Thursday, January 12, 2006

Populist Policies Slower than Proper Policies

After Katrina and the sudden hike in oil prices, two kinds of people allied themselves in a serious case of panic and hysteria: senior populist politicians (State Governors and Senators) showing new degrees of professed ignorance and some self-labelled ‘enviornmentalist’ pressure groups doused in poor economics.

I discussed examples of their wares here at the time, damning them for turning their backs on the workings of markets to the theme of ‘where ignorance predominates, stupid policies assert themselves’, and also praising those few, calmer individuals (but not enough of them in high places) who explained the correct economics, honestly and clearly.

Giles Whittel in today’s Times (London) writes a striking piece, “Shh! Why I secretly fancy Gazprom”.

Aparently, Giles Whittel bought shares in an environmentally friendly fuel cell business in Canada during the post-Hubbert (‘oil has peaked’) years after 2001. The rest he relates in this article:

“I went out and spent $5,000 more than I could afford, which is to say $5,000, on shares in a Canadian fuel cell company.

The first sign that this may have been unwise was the failure of dozens of excited forecasts of the death of oil to come true. These forecasts were based on M. King Hubbert’s theory of “peak oil”. Mr Hubbert, an American geophysicist of unimpeachable integrity, correctly predicted that domestic US oil production would peak around 1970 and go into steady decline as the US oil industry found more lucrative uses for its profits than ploughing them back into domestic oil exploration. Others used his methods to predict a global production peak in 2000 — but it didn’t happen.

Instead, with Adam Smith smiling thinly from his grave, fears that oil may be about to run out have so far translated swiftly into higher prices, funding a successful hunt for more of it. Hence BP’s deep-water rigs off the island of Sakhalin in the Russian Far East. And the ingenious bendy bore-holes on Alaska’s North Slope that vastly expand the Prudhoe Bay oilfield without needing a single new drilling rig. And the reclassification of Alberta’s 300 billion barrels of sticky, hard-to-get-at oil-sand oil as “recoverable”. And, in a roundabout sort of way, the fact that my fuel cell shares are now virtually worthless.”

Most economists correctly predicted how markets would react to the higher prices. Producers would seek substitutes, users would ration themselves. No need to panic.

Need I say more?

Read Whittel’s article at:


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