UC Davis Econ in the News

Clark on peak oil. That’s right. Peak oil. At least he’s sticking to his sweet-spot academic subject…

The economy would withstand enormous increases in energy costs with modest damage because energy is even now so extravagantly cheap that most of it is squandered in uses of little value. Recently, I drove my 13-year-old son 230 miles round-trip from Davis to Chico, to play a 70-minute soccer game. Had every gallon of gas cost four hours of my wage, I am sure his team could have found opposition closer to home.

Actually, Clark has written a paper close this subject. I discussed it a while back. His argument in that paper is basically that the industrial revolution drove increases in demand for fossil fuels thus encouraging firms to develop new ways to discover and extract those fuels. Say’s Law in reverse, I guess.

(h/t CD and egghead)

7 thoughts on “UC Davis Econ in the News”

  1. Is “extravagantly cheap” energy true globally or only in the U.S.? Even though energy is cheap for Americans, what would be the impact to the global economy, and thus secondarily the impact to the U.S. economy of “enormous increases in energy costs”?

  2. Good point. I don’t think, without seeing the back of Clark’s envelope, we know if he took these sorts of things into account. I suspect he did, but who knows.

    I’ve emailed him asking about this.

  3. The reverse of Say’s Law is… Keynes’ General Theory?

    Let’s just stick to simplified G.E. and not worry about the causality here, please!

  4. Traditionally, yes. But I don’t think this would be an example Keynes would have used to support his ideas. Spontaneous order wasn’t really his point.

    Your appeal to GE is an assertion that this is actually an instance of Say’s Law. Prices adjust is the law’s GE counterpart.

    Anyway, I see no harm in opening up that black box. Tackling global warming will require innovation in energy supply. Isn’t it an interesting economic question of whether/how/when those innovation will occur? Saying to policy makers “hey, the market will take care of it!” sounds desperately religious to a group of people that don’t have the faith. It would be nice if we could tell them more about the mechanism of the market.

    In any case, Clark’s paper does a good job of showing a direction of causality, from demand to supply.

  5. Energy prices have to be somewhat global. If you’ve got a domestic source, like lots of geothermal vents or coal deposits, doesn’t that reduce your foreign demand somewhat?

    Anyway – just tell the policy makers to tell their constituents that energy innovation will create jobs. Jobs! Yay!

  6. “The median-sized U.S. home is now nearly 2,400 square feet, for an average family size of 2.6 people, almost 1,000 square feet per person. Much of that heated, air-conditioned and lighted square footage rarely gets used.”

    There are even benefits to smaller homes. I find that I actually prefer my Japanese-sized apartment to the behemoths that I used to live in. Not only is it less expensive to “operate” a smaller home, it’s also a helluva lot less work.

    “Cities in the Central Valley, such as Elk Grove, that were developed in the world of cheap gas have sprawled across the landscape so that the only way to get to work or to shops is by car. Ninety-four percent of the inhabitants of Elk Grove drive to work. Sidewalks have disappeared in some locations.”

    Even if it isn’t necessarily in the forefront of a city-planner’s mind, cities in the U.S. are specifically designed for an automobile lifestyle. The multitude of reasons why public transportation doesn’t enjoy great popularity in the U.S. can be boiled down to one simple reason. It’s inconvenient. In public transportation centric cities, 90% of what you need to do can be accessed within a few minutes walk from a bus or train station. They form the geographical hubs of life. This is not necessarily the result of specific design, but is a direct result of the market.

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