Peak Oil and Economics

It's an old story: geologists, biologists and engineers proclaim the impending depletion of some vital resource, and speculate as to the various catastrophes that might ensue. Economists yawn and tell everyone to relax.

So far the economists have been right. Paul Ehrlich predicted overpopulation, human misery and resource depletion: to his consternation but our good fortune, it has yet to arrive. In 1973 the Club of Rome report announced that coal, oil, zinc and other resources would all be gone by the year 2000. Whoops.

Now the rage is "peak oil"--the idea that quite soon we will have extracted half the world's petroleum from the ground. Once again various scientists, engineers and doomsayers are weighing in--some quite intelligently, others with insensate alarmism. And again, the economists are yawning. Why?

James Hamilton, the formidable oil economist at UCSD, wants to explain. In fact he wants to start a discussion between economists and other interested parties on the topic of peak oil. He kicks the discussion off here and here. I recommend both essays. I'm probably biased in my assessment, but I think the economists are better equipped to predict such things. Scientists and engineers are certainly better qualified to measure the absolute amounts available of any given resource, since these are natural phenomena, but the rate of depletion is a product of human behavior, and human behavior is the province of economics.

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