UCSD economics professor James Hamilton has an interesting post up on his Econbrowser blog about peak oil — the point at which world oil supplies go into irreversible decline.
Geologist M. King Hubbert predicted in the 1950s that oil supplies would peak and then follow a linear decline. Declining supplies could spark unrest across the globe, so the notion that peak oil has arrived and global supplies are being deliberately over reported tends to attract crackpots, conspiracy theorists, gold bugs, and survivalists. As a result, peak oil has been kind of ignored by many economists.
Hamilton cites an IMF working paper that proposes a more accurate model for future oil production that predicts a non-linear decline; after all, higher oil prices stimulate further production from increasingly difficult to reach places like the sea floor or difficult to extract sources like oil shale.
However, there is a cost for these increases, the IMF study finds: “small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade.” (emphasis added).
We like to think that the reason we enjoy our high standards of living is because we have been so clever at figuring out how to use the world’s available resources. But we should not dismiss the possibility that there may also have been a nontrivial contribution of simply having been quite lucky to have found an incredibly valuable raw material that for a century and a half or so was relatively easy to obtain. Optimists may expect the next century and a half to look like the last. Benes and coauthors are suggesting that instead we should perhaps expect the next decade to look like the last.