Arnold Kling  

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An explanation of Oil Econ 101.


Only drastic reductions in U.S. oil use would lead to elimination of oil imports. Until then, the United States will continue to import oil. And U.S. consumers will pay the world price for oil, which is determined on world markets by global supply and demand, regardless of the quantity of imports.

What makes this unusual is that it comes from something called the Republican Policy Committee. I expect to hear soon that the staffer who wrote this has been fired. It's far too sensible to serve any political purpose.


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The author at Tim Worstall in a related article titled You Can’t Handle The Truth writes:
    Arnold Kling provides the quote of the day: What makes this unusual is that it comes from something called the Republican Policy Committee. I expect to hear soon that the staffer who wrote this has been fired. It's far too [Tracked on May 25, 2006 5:56 AM]
COMMENTS (6 to date)
Matt writes:

"Only drastic reductions in U.S. oil use would lead to elimination of oil imports." etc.

Stating the obvious?

A better issue is:

When the price of oil reaches a level that only the most productive activities dare use it then are we all required to pay equally for protecting international oil trade?

Postpunkunkle writes:

Then world oil prices should fall due to reduction in demand. So the rest of us get cheaper oil.

I'm not an economist.

spencer writes:

Unrelated question, but in your area of expertise. Yesterday the NYT had a good article on the nurse shortage.

In the old days nonprofit hospitals trained most nurses. But as hospital care has shifted from the nonprofit to the for-profit sector hospitals have dropped out of training nurses.

What should the market economy do to increase the supply of nurses and what has prevented them from doing so over the last couple of decades?

postpunkunkle: demand destruction in oil won't be pretty. It would be almost like demand destruction in food, and sudden adjustments like that are a plentiful source of unstability and violence.
I am not an economist either, but as I understand it oil price is what they call very inelastic: price has to rise very much to reduce demand. This means that even a small shortfall in oil production will cause prices to rise to levels unpleasant for both of us.

If someone IS an economist, I suppose they can give this argument a grade?

Bill Conerly writes:

The key comment is "U.S. consumers will pay the world price for oil, which is determined on world markets by global supply and demand, regardless of the quantity of imports."

The UK is oil-independent; their North Sea production is just a hair over their domestic consumption. In the last 12 months, their gasoline (petrol) prices, minus taxes, in their own current currency, rose 29 %. Comparable increase for the U.S. is 27%.

JohnDewey writes:

Bill Conerly,

Thank you. I intend to use that observation in a letter to the editor next week.

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