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Rising oil prices are making themselves felt again. Although we are not coming close to the long gas lines of the 1970s, the political turmoil in the Mideast makes for an ominous picture. We will tag a couple of pieces to capture some of the sense of this time.
Mr. John Tierney of The New York Times gives us an optimistic perspective, focusing on the long term, arguing that human ingenuity has always afforded society only more plentiful and cheaper natural resources - Cornucopian economics. One is more impressed with the fact that Tierney is moved to offer such a counterveiling argument.
However, even if the Cornucopian model were true, and should continue to be true, Mr. Fareed Zakaria offers a more sober analysis for the near term. Oil money takes away incentives for non-democratic regimes to reform and become more liberal democratic, and more directly, more oil money means more money into terrorist coffers.
And we also have that old joke that in the long term we are all dead.
___ ___ ___
I don't share Matthew Simmons's angst, but I admire his style. He is that rare doomsayer who puts his money where his doom is.
After reading his prediction, quoted Sunday in the cover story of The New York Times Magazine, that oil prices will soar into the triple digits, I called to ask if he'd back his prophecy with cash. Without a second's hesitation, he agreed to bet me $5,000.
His only concern seemed to be that he was fleecing me. Mr. Simmons, the head of a Houston investment bank specializing in the energy industry, patiently explained to me why Saudi Arabia's oil production would falter much sooner than expected. That's the thesis of his new book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy."
I didn't try to argue with him about Saudi Arabia, because I know next to nothing about oil production there or anywhere else. I'm just following the advice of a mentor and friend, the economist Julian Simon: if you find anyone willing to bet that natural resource prices are going up, take him for all you can.
Julian took up gambling during the last end-of-oil crisis, in 1980, when experts were predicting a new age of scarcity as the planet's resources were depleted by the growing population. Julian had debunked these fears in "The Ultimate Resource," the bible of Cornucopian economics, which showed how human ingenuity had kept driving down the price of energy and other natural resources for centuries.
He offered to bet the pessimists that oil or any other resource they chose would be cheaper, in real terms, at any date they picked in the future. The ecologist Paul Ehrlich, author of "The Population Bomb" and "The End of Affluence," took up his offer and chose copper, tin and three other metals worth $1,000 in 1980.
When the famous bet was settled 10 years later, the value of the metals had declined by more than half. As usual, people had found new ways to get the metals as well as cheaper substitutes, like the fiber optic cables that replaced copper telephone wires.
After collecting his winnings, Julian expanded his challenge, offering to bet anyone on any other resource price or measure of human welfare. Julian, who died in 1998, never managed to persuade Mr. Ehrlich or other prominent doomsayers to take his bets again. But now we have a braver prophet in Mr. Simmons.
I proposed to him a bet using what Julian considered the best measure of a resource's value: how it compares with the average worker's wage. I offered to bet that the price of oil would not rise faster than the average wage, meaning that future workers would be able to afford oil more easily than they could today.
Mr. Simmons said he favored a simpler wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he'd bet that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel.
Remembering a tip from Julian, I suggested that we use the average price for the whole year of 2010 instead of the price on any particular date - that way, neither of us would be vulnerable to a sudden short-term swing as the market reacted to some unexpected news. Mr. Simmons agreed, and we sealed the deal by e-mail.
The first person I told was Julian's widow, Rita Simon, a public affairs professor at American University. She was delighted to see Julian's tradition carried on and thought the bet sounded so good she wanted a piece of the action herself.
With Mr. Simmons's approval, we arranged for Rita and me to split the wager, with each of us putting up $2,500 against Mr. Simmons's $5,000. (Note to accounting department: I'm aware that my expense account doesn't cover gambling. I'm using my own money.) All the money is being put into escrow in a joint account; the winning side will collect the $10,000 plus any accrued interest on Jan. 1, 2011.
I realize this isn't a sure thing, because the price of oil has risen before - it quintupled in the 1970's. But then it dropped, thanks to new discoveries and technologies, validating the Cornucopians' optimism.
So I figure the long-term odds are with me. And while I'm at it, I'll extend Julian's challenge and consider bets from anyone else convinced that our way of life is "unsustainable." If you think the price of oil or some other natural resource is going to soar, show me the money.
-- John Tierney, "The $10,000 Question" for The NY Times
.........
