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Peak Oil Debate

A regular reader has directed me to this takedown of the Freakonomics blog's dismissal of peak oil worries.

The "rogue economist" has argued that passing the point of global peak oil production won't cause significant problems, and the market will adapt by using higher prices to drive changes in behaviour and the development of substitutes. The response I've linked to attacks that common line of argument. Basically, the notion is that yes, the market will naturally optimize our arrangement (based on a financial measure of utility, with some significant externalities), but who says we're going to like what's optimal?

One commenter on the Freakonomics blog wrote:

One thing economists forget is that demand destruction in the abstract is a perfect solution to a supply/demand imbalance. But when the suburbanites are trying to get to work or school at $6/gallon gasoline, and there still isn't a bus in their neighborhood, and they still can't carpool since their town has offices spread all throughout the suburbs rather than in one central location, what are you gonna do?

It's not the end of the world by any means. But it does seem to suggest some expensive adjustments, and the writing-down of assets that we're building even today. On the optimistic side, many suburban commuters could cut their fuel costs dramatically just by changing the kind of car that they drive. So, even $5-10 per litre (Canadian) gas prices would probably just be a huge annoyance and a boost for hybrid cars more than it would be a catalyst for bigger changes.

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