Econbrowser

Is China transitioning from extensive (hand out more shovels - we've got a hole to dig!) to intensive (do we really need it that deep? look! the dirt's falling back in - if we shore up the sides better we can save 30% of our hole-digging costs) growth? This is a development that is usually gradual, but given the pace of Chinese development it might appear as an event. My dear colleague Tim Worstall called top back on the 3rd of July. I think he's over techno-optimist, but there are some factors in his favour.

Note: I see you lunk Worstall some time ago. Sorry for the repeat.

Include the cost of money for 6 years, and it rapidly becomes more expensive. What is $55 worth in 2011?

Compound $55 at 4% for 6 years, and (off the top of my head) paying $55 a barrel today for delivery in 2011 is really like paying $70+.

Barry, the way the futures contract works is, you don't have to pay the $55 today, you agree today to the price, but don't have to pay until 2011.

JDH, I agree that this is an extermely important development. Any lessening of demand gives humanity more time to figure out how best to manage the post-peak transition.

Any ideas on that? For example, the US federal government could raise, or lower, or leave unchanged the retail sales tax on gasoline. Which is the best course, and why?

if the general trend of oil prices remains upwards in real terms, then the taxation options are -

1 put on a significant tax, and face the future prices now. if alternatives and thrift are the way forward, take that route now.

2 provide a significant subsidy, and live in the past.

( and some consider the enormous cost of security in the middle east to be a hidden subsidy from the tax payer.)

Here we go again with unilateral demand destruction attempts. Why is a petroleum tax the first thing anybody suggests rather than more alternative energy research subsidies?

If you believe that an increase in petroleum prices impoverishes society accross the board, removing capital available for all investments including alternative energy R&D, and thus impairing our ability to tackle the problem, isn't artificially creating this state ahead of time only going to make matters worse?

This discussion is already a lot more interesting than the one about who will get rich off who in the futures market!

Whether peak oil arrives now or in twenty years, and whether it will prove easy to accomodate or incredibly hard, we ALL need to think about how best to handle it.

The price of oil goes up and the Chinese reduce their rate of consumption growth. Sounds about right.

For what it is worth (and probably a great deal to its shareholders) BP now says the Thunder Horse rig is back to it's normal position here.

Okay, try this URL: http://www.forbes.com/home/feeds/afx/2005/07/19/afx2144885.html

Another link adding weight to JDH's point:

http://www.businessweek.com/bwdaily/dnflash/jul2005/nf20050719_7471_db016.htm

texas al -
"Here we go again with unilateral demand destruction attempts. Why is a petroleum tax the first thing anybody suggests rather than more alternative energy research subsidies?"

the answer is simple - but i don't know if you are going to like it.

subsidies are decided by the government. but put up the oil price and the alternatives are chosen by the market. as a believer in the collective intelligence of free markets and with the record to date of most governments, i would go for the latter.

Sigh. I kept waiting for a real economist to answer you, but I guess they all moved on to newer topics.

Taxing for the purposes of demand destruction is not something that somebody who believes in the collective intelligence of markets would advocate because it distorts markets and robs them of their collective intelligence.

Research subsidies aren't a market solution either. I'm just suggesting them as a less harmful action the government could take while still giving the voters the feeling that something can be done and is being done.

Does anyone believe the oil importation numbers put out by the Communist Chinese government? If the change in counsumption is too big to believe than perhaps we shouldn't believe it. Like OPEC reserves numbers, who can prove they are bogus. I hear they're selling a bridge too.

Of course, one can play conspiracy theories - the Commies are in cohoots with George Soros in his oil speculation with formerly inflated growth numbers or maybe they're trying to screw him with deflated contraction numbers.

As an aside, the Economist had an interesting factoid about Chinese automobile drivers. Last year, 115 auto-related fatalities per day in the US - 680 fatalities per day in Mainland China with, what?, 10%, or maybe 5% of the installed base?