Alan Reynolds

 "We have apparently used up to 40 percent of our oil supply. ... There is need for a countrywide thrift campaign looking to the saving of this essential resource." When the director of the U.S. Geological Survey George Otis Smith issued that warning in 1920, he was probably prompted by the fact that the price of crude oil had jumped to $3.40 a barrel -- a level not seen again for another 50 years.
We have heard Smith's story repeated many times since then, whenever the price oil went up. A National Geographic cover story for June, "The End of Cheap Oil," suggested the price of oil is high because the world is using it up faster than it can be replaced. But if high oil prices today prove the world is running out of oil, what was proven by $11 oil in late 1998? 

 By mid-June, The Economist price index for industrial metals was 34 percent higher than a year ago, while oil was up less than 20 percent. Should we conclude the planet is suddenly running out of iron and copper this year, or (more sensibly) that global industry picked up smartly after the paralysis that preceded the Iraq War?

 In 1920, conservationists such as Smith pointed their fingers at the gigantic cars of the day, such as Packard and Pierce Arrow, which were soon displaced by more economical cars like Ford's Model T, which achieved 20 to 25 miles per gallon, but with only 20 horsepower. Today those fingers are being pointed at SUVs. The common belief is that if more Americans could be shamed, bribed or compelled to buy small cars, then the price of oil and gasoline would come down and stay down. National Geographic thus ends its essay by asking, "Should tax deductions for hybrid cars (i.e., subsidies to those affluent enough to purchase new imported cars) be increased?"

 The concept of conserving fuel among the small number of new passenger vehicles in order to lower prices is chimerical, since lower prices would encourage more driving among owners of the much larger fleet of older vehicles. Besides, the trendy idea that SUVs account for a huge share of energy use is wildly inaccurate.

Alan Reynolds

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