If I could change one thing about American foreign policy, what would it be? The answer is easy, but it's not something most of us think of as foreign policy. I would adopt a serious national program geared toward energy efficiency and independence. Reducing our dependence on oil would be the single greatest multiplier of American power in the world. I leave it to economists to sort out what expensive oil does to America's growth and inflation prospects. What is less often noticed is how crippling this situation is for American foreign policy. "Everything we're trying to do in the world is made much more difficult in the current environment of rising oil prices," says Michael Mandelbaum, author of "The Ideas That Conquered the World." Consider:
· Terror ism . Over the past three decades, Islamic extremism and violence have been funded from two countries, Saudi Arabia and Iran, not coincidentally the world's first- and second-largest oil exporters. Both countries are now awash in money, and no matter what the controls, some of this cash is surely getting to unsavory groups and individuals.
· Democracy. The centerpiece of President Bush's foreign policy -- encouraging democracy in the Middle East -- could easily lose steam in a world of high-priced oil. Governments reform when they have to. But many Middle Eastern governments are likely to have easy access to huge surpluses for years, making it easier for them to avoid change. Saudi Arabia will probably have a budget surplus of more than $26 billion this year because the price of oil is so much higher than anticipated. That means it can keep the old ways going, bribing the Wahhabi imams, funding the army and National Guard, spending freely on patronage programs. (And that would still leave plenty to fund dozens of new palaces and yachts.) Ditto for other corrupt, quasi-feudal oil states.
· Iran. Tehran has launched a breathtakingly ambitious foreign policy, moving determinedly on a nuclear path, and is also making a bid for influence in neighboring Iraq. This is nothing less than an attempt to replace the United States as the dominant power in the region. And it will prove extremely difficult to counter -- more so given Tehran's current resources. Despite massive economic inefficiency and corruption, Iran today has built up foreign reserves of $29.87 billion.
· Russia. A modern, Westernized Russia firmly anchored in Europe would mean peace and stability in the region. But a gush of oil revenues has strengthened the Kremlin's might, allowing President Vladimir Putin to consolidate power, defund his opponents, destroy competing centers of power and continue his disastrous and expensive war in Chechnya. And the "Russian model" appears to have taken hold in much of Central Asia.
· Latin America . After two decades of political and economic progress in Latin America, we are watching a serious anti-American movement gain ground. Hugo Chavez in Venezuela -- emboldened by his rising oil wealth -- was the first in recent years to rebel against American influence, but similar sentiments are beginning to be heard in other countries, from Ecuador to Bolivia.
I could go on, from Central Asia to Nigeria. In almost every region, efforts to produce a more stable, peaceful and open world order are being compromised and complicated by high oil prices. And while America spends enormous time, money and effort dealing with the symptoms of this problem, we are actively fueling the cause.
Rising oil prices are the result of many different forces coming together. We have little control over some of them, such as China's growth rate. But America remains the 800-pound gorilla of petroleum demand. In 2004 China consumed 6.5 million barrels of oil per day. The United States consumed 20.4 million barrels, and demand is rising. That is because of strong growth, but also because American cars -- which guzzle the bulk of oil imports -- are much less efficient than they used to be. This is the only area of the U.S. economy in which we have become less energy-efficient than we were 20 years ago, and we are the only industrialized country to have slid backward in this way. There's one reason: SUVs. They made up 5 percent of the American fleet in 1990. They make up almost 54 percent today.
It's true that there is no silver bullet that will entirely solve America's energy problem, but there is one that goes a long way: more efficient cars. If American cars averaged 40 miles per gallon, we would soon reduce consumption by 2 million to 3 million barrels of oil a day. That could translate into a sustained price drop of more than $20 a barrel. And getting cars to be that efficient is easy. For the most powerful study that explains how, read "Winning the Oil Endgame" by energy expert Amory B. Lovins (or go to http://oilendgame.com ). I would start by raising fuel efficiency standards, providing incentives for hybrids and making gasoline somewhat more expensive (yes, that means raising taxes). Of course, the energy bill recently passed by Congress does none of these things.
We don't need a Manhattan Project to find our way out of our current energy trap. The technologies already exist. But what we're searching for is perhaps even harder: political leadership and vision.
