The Oil Drum

8 comments on Econbrowser: The PR of PO

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Halfin on August 25, 2005 - 4:05pm

Freakonomics author Steven Levitt has a new post up also discussing the bet, http://www.freakonomics.com/2005/08/betting-on-peak-oil.html.

He wrote to Simmons about possibly creating their own bet, but Simmons demurred, saying "I have had a slew of economists offer to make same bet. I am actually not in bookie business and pondered whether it was even appropriate to make this Visable Wager to help focus people on how absurb we still price energy." (I'm not sure who was responsible for all the typos in this text, but it is how it appears on Levitt's blog.)

Levitt himself seems to be taking a slightly more moderate view, writing: "Whether we should care about 'Peak Oil' boils down to (1) will the cost of supplying oil jump, (2) If it does jump, by how much, and (3) how elastic is demand. As I read through the 100+ comments I got on my last blog on peak oil, it seems that there is strong disaggreement on each of those three points." So this seems to somewhat leave open the possibility of a Peak Oil transition that could be genuinely painful.

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Dave Cohen on August 25, 2005 - 4:46pm

From Freakonomics author Steven Levitt:

[Matt Simmons is] the point man for the Peak Oil team

PG, HO, Ianqui, I've always wanted to be on the Peak Oil team! Is this a football team -- I'll play cornerback! Basketball -- always wanted to be a point guard!

I am a betting man. And when I see that the NYMEX December 2011 crude oil future is priced under $60 a barrel, under $200 looks like a pretty good price to me!

Oil futures traders know a lot more about peak oil than we do! They're just so smart, you know? They are not merely herding animals with their heads down on the ground. I retract previous statements.

That is why water, oxygen, and sunshine, all incredibly value products, are virtually free to consumers: it is cheap or free to supply to them. And that is why we use a lot of gas and oil, but not many rickshaws at current prices.

I have been so wrong!!!! Water, Oxygen and Sunshine are virtually free to consumers! The Universe was designed for us! Oil and Gas are cheap! But when they are not, we'll switch to Rickshaws and import hundreds of thousands of Chinese coolies to power them. I am so relieved. If I commute 30 miles to work each day in my car right now in a about 40 minutes, in the future I can hire a coolie to do the same work for maybe the same price (or perhaps cheaper!) to get there and back! And what a benefit that will be -- though my commute time will be a bit slower. But, nothing's free! There's no free lunch!

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Yankee on August 25, 2005 - 5:18pm

So if these things are so free, can someone tell me why solar panels and wind turbines are so expensive, and at the moment, scarce?

(When I was in grad school, we used to go to a bar that also had an oxygen bar. You could pick from 3-4 different colors. I think they also had different therapeutic qualities.)

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Dave Cohen on August 25, 2005 - 5:30pm

"That is why water, oxygen, and sunshine, all incredibly value [sic] products"

Water, Oxygen etc. are valuable products. Not to mention CO2, Methane, Iron, Gravity, Neutrinos, Plate Tectonics, the Earth's Magnetic Field, the Moon, the Solar System, Dark Energy, Chimpanzees, Lions, Tigers, Bears, Shrimp, Nematodes, E-Coli, Avian Flu Viruses, Wood Pulp, Mangroves, Tuna, Sharks, and the rest.

And as products, they can be priced.

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Adam on August 25, 2005 - 5:05pm

It isn't surprising that so many economists would want to take Tierney's side of the bet. As the linked article explains, Tierney was only offering Simmons evens, whereas the futures markets would give him much better odds. Tierney could make his $5000 bet with Simmons, then hedge against it by investing in call options on oil. He'd be a winner whatever happened.

So in a sense, Simmons really is putting his money where his mouth is: He's deliberately taking crappy odds to make a point. Of course, as a rich banker who thinks oil has already peaked, I'm sure he's already invested much more than that in the futures markets. (And if Simmons does have a selfish financial motive for promoting peak oil, it's probably those investments, not the few cents per copy he gets in book royalties.)