Just what planet do economists live on?

I admit I am uneducated in economics. I can be horrified by some economists, but impressed by economists with a broader view of serving society than just optimising the marketplace. I perused an introductory undergrad text book the other day, and I was comforted by the breadth and reasonableness of the approach. However, I remain worried about a number of things: underlying assumptions; a readiness to proclaim on all aspects of society; perhaps the limitations or ideological bent of the professionals who have so much say in our lives.

Then last Sunday I read a headline proclaiming "Petrol won't hit $1.20, says expert" (Canberra Times, Sunday 26 June 2005, p. 3). This was in the context of recent price rises in petrol, given the highest ever price recorded for oil (~$US60 per barrel). The "expert" was Chris Richardson, of Access Economics. Access Economics is the economics consultancy that's amusingly referred to as the "Treasury in exile", and has done work for both Liberal and Labor Parties in the past. I read on, and this stunned me: "He said he believed the crude oil price of $US60 per barrel was unsustainable, with $US40 a more likely long-term figure". I have no doubt this statement will be shown to be wrong.

Why? The arrival of peak oil (maximum world oil production) was predicted for 2010. We're hearing now that it may have already arrived, due to unexpectedly strong growth in China and India. What will happen to prices when demand is up, and oil production is down? I expect it will lead to higher prices. And, virtually inevitably but a bit further on, it will also lead to restriction of supply for essential purposes, including government, military and air travel. We've only used oil this way for a century or so, and we're so close to peak oil, it doesn't matter. We ramped up slowly, and we're already at peak oil after just a century? That suggests to me that scarcity is only a matter of decades away, possibly sooner. So how does CR think that prices won't go up in the "long term".

It makes you wonder about his, and his profession's, definition of "long term". Stock markets measure time by milliseconds, and I guess their long term is a 3-month profit reporting period. But I hope that professional economists will have a much more human view of time than that.

I apologise if he's been wrongly reported, but if not, CR needs to think a little more closely about that beloved market principle of supply and demand, and about what long-term really means.