-- Fareed Zakaria, "Mile by Mile, Into the Oil Trap" for The Washington Post
xXx
Rising oil prices are making themselves felt again. Although we are not coming close to the long gas lines of the 1970s, the political turmoil in the Mideast makes for an ominous picture. We will tag a couple of pieces to capture some of the sense of this time.
Mr. John Tierney of The New York Times gives us an optimistic perspective, focusing on the long term, arguing that human ingenuity has always afforded society only more plentiful and cheaper natural resources - Cornucopian economics. One is more impressed with the fact that Tierney is moved to offer such a counterveiling argument.
However, even if the Cornucopian model were true, and should continue to be true, Mr. Fareed Zakaria offers a more sober analysis for the near term. Oil money takes away incentives for non-democratic regimes to reform and become more liberal democratic, and more directly, more oil money means more money into terrorist coffers.
And we also have that old joke that in the long term we are all dead.
___ ___ ___
I don't share Matthew Simmons's angst, but I admire his style. He is that rare doomsayer who puts his money where his doom is.
After reading his prediction, quoted Sunday in the cover story of The New York Times Magazine, that oil prices will soar into the triple digits, I called to ask if he'd back his prophecy with cash. Without a second's hesitation, he agreed to bet me $5,000.
His only concern seemed to be that he was fleecing me. Mr. Simmons, the head of a Houston investment bank specializing in the energy industry, patiently explained to me why Saudi Arabia's oil production would falter much sooner than expected. That's the thesis of his new book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy."
I didn't try to argue with him about Saudi Arabia, because I know next to nothing about oil production there or anywhere else. I'm just following the advice of a mentor and friend, the economist Julian Simon: if you find anyone willing to bet that natural resource prices are going up, take him for all you can.
Julian took up gambling during the last end-of-oil crisis, in 1980, when experts were predicting a new age of scarcity as the planet's resources were depleted by the growing population. Julian had debunked these fears in "The Ultimate Resource," the bible of Cornucopian economics, which showed how human ingenuity had kept driving down the price of energy and other natural resources for centuries.
He offered to bet the pessimists that oil or any other resource they chose would be cheaper, in real terms, at any date they picked in the future. The ecologist Paul Ehrlich, author of "The Population Bomb" and "The End of Affluence," took up his offer and chose copper, tin and three other metals worth $1,000 in 1980.
When the famous bet was settled 10 years later, the value of the metals had declined by more than half. As usual, people had found new ways to get the metals as well as cheaper substitutes, like the fiber optic cables that replaced copper telephone wires.
After collecting his winnings, Julian expanded his challenge, offering to bet anyone on any other resource price or measure of human welfare. Julian, who died in 1998, never managed to persuade Mr. Ehrlich or other prominent doomsayers to take his bets again. But now we have a braver prophet in Mr. Simmons.
I proposed to him a bet using what Julian considered the best measure of a resource's value: how it compares with the average worker's wage. I offered to bet that the price of oil would not rise faster than the average wage, meaning that future workers would be able to afford oil more easily than they could today.
Mr. Simmons said he favored a simpler wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he'd bet that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel.
Remembering a tip from Julian, I suggested that we use the average price for the whole year of 2010 instead of the price on any particular date - that way, neither of us would be vulnerable to a sudden short-term swing as the market reacted to some unexpected news. Mr. Simmons agreed, and we sealed the deal by e-mail.
The first person I told was Julian's widow, Rita Simon, a public affairs professor at American University. She was delighted to see Julian's tradition carried on and thought the bet sounded so good she wanted a piece of the action herself.
With Mr. Simmons's approval, we arranged for Rita and me to split the wager, with each of us putting up $2,500 against Mr. Simmons's $5,000. (Note to accounting department: I'm aware that my expense account doesn't cover gambling. I'm using my own money.) All the money is being put into escrow in a joint account; the winning side will collect the $10,000 plus any accrued interest on Jan. 1, 2011.
I realize this isn't a sure thing, because the price of oil has risen before - it quintupled in the 1970's. But then it dropped, thanks to new discoveries and technologies, validating the Cornucopians' optimism.
So I figure the long-term odds are with me. And while I'm at it, I'll extend Julian's challenge and consider bets from anyone else convinced that our way of life is "unsustainable." If you think the price of oil or some other natural resource is going to soar, show me the money.
-- John Tierney, "The $10,000 Question" for The NY Times
.........
