Monday, April 07, 2008
Krugman Channels Malthus
To his credit he didn't blame George Bush by name, but he does blame the following:
The rise of China and other emerging economies is the main force driving oil prices, but the invasion of Iraq — which proponents promised would lead to cheap oil — has also reduced oil supplies below what they would have been otherwise.
How did Gulf War II reduce oil supplies? We couldn't buy Iraqi oil due to the economic sanctions for years prior to the liberation. Now we can and production is up above prewar levels.
And bad weather, especially the Australian drought, is probably related to climate change. So politicians and governments that have stood in the way of action on greenhouse gases bear some responsibility for food shortages.
Probably related to climate change? Wow, how convincing. There probably were no droughts in Australia before we noticed that the ambient CO2 was rising last century.
But his greatest scorn is for using food to make alcohol fuel which he calls a scam. Well, even a blind hog finds an acorn from time to time.
But here is his bold prediction (note the 'may'): Cheap food, like cheap oil, may be a thing of the past. Let's revisit this prediction in 2011. I predict the price of both food (let's pick corn) and oil will be down from what they are now. From the 'accuracy' of the 60's dire predictions, and Krugman's woeful track record failing to see the future, I'd say I have the edge on him.
Actually, Roger, let us visit some of the mundane places that we are required to visit regularly 0or that we do visit regularly. I speak of the gas station, the grocery store, and teh business section of the newspaper.
The price of gasoline is 5o cents more per gallon than it was a year ago. The price of food is higher than it was a year ago largely b/c the cost of fuel to produce it and/or transport it is higher than it was a year ago. As for the business section of the newspaper, in the past 7-10 days, three airlines have stopped flying b/c the rise in fuel costs.
The war in Iraq is not the only reason for the rise in fuel costs but it is a factor. The nervous credit markets are another factor b/c crude oil is a commodity and subject to speculation like all other commodities.
On December 26, 2000, the retail price of a gallon of gas was $1.65 down 14 cents from the price of November 6, 2000.
Mexico was fun. (but expensive)
Oil price is determined by the global market. Even you should be able to understand that Roger.
To my knowledge, the Iraqis were exporting all of their excess capacity under Saddam, up to nearly 3 million barrels a day. You can check that if you like.
What I should have said was halving that 3 million per day has its effect on global price, but likewise, the uncertainty surrounding future production drives the price up as well. Every time a pipeline gets bombed, for instance, the price shoots up again.
I'm not saying that this is the only thing driving oil price up: China and India's consumption are more important.
However, the loss of at least 1 million bbl/day on the world market, plus the added consumption because of the war, plus the speculative drivers due to the uncertainty are all having their effect.
To not understand that is being willfully ignorant of the facts.