Oily Signals

The rise of oil prices have been depressing Americans for some time now. Having forgotten the oil crisis of the 1970s and having enjoyed for two decades cheap oil prices, American’s expansive car culture degenerated into a passion for large (SUV) vehicles whose gas tanks cost a fortune to fill nowadays. With growing demand from booming emerging markets and a weak dollar, high prices are likely to persist for some time (this week they reached $122 a barrel versus $15 ten years ago). Politicians have lost no time to pander to these concerns while as so often the case ignoring basic economics. The truth is that market prices, when undistorted, provide valuable feedback about economic choices. Although no one likes to pay high prices at the pump the reality is that humanity is depleting its oil reserves at greater speed as prosperity spreads around the globe. The sooner we realize that we can no longer continue on current trends of oil consumptions, the sooner we will begin to aggressively invest in switching to energy alternatives. This will be a painful, long and expensive process upon which the health of our planet and even our future prosperity clearly depend on.