In August 2005, the oil price was around USD 60 and the gasoline was sold for USD 2. We predicted a USD 3 gasoline - something that happened quickly - and a USD 80 oil price.
In slow comments, Wolfgang said:
- I am not so sure about oil hitting 80, but what do I know?
Well, I agree with you, Wolfgang. You don't know that much but unlike others, you at least realize these limitations of human imagination. ;-) Yesterday, the oil price exceeded USD 80 for the first time. More seriously, Osama bin Laden was threatening us with USD 100 oil price in one of his previous speeches.
Should we be scared?
Figure 1: Black gold: how the world floats on oil (click)
I think that bin Laden and many other leftists vastly exaggerate the impact of some price variations. Nine years ago or so, the price was below USD 10: see this graph. Now it is more than 8 times higher and the civilization hasn't collapsed. Even though oil is important for our lives, a 700% price increase is not such a big deal. The markets and people can simply deal with such changes.
The oil price is arguably decided irrationally by some Arab chaps but what is important is that this price effectively becomes one of a small number of external parameters and capitalism adjusts all other prices and other quantities almost ideally for any value of external parameters. According to theory as well as experience, any crippling of the markets' invisible hand is far more devastating than a change of an external parameter.
Leftists want stable prices of everything and now they also want a stable climate. They may also want an ideal oil price - but is it USD 15 as in 2002 or USD 80 which is the case now? Their motivations are irrational but the obvious way to promote their goals is to paint any change as a tragedy: fear is their best ally. But the changes that can happen are about 10 times smaller than what would be needed for a tragedy.
For example, any centennial temperature change that is smaller than 10 Celsius degrees or so would be small enough to be treated perturbatively. It would make some subjects happier and some subjects less happy. Because the second group can make some preparations for adaptation, the positive impact will exceed the negative impact. The reality will be much closer to 1 Celsius degree.
We often hear that the Earth is a fragile physical object. In a debate with climate realists, "concerned scientist" Brenda Ekwurzel even said that the Earth is more fragile than a human being! I think that many people realize that such proclamations have nothing whatsoever to do with reality and only paranoic hypochondriacs would be ready to believe these silly things.
Even a single human being is a pretty robust animal but the whole ecosystem of the Earth is way more robust than its individual components because all components may be effectively replaced. Ladies and Gentleman, the real shocker arrives right now. This text is actually not about economics - it is about the anthropic principle! ;-)
The proponents of the anthropic principle believe that very many quantities have to be accurately adjusted for life to be possible. But we already know enough to falsify this hypothesis. Only a small number of parameters must be within a certain interval. For any collection of values, life can emerge and adapt to the environment.
Every process in reality has its characteristic timescale and it prefers a stability over this timescale. But it is important for the processes at all time scales to change because evolution of anything would otherwise become impossible.
People shouldn't be afraid of arbitrarily small changes and those who spread this fear of change must be properly identified as dishonest people or lunatics.
And that's the memo.