If I could change one thing about American foreign policy, what would it be? The answer is easy, but it's not something most of us think of as foreign policy. I would adopt a serious national program geared toward energy efficiency and independence. Reducing our dependence on oil would be the single greatest multiplier of American power in the world. I leave it to economists to sort out what expensive oil does to America's growth and inflation prospects. What is less often noticed is how crippling this situation is for American foreign policy. "Everything we're trying to do in the world is made much more difficult in the current environment of rising oil prices," says Michael Mandelbaum, author of "The Ideas That Conquered the World." Consider:
· Terror ism . Over the past three decades, Islamic extremism and violence have been funded from two countries, Saudi Arabia and Iran, not coincidentally the world's first- and second-largest oil exporters. Both countries are now awash in money, and no matter what the controls, some of this cash is surely getting to unsavory groups and individuals.
· Democracy. The centerpiece of President Bush's foreign policy -- encouraging democracy in the Middle East -- could easily lose steam in a world of high-priced oil. Governments reform when they have to. But many Middle Eastern governments are likely to have easy access to huge surpluses for years, making it easier for them to avoid change. Saudi Arabia will probably have a budget surplus of more than $26 billion this year because the price of oil is so much higher than anticipated. That means it can keep the old ways going, bribing the Wahhabi imams, funding the army and National Guard, spending freely on patronage programs. (And that would still leave plenty to fund dozens of new palaces and yachts.) Ditto for other corrupt, quasi-feudal oil states.
· Iran. Tehran has launched a breathtakingly ambitious foreign policy, moving determinedly on a nuclear path, and is also making a bid for influence in neighboring Iraq. This is nothing less than an attempt to replace the United States as the dominant power in the region. And it will prove extremely difficult to counter -- more so given Tehran's current resources. Despite massive economic inefficiency and corruption, Iran today has built up foreign reserves of $29.87 billion.
· Russia. A modern, Westernized Russia firmly anchored in Europe would mean peace and stability in the region. But a gush of oil revenues has strengthened the Kremlin's might, allowing President Vladimir Putin to consolidate power, defund his opponents, destroy competing centers of power and continue his disastrous and expensive war in Chechnya. And the "Russian model" appears to have taken hold in much of Central Asia.
· Latin America . After two decades of political and economic progress in Latin America, we are watching a serious anti-American movement gain ground. Hugo Chavez in Venezuela -- emboldened by his rising oil wealth -- was the first in recent years to rebel against American influence, but similar sentiments are beginning to be heard in other countries, from Ecuador to Bolivia.
I could go on, from Central Asia to Nigeria. In almost every region, efforts to produce a more stable, peaceful and open world order are being compromised and complicated by high oil prices. And while America spends enormous time, money and effort dealing with the symptoms of this problem, we are actively fueling the cause.
Rising oil prices are the result of many different forces coming together. We have little control over some of them, such as China's growth rate. But America remains the 800-pound gorilla of petroleum demand. In 2004 China consumed 6.5 million barrels of oil per day. The United States consumed 20.4 million barrels, and demand is rising. That is because of strong growth, but also because American cars -- which guzzle the bulk of oil imports -- are much less efficient than they used to be. This is the only area of the U.S. economy in which we have become less energy-efficient than we were 20 years ago, and we are the only industrialized country to have slid backward in this way. There's one reason: SUVs. They made up 5 percent of the American fleet in 1990. They make up almost 54 percent today.
It's true that there is no silver bullet that will entirely solve America's energy problem, but there is one that goes a long way: more efficient cars. If American cars averaged 40 miles per gallon, we would soon reduce consumption by 2 million to 3 million barrels of oil a day. That could translate into a sustained price drop of more than $20 a barrel. And getting cars to be that efficient is easy. For the most powerful study that explains how, read "Winning the Oil Endgame" by energy expert Amory B. Lovins (or go to http://oilendgame.com ). I would start by raising fuel efficiency standards, providing incentives for hybrids and making gasoline somewhat more expensive (yes, that means raising taxes). Of course, the energy bill recently passed by Congress does none of these things.
We don't need a Manhattan Project to find our way out of our current energy trap. The technologies already exist. But what we're searching for is perhaps even harder: political leadership and vision.
-- Fareed Zakaria, "Mile by Mile, Into the Oil Trap" for The Washington Post
