A Few Observations on Oil and Alcohol

Basic economics shows that we will never run out of oil. As we use up the supply of oil, the price will go up. This will make it more economical to locate and drill harder-to-reach reserves. Higher oil prices will also result in the creation of alternatives, as it will be worth looking for and developing those alternatives. Over longer periods of time, as oil gets used up and the price of oil goes up in response to supply, less oil will be used, and more alternatives will be created, until we are completely converted to the alternatives — sometime before we ever use up all the oil. There will eventually be a price where nobody cares to get any of the oil, and what is left will stay there. Thus, we will never, ever run out of oil. It’s basic economic principles. There will be alternatives.

The car, for example, is an alternative to the horse. A plane is an alternative to either one. A computer is an alternative to the abacus, to pen and paper, etc. During the bronze age, who would have thought of iron as an alternative? The microwave is an alternative to fire. Petroleum, when whale oil became expensive due to a shortage of whales, became an alternative. Some of these pre-existed. Some were invented later.

An alternative in the economic sense is not necessarily something that replaces another object exactly. When we run out of oil, it will become more economically feasible to come up with alternatives — many of which, like so many things in the past — haven’t even been thought of yet.

I have no doubt that it will happen, because it has always happened. Always.

Now one may object that all the alternatives to oil have, so far, been inferior. But just because they have been inferior so far, that doesn’t mean they will continue to be. Many falsely assume that the price of oil will remain constant, meaning people will continue to use it as the same rate, until it runs out, and that nobody will have any incentive to find alternatives. But, again, as the price of oil goes up as supply goes down, it will be economically viable to find better alternatives. What we are getting now is government-subsidized alternatives — so we shouldn’t be surprised at what we are getting. Things will change when market pressures create an actual demand for real alternatives. These new ways of doing things won’t be done with government — unless there is the coincidence of creating a bomb whose power source can also be used for energy production (i.e., nuclear power). I’d rather the market find a solution than to have the government bomb its way into one.

And this brings me to government-subsidized alcohol. Is it really a good idea to turn our food into fuel? That just seems like a bad substitute right on the face of it. One could argue that it’s also a bad idea to wash cars, since that uses up water we could be drinking, but we need to beware of false analogies. There is much, much, much more water than there is corn. If we wash our cars, it doesn’t raise the price of water enough not to drink it. But the rise in the price of corn that has already occurred has resulted in problems in Mexico with availability of corn for tortillas, driving up the price of a main staple there — among some of the poorest people. Further, it has driven up the price of meat, because corn is a food for chicken, pigs, and cows. When the price of feed goes up, the price of meat goes up. This, again, hurts the poor far more than any other group.

So, again, it is incredibly stupid to use food to fuel. And it hurt the poor. But that just means that ethanol is just another thing liberals have latched on to that causes harm to the poor. When your every economic policy harms the poor, one begins to wonder why you want so bad to make their lives worse.

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