GM and Chysler Bankruptcies

[kandrathe]

This is all well and good, but it contradicts the original point. If you are an oil company, you produce an increasingly expensive commodity. You are in good shape, not bad shape. Everyone else might need a government bailout, but you'd be sitting pretty.

No, not really. You would now have a commodity that is priced beyond what people can pay, thus (over time) driving them out of consuming your product (or at least to consume as little as possible). Demand can never outstrip supply (Robert Smithson, the economics of Oil, Part I), but there is a price at which the market clears. That was the original point, that we drive oil companies out of business *last*, but first we drive more companies out of business that produce products that rely on oil. The canary in the coal mine, as it were, are energy sensitive companies such as automobiles, airlines, trucking, railroads, and some electricity production, as well as others. Profits will rise to a point, then crash as the economy crashes, all while the consumer price index rises (baring governments printing money to curb inflation). <blockquote>"The market for oil is unusual, because – in the short-term – both demand and supply are highly inelastic. Irrespective of what petrol costs, your car cannot easily switch to another fuel. Ships and airplanes cannot move from diesel oil and kerosene for their propulsion. If it’s freezing cold, and you need to heat your house, the only option may be to pay more for heating oil. Likewise, if the price of petrol was to halve, you would not drive twice as far, or turn the thermostat up from 22 to 44. In other words, a large change in price only has a small impact on demand."</blockquote><!--fontc--><!--/fontc-->It seems to me, that the world has traded the gold standard for the oil standard, where currency is related most frequently to the price of oil. One problem with gold as a standard was that modern industrialization vastly increased the supply of gold, further deflating the value of money. I think we are facing a future of seesaw economics due to peak oil. Demand will continue to accelerate as the economy recovers, only to again drive the price of oil to an economically unsustainable price resulting in another crash.

If you want to transition from oil (and thus from the internal combustion engine), in my opinion, you need to present a ready alternative. Just as automobiles eventually obsoleted the horse drawn carriage, it was a more expensive (less time consuming) alternative that people moved toward once the production and price were readily available. For awhile, people even had the old means of transport as back up. The carriage companies that survived, were the ones that redesigned their products to have rubber tires and engines.

In a way, intentionally trying to drive up fuel prices to reduce consumption would be like raising the price of food to combat obesity. I think the down sides are draconian.

Net Oil Profit compared to Gasoline prices. But, what is missing in that graph is oil consumption (or global energy consumption) whereby you might be able to calculate demand being more of a spline curve somewhat above the line during the rise, and then falling below the line during the crash.

Robert Smithson, the economics of Oil, Part II -- Peak Oil and the Energy Supply Curve