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Old 08-07-2008, 05:29 PM
qwerty qwerty is offline
Join Date: May 2008
Posts: 15
Default Re: The Temptation of Eli

While high oil prices do legitimately have some benefits (slowing global warming), I'd like to push back on the way Bob tried to sell it to Eli. The idea that high crude oil prices are going to shrink oil revenues in the long run is ridiculous.

In order to believe that you would have to argue first that demand for oil is elastic (greater than unit elastic). We know that it is not, not even in the long run. Bob wants to believe that it will be different this time because we are on the cusp of some innovation. I think mvantony does a good job of arguing that we are not, though this is something we could never be sure of.

The second thing you would have to argue is that this innovation would make oil essentially useless. Since the limiting factor is the oil that is in the ground it will eventually all be sold. The most that decreasing the demand could do is to push the sales of the oil into the future. And remember if this innovation really requires high oil prices in order to be cost effective then the high oil prices will remain. So even if the demand really is elastic, decreasing the yearly oil revenues, it would most likely not decrease the present discounted value of oil revenues.

Overall this makes me in favor of a carbon tax and doing what we can to increase the domestic production of oil (though I recognize what we can do in the latter case is very limited). To bolster my libertarian bona fides I should note that I think this carbon tax should be offset by a reduction in (or elimination of) corporate taxes.
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