Oil prices did spike to triple-digit levels in early 2008, then drop sharply. But think about the fact that right now, with the world economy still seriously depressed, oil is at $80 a barrel. This suggests to me that high oil prices are largely caused by fundamentals.
And it also suggests that resource constraints will be an issue if and when we do get a full recovery.
In my presentation on the potential effects of carbon pricing in Ohio yesterday, I made* the following points:
1) Any type of carbon pricing will result in disproportionate economic impacts on states heavily invested in coal-fired electricity generation, manufacturing and transportation and warehousing.
2) As such, it is tempting to conclude that states heavily reliant on coal-fired electricity generation, manufacturing and transportation and warehousing should oppose any carbon pricing policy.
3) But, if basic economics is right, fossil fuel prices will rise eventually--even in the absence of policy.
4) The relevant question for states like Ohio then becomes: How best to design economic policy to ensure long-term economic sustainability of states disproportionately reliant on carbon intensive production
Seems like Krugman would agree.
*Actually, I attempted to make these points. Unfortunately, this was one of the worst presentations I've given in years. Between too much caffeine, too little sleep, under-preparation and having to use a microphone, I was unhappy with my performance. Outside of the classroom I am a public speaker in progress--inside the classroom I'm an overconfident SOB. I actually got a 'D' in public speaking in high school. Based on yesterday's performance, I deserved it. Beer was in order last night.
