Was September 2008 the month of greatest increase in United States Wealth in History?
Doesn’t the long term economic impact of 5-10 trillion dollars of offshore oil overwhelm the trillion dollars from the bailout?
That’s from Andrew, a loyal MR reader. He sends along this link. I have not myself done any calculations of the fiscal benefits from such oil (which are distinct from the price effect, which is likely small). Does anyone know a number?
At first I thought he was going to mention the recent decline in the price of oil, which on average you can expect to be permanent. The real lesson, I would say, is how much coordination (or lack thereof) matters and how badly representative agent models perform in explaining the most important economic changes.
Unfortunately there are lots of hurdles that energy companies still need to jump through in order to actually start producing. See this summary. And there are environmental groups hoping to reinstate (large portions of) the moratorium after the election; the Democrats didn’t want to go into November having opposed offshore drilling when a sizable majority of the voters favor it.
Anyway the point is that you need to discount the potential wealth of that oil because it’s not guaranteed it will be legal to develop. Also, does Andrew’s figure take into account the time value of money? E.g. if the stock market drops $x billion in September, while dropping the drilling ban allows the development of $10 trillion over the next 50 years…
There are two sides to the value of oil. Yes, a drop in the price of oil increases the real income of oil consumers. But it also creates an equal and offsetting drop in the income of oil producers. It is a wash.
I had to double check, as I was making my comment I though this has to be written by Ale, not Tyler. You are better than this. Take some time to think.
Spencer, it is the sum of consumer and producer surplus, resulting from the increase in quantity, which matters. Furthermore I am suggesting that I don’t know how large that sum is. MR readers, beware the confident and insulting commentators: don’t be taken in by their bluster.
You only become marginally wealthier (because of time value purposes) when a zero coupon, non-transferable bond matures, when you hit 65 and can pull out your 401k and you don’ become wealthier when you start receiving pension payments that were due to you. All of these things were part of your net worth before the even when you could access them as well as after them.
There are two posts on the Environmental Economics blog that reference a paper measuring the net benefits of ANWR drilling:
http://www.env-econ.net/2008/09/drill-baby-dril.html
http://www.env-econ.net/2008/09/an-end-to-the-o.html
These papers measure large net benefits. However, they make an important assumption: they explicitly ignore the effects of new American oil on climate change. A quote from one of the papers: “if demand is not met with ANWR oil, it will be met with oil from somewhere else. For this reason we do not consider increased emissions from the oil in ANWR to be an environmental impact of opening the area to development.” Thus, it is saying that it can ignore certain costs of oil because total quantity of oil produced will not change whether or not we drill in America. Of course, this also implies that there is no efficiency loss from not drilling. So take the estimates with a grain of salt.
30 bn barrels would be just over 4 years of current US consumption (mea culpa).
OK, I seem to remember a bunch of posts on this blog indicating that the price run-up in oil from January to July was based on fundamentals, while a few of the commentors like myself insisted that speculation and a price “bubble” was largely to blame.
I think the bubble crowd won this argument in commanding fashion when prices crashed from just shy of 150 down to 90 in a little more than a month. . .
In real rather than nominal terms? Surely the purchase of Alaska or the Louisiana Purchase would trump this. Or perhaps when California and other territories were wrested from Mexico.
Andrew Berman
By a sleight of rhetorical hand you convert ’30 billion’ into ‘maybe 90 billion’.
How about ’30 billion, uncertain’ could be ’10 billion’?
There is no particular reason to think that there is 90 bn barrels of oil, undiscovered, off the US coasts. You’ve just thrown that number in, because it *might* (depending on your assumptions of lift cost per barrel)justify a dubious $5-10 trillion assumption?
And if there is, the world is saved… NOT. less than 4 years of global consumption.
Pardon a layman here, but a couple of statements poked me in the eye>
” . . .the recent decline in the price of oil, *which on average you can expect to be permanent*.”
So should I expect, any day now and ongoing: a decline in in demand for energy, increases in oil production (at a fixed present cost), and an increased presence in the marketplace of cost-superior energy alternatives (don’t forget infrastructure establishment costs)?
Those, or a Die-Off, are the only possible routes to a “permanent” decline in the price of oil.
“…the bubble crowd won this argument in commanding fashion when prices crashed from just shy of 150 down to 90 in a little more than a month. . .”
So the future is known? Maybe the ‘speculators’ were saying something, and our penchant for ascribing a truly scary event to ‘speculation’ just means we didn’t hear it.
I don’t think I’m crazy for thinking the following: An inability to return to a “cheap energy” paradigm, or rapidly adapting to a new “2-3X prior cost” energy paradigm means we wmay soon be spectators to the four horsemen.
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