce the illusion of the supply limits before those limits are real, so our economy can adapt gradually.
There’s other factors too, just in terms of smart v. stupid. That 20 million bpd, which is 7.3 billion barrels a year, cost us $365 billion more each year at $75 a barrel than they did at $25 a barrel. Most of that money, of course, is going overseas - to the Saudis, Iran, Venezuela, Nigeria, Russia, wherever.
$365 billion a year, even in an economy as big as ours, is real money. And chances are that number will grow a lot faster than our economy will.
Now a set of phased-in oil tax increases to simulate that increase in the world price of oil before it actually got here would have kept that money at home, rather than seeing it go overseas. Given our little borrowing problem - the other big, ignored threat to our great-powerhood - that would have been a very smart thing to do.
Having prices go up, and getting to keep the difference: good.
Having prices go up, and having someone else get the difference: not so good.
On the whole, the free market is a very good thing. But as a nation, we have the ability to set goals, and to consider whether the untrammeled operation of the free market in a particular area is going to become an obstacle to achieving our goals. If we decide it doesn’t matter to us whether we continue to be a great power in any sense besides having a lot of nukes, then no goal = no problem. But if it does, then we do have a problem.
Right now, some pretty ephemeral stuff is propping us up economically, like the willingness of a whole bunch of central governments to loan us all the money we want to borrow, in our own currency. I’ve never lived in a world other than the one where the U.S. is the biggest and best economy around - and I very much like it that way. I want the game to continue under these rules as long as possible. So I’m eager to see us fix our problems before someone changes the rules. Oil is just one part of that, although it’s a very big part. But if we’re always waiting until after trouble hits to deal with the troubles, the costs of our non-anticipation will make it that much more expensive to solve the problems we already have.
Sorry about the manifesto. I really hadn’t intended on writing one today. 
