Peak Oil Out of the Closet

"Conventional oil production has been flat for four years; in that sense, at least, peak oil has arrived."

Yesterday, the Nobel Prize-winning economist Paul Krugman unceremoniously gave Peak Oil theory a shout-out in his NY Times column and with it a badly-needed shot of cred.
Crude oil prices have recently marched north of $91 a barrel, and gas pumps in the United States of Happy Motoring currently run at an average $3.05 a gallon. We have not seen prices this high since October of 2008, and there is no relief in sight.
Peak Oil is the theory that oil, like most natural resources, can be cost-effectively extracted for human consumption so long as we continue to discover new sources apace of our rising appetites for it. If the pace of those new discoveries falls behind the growth of demand, then eventually its availability also will fall behind.
Industry experts and reporters are fond of the term "oil production" when referring to the amount of oil that is available for our use where it is needed, although this term misleads in that we can "produce" oil no more than we can "produce" eggs at the church Easter egg hunt.
As with any finite resource, there comes a day when the pace of our discoveries reaches a peak, when the fruits of our continued enterprise produce fewer and fewer Easter eggs no matter how hard we try and how deftly we improve upon our methods. In our geologically-bound world of oil, that in turn leads to diminished "production," and then to higher prices and to various forms of conflict depending on the severity of this gap between supply and demand.
Krugman writes that while prices for oil and other commodities are increasing rapidly, some commentators are trying to blame it on government economic policies, to make this a political issue.
Krugman argues how the facts fail to support this claim, and that we are now experiencing real limitations to economic growth that transcend culture, ideology and nationality. Finally, what is painfully obvious to so many has made it to the pages of the NY Times.
We have entered an age where, like it or not, we will (at long last) reckon with geology, physics and chemistry when formulating our economic and social policies. If you are like most economists, it's high time you re-learn your craft.

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