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Brad De Long wrote:
>Market prices in a competitive economy ("exchange values") *are* indicators
>of scarcity: they carry information about the money-metric utility of that
>particular commodity or resource in its most favorable alternative use.
To which Doug Henwood replied:
Why does this remind me of the Baltimore Catechism of my youth?
So let's talk about oil prices. They skyrocketed twice in the 1970s,
collapsed in the 1980s, recovered a bit in the early 1990s, and are now in
real terms at or below where they were before the OPEC embargo. Has the
long-term picture of oil - its physical scarcity, reserves/consumption -
changed all that much over the last 25 years? Have investments undertaken
according to these signals been optimal from a social point of view? What
has changed fundamentally to justify that kind of volatility? Is that
signal or noise, information or short-term manic-depression in the futures
pits? If we burn all the oil we have in the ground we will probably die; is
that reflected in price signals?
Doug >>
In fact, the long-term oil outlook has changed over the last 25 yrs -- substantially. New fields have been discovered, dramatic extraction techniques have been pioneered, while the experience of the 70s demonstrated that demand was far more elastic and conservation far more practical than mainstream economic opinion had previously believed. Much of the volatility is due to politico-economic perturbations that are of course unjustifiable. But much of it is not.
Dan Lazare