"(David P.)" <imbibe@[EMAIL PROTECTED]
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news:62620a3d-5dd7-44d1-97ef-31e53d9790f0@[EMAIL PROTECTED]
Columnist
Running Out of Planet to Exploit
By PAUL KRUGMAN
Published: April 21, 2008
Nine years ago The Economist ran a big
story on oil, which was then selling for
$10 a barrel. The magazine warned that
this might not last. Instead, it suggested,
oil might well fall to $5 a barrel.
In any case, The Economist asserted,
the world faced “the prospect of cheap,
plentiful oil for the foreseeable future.”
Last week, oil hit $117.
It’s not just oil that has defied the com-
placency of a few years back. Food
prices have also soared, as have the
prices of basic metals. And the global
surge in commodity prices is reviving
a question we haven’t heard much since
the 1970s: Will limited supplies of natural
resources pose an obstacle to future
world economic growth?
How you answer this question depends
largely on what you believe is driving the
rise in resource prices. Broadly speaking,
there are three competing views.
The first is that it’s mainly speculation —
that investors, looking for high returns at
a time of low interest rates, have piled
into commodity futures, driving up prices.
On this view, someday soon the bubble
will burst and high resource prices will
go the way of Pets.com.
The second view is that soaring resource
prices do, in fact, have a basis in funda-
mentals — especially rapidly growing
demand from newly meat-eating, car-
driving Chinese — but that given time
we’ll drill more wells, plant more acres,
and increased supply will push prices
right back down again.
The third view is that the era of cheap
resources is over for good — that we’re
running out of oil, running out of land to
expand food production and generally
running out of planet to exploit.
I find myself somewhere between the
second and third views.
There are some very smart people —
not least, George Soros — who believe
that we’re in a commodities bubble
(although Mr. Soros says that the bubble
is still in its “growth phase”). My problem
with this view, however, is this:
Where are the inventories?
Normally, speculation drives up commodity
prices by promoting hoarding. Yet there’s
no sign of resource hoarding in the data:
inventories of food and metals are at or
near historic lows, while oil inventories
are only normal.
The best argument for the second view,
that the resource crunch is real but tem-
****ary, is the strong resemblance between
what we’re seeing now and the resource
crisis of the 1970s.
What Americans mostly remember about
the 1970s are soaring oil prices and lines
at gas stations. But there was also a
severe global food crisis, which caused
a lot of pain at the supermarket checkout
line — I remember 1974 as the year of
Hamburger Helper — and, much more
im****tant, helped cause devastating
famines in poorer countries.
In retrospect, the commodity boom of
1972-75 was probably the result of rapid
world economic growth that outpaced
supplies, combined with the effects of bad
weather and Middle Eastern conflict.
Eventually, the bad luck came to an end,
new land was placed under cultivation,
new sources of oil were found in the
Gulf of Mexico and the North Sea, and
resources got cheap again.
But this time may be different: concerns
about what happens when an ever-growing
world economy pushes up against the limits
of a finite planet ring truer now than they
did in the 1970s.
For one thing, I don’t expect growth in
China to slow sharply anytime soon.
That’s a big contrast with what happened
in the 1970s, when growth in Japan and
Europe, the emerging economies of the
time, down****fted — and thereby took a
lot of pressure off the world’s resources.
Meanwhile, resources are getting harder
to find. Big oil discoveries, in particular,
have become few and far between, and
in the last few years oil production from
new sources has been barely enough to
offset declining production from
established sources.
And the bad weather hitting agricultural
production this time is starting to look
more fundamental and permanent than
El Niño and La Niña, which disrupted
crops 35 years ago. Australia, in particular,
is now in the 10th year of a drought that
looks more and more like a long-term
manifestation of climate change.
Suppose that we really are running up
against global limits. What does it mean?
Even if it turns out that we’re really at or
near peak world oil production, that
doesn’t mean that one day we’ll say,
“Oh my God! We just ran out of oil!” and
watch civilization collapse into “Mad Max”
anarchy.
But rich countries will face steady
pressure on their economies from rising
resource prices, making it harder to raise
their standard of living. And some poor
countries will find themselves living
dangerously close to the edge — or over it.
Don’t look now, but the good times may
have just stopped rolling.
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