On Kedrosky’s blog todayhe posts that we’re screwed either way oil prices go.
1) oil goes up and our economy is in trouble (eats up all consumers’ disposable income, inflation, etc)
2) oil goes down and alternative energy funded bets don’t make sense.
I think this is crap. Paul’s right from a historical perspective: after the oil embargo of the 70’s, one would think we would have realized that making ourselves beholden to an unstable region of the world that doesn’t have a lot of love for America is probably not a winning strategy. But as soon as the crisis passed, as a nation, we stopped doing all the things we seemed so committed to previously (improved fuel standards for vehicles, conservation, fuel alternatives, etc). Stupid, stupid, unforgivable strategy. So looking at that, you’d say if oil drops #2 comes to fruition.
But I have to believe that we’re in a different world today. If oil were to drop, alternative energy will still thrive. Here’s why:
1) The notion of danger coming from the Middle East is burned into everyone’s mind. Supporting regimes (Chavez, Iran, etc) that are hostile to the American gov’t is becoming a generally accepted bad idea.
2) The amount of money that flows out of the country to fund oil (as well as crap from Asia) is likely nearing it’s breaking point soon. Stopping this huge outflow of cash has to stop.
3) The almost certain to continue to fall dollar will provide a floor underneath oil prices.
4) China, India, et al coming online as growing and hungry fuel consumers will change the dynamics of the market for the long term.
5) Climate change has enough mindshare that it plays into fossil fuel usage regardless of price.
I say that this time is different. Prices go down, oil!