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This impossibility in predicting long/mid term oil prices is a serious problem for governments and business planing ahead. But this is all part of the game: the destructive process of dependence on scarce resources. If a steady increase in prices was the outcome (as some believed) business would be able to plan ahead, for instance hedging on the futures market. Contrarily, these unpredictable price swings are heavily disruptive.

Maybe it's time to read J K Galbraith again, who argued that the industrial economy is incompatible with free market prices and more or less openly advocated price controls.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sat Dec 13th, 2008 at 04:00:44 PM EST
gas taxes are about controlling prices, by at least setting a floor for them.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Dec 14th, 2008 at 05:48:51 AM EST
[ Parent ]
First of all thanks for your comments and formatting, as usual I was in hurry to finish it and didn't try it with lower resolution.

I'm all in favour of free markets, they are the best way we have to take full advantage of the emergent behaviour bound in human societies. They answer the classic question: "Who decides how much bread is needed to supply a certain city every day?"

Engels and Marx understood that the free market running by default ends up generating social inequity, another consequence of emergent behaviour. They found a different economic boom-and-bust cycle created by the collapse of demand when social inequity reached unbearable levels. To some extent we learnt how to deal with this problem.

But there are other things the free market can't do for you, especially: it can't transform a scarce resource into a plentiful resource. So this is a different problem, it is the managing of the commons. If we need to use a common resource that is vital to our lives, but that is in scarce supply, the free market is not exactly the best option. You could argue that the free market could work in ways to scramble alternative resources, but as I showed before, in the case of energy this is not that simple.

In the end, if we manage the situation to release ourselves from scarce commons, then there should be no obstacle for free markets to work in our favour, provided we don't disregard the findings of the scientific socialists in the XIX century.

You might find me At The Edge Of Time.

by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Sun Dec 14th, 2008 at 12:08:11 PM EST
[ Parent ]

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