Tuesday, May 04, 2004

With oil prices, its either pay now or pay later.
Higher oil prices have hurt the global economy and could further hamper growth, bolster inflation and increase unemployment over the next two years if prices stay at their current levels, according to a study by the International Energy Agency released on Monday.

"World G.D.P. growth may have been at least half a percentage point higher in the last two or three years," the study found, "had prices remained at mid-2001 levels."

If oil prices stay at their current level of more than $35 a barrel, more than $10 a barrel above their level of three years ago, "world G.D.P. would be at least half of 1 percent lower - equivalent to $255 billion - in the year following a $10 oil price increase."
Fair enough. But when oil prices are low -- whether you define that as within OPEC's $22-$28/barrel preferred band or even lower than that -- the world consumes oil like there's no tomorrow, contributing to global climate change (the costs of which are virtually unmeasurable) and retarding the growth of energy alternatives which can't find a place in the cheap oil market.

The IEA blames OPEC "supply management policies" while OPEC blames refining bottlenecks among other things. Then there are the nutty Republicans who blame clear air legislation. The data seems to support the IEA.



At the end of the day, however, either we pay now in the form of lower growth or we pay later in the form of lower growth (and other nasty things like asthma, drought, and Asian Brown Cloud). Although it contradicts my personal motto, isn't Ben Franklin right to never leave that till tomorrow which you can do today?

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