Beating a not-so-dead horse

Beating a not-so-dead horse
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First Published: Wed, May 14 2008. 11 21 PM IST
Updated: Wed, May 14 2008. 11 21 PM IST
(Martin Wolf’s comment in the Financial Times, 30 April) is reasonable... But I don’t understand…why Martin needs to make the blanket statement that the rise in food prices “hurt the poorest the most”. The fact is that millions of very poor growers of rice and other food products are much better off as a result. The poor that are affected the worst are the urban poor... I am puzzled more generally by how the commentary on the world food crisis misses this basic point... The panic on the part of governments is understandable. They are much more sensitive to the urban poor, who can create greater havoc than the rural poor. But what about the rest of us?
- http://rodrik.typepad.com/
Oil price impact: why it’s different this time
becker-posner-blog.com
The run-up in the world price of oil during the past several years, and especially the rapid climb during the last few weeks to over $120 per barrel, has fuelled predictions that the price will reach $200 a barrel in the rather near future. Such predictions are not based on much analysis. Oil prices in “real” terms (relative to general prices) won’t reach $200 in this time frame without either terrorist or other attacks that destroy major oil-producing facilities, or huge taxes on oil consumption.
The rapid growth of world oil prices during 1973-74 and 1980-81 contributed in a significant way to the world recessions during those years. Yet even though world oil prices in real terms are now above the prices in 1981, the previous peak in oil prices, and despite the sharp run-up in prices during the past couple of years, the world economy has not (yet!) been pushed into recession. One reason is that the current price rises have slowed rather than eliminated the boom in world output. Another is that the share of oil and other energy inputs in GDP is down by a lot in the developed world.
(Still), any rise in oil prices to over $200 a barrel in the next few years would have serious disruptive effects on the world economy. However, the long-run response to price increases of both the demand and supply for oil and other energy inputs is considerable. For example, given enough time, families react by purchasing cars, such as hybrids and compacts, that use less gasoline per mile. They also substitute trains and other public transportation for driving. The opportunity for large profits induce(s) entrepreneurs to work more aggressively to find fuel- efficient technologies.
Rising prices of oil and other energy inputs will eventually be controlled by new technologies that greatly economize on the use of these inputs. Increased supplies of oil and other energy sources that become profitable to exploit only with prolonged high prices will also push these prices back.
- Gary Becker
Why we should root for $200 per barrel
I would like to see the price of oil rise to $200, despite the worldwide recession that would probably result, provided that it rises as a result of heavy taxes on oil or (better) carbon emissions. The taxes would jump-start the development of clean fuels, and the financial impact on consumers could be buffered by returning a portion of the tax revenues in the form of income-tax credits. That would not reduce the effect of the taxes on the demand for oil or the incentives to develop alternative fuels, because the marginal cost (the production and distribution cost plus the tax) of oil to consumers would not be affected. Higher oil prices are necessary to check global warming, reduce traffic congestion, and reduce dependence on foreign oil.
Unfortunately, I cannot see a confluence of political forces that would make heavy taxes on oil feasible.
- Richard Posner
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First Published: Wed, May 14 2008. 11 21 PM IST
More Topics: Rice | Oil | GDP | Carbon emissions | Views |