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Only thing you need to know about Peak Oil

Posted By Porter Stansberry On 02/25/2010 @ 8:45 pm In Commentary | Comments Disabled

Some concepts we simply get tired of explaining in detail because to us the ideas have become like part of the furniture. In the same way you wouldn’t explain in detail how to use a chair, when discussing economics, we sometimes forget to explain the interworkings of supply, demand, price, and replacement (human ingenuity).

The germane fact about Peak Oil is: It doesn’t matter.

We are not going to run out of energy – that’s all you need to know. We have already discovered vastly more efficient sources of energy (uranium). Thus, were we to “run out” of oil, we would simply become far more reliant on electricity, generated largely by nuclear power (if not by coal or natural gas). This might happen even if supplies of oil increase, simply because uranium is a better (more dense) source of energy and, in theory at least, ought to provide lower-cost energy.

The prophets of doom are always wrong because they truly don’t understand how economics works. Consider the fate of the worrywarts who said we would run out of copper by building telephone wires. It never occurred to them we’d discover a better way to transmit information. Well, of course we did – light waves through pure glass tubes.

As recently as the early 1970s, Paul Ehrlich – a tenured professor at Stanford University – was predicting widespread famine by the end of the 1980s in his book “Population Bomb.” Why people believe this nonsense, I’ll never understand. (There hasn’t been a famine in modern times that wasn’t caused deliberately as a war tactic. And there won’t be: We’ve gotten vastly more efficient at growing crops, thanks to better farming techniques and better seeds.)

Whether or not we will literally run out of oil produced with geophysical tools simply doesn’t matter. Assuming people are free to invest in the creation of alternatives, we won’t ever run out of energy. That’s all that matters. Free markets and the laws of economics provide all that we really need. The supply of everything actually flows from human liberty and free markets. These are the forces that create innovation and technological replacement.

You see, the folks working on better energy sources aren’t limited by the physics of geology. More importantly, they aren’t hamstrung by the lack of Hubbert’s imagination. (Hubbert was the original Peak Oil theorist.) Scientists like Craig Venter have already proven algae can be genetically altered to produce oil from sunlight and salt water. Whether this is commercially viable in the next decade or not remains to be seen.

The point is, supplies of oil and other useful forms of energy are not truly a matter of physics. Supplies of useful energy are a matter of economics, where human ingenuity comes into play. That is what is so important about human liberty and free markets.

As long as people are allowed to save, invest, and invent as they choose, the problems of the world will be rendered into what they really are: opportunities.

Good investing.

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