Re: replenishment

[Paul Davidson <pdavidson@xxxxxxx>]

At 01:27 PM 4/30/02 -0400, you wrote:
>      That there may be deeper pools of oil does not
> disprove the dinosaur or other biological origin theories
> and certainly does not make oil a "renewable" or
> "non-finite" resource, although it may suggest that
> there is more of it than many believe.


In 1973 I presented a paper at Brookings (reprinted in Brookings Papers on
Economic Activity) -- coauthored by a graduate student of mine (Hoesung
Lee) and an Assistant Professor  colleague (Larry Falk) -- in which we
argued -- and prevented some econometrics evidence to show -- that there
was a lot more oil than most people suspected.  At the time, Bill Nordhaus
had written a paper that was widely quoted as the everlasting truth, that
the price of oil would reach $100 a barrel in real  terms by the year 2000.
While the implications of  our paper was that if there was ever a free
competitive market for crude oil, we would be drowning in the stuff at the
1973 market price  - and the price in the year $2000 might be somewhere in
the neighborhood of $8-15   (in 1972 dollars) by the 1990's    --although
we  did not take into account of Congressionally mandated mileage saving
requirements for automobiles-- legislation passed after we had written
the  paper

  Although both Nordhaus and we overestimated the actual real price of oil
by the end of the 20th century, guess who was closer to the correct real
price!  But who remembers that -- and therefore Nordhaus remains a
glimmering (if small) star in the Economics Establishment --and I was
relegated to the status of a "kook".

Art Okun (of Brookings) had asked Robert Solow and Charlie Schultze to be
the discussants of my paper.  Solow was so incensed that I was making light
of the mainstream - Malthusian --idea that we were running out of oil -- as
a non-renewable resource--that he told Okun he would not dignify the
Davidson paper by being  a discussant..

 Schultze remained as a discussant -- but lambasted me for not knowing
anything about the basic concept  of scarcity, i.e., that the rise in the
market prices of oil was an inevitable result of scarcity (running out).

 Of course, I was the only one of these guys who have ever met a payroll,
i.e., I had been the Assistant Director of the Economics Division of an oil
company and had been privy to many private petroleum engineering reports.

Paul



Paul Davidson
Editor, Journal of Post Keynesian Economics
Economics Department - 523 SMC
University of Tennessee
Knoxville, Tennessee 37996-0550
phone # (865) 974-4221
fax # (865) 974-1686
home phone  (865) 692-0802
http://econ.bus.utk.edu/Davidson.html