One of my greatest sources of frustration in writing about energy and environmental issues is the staggering, hip-deep, wall-to-wall ignorance of markets and basic economics I see in so much of the online commentary about these challenges.

This is why I found this quote from Richard Heinberg (which I found on The Oil Drum) so interesting:

Sometimes you just have to stand in awe and wonder before the all-knowing wisdom of The Market. Common sense would say: Hurricane Gustav (even considering the fact that it never achieved its advertised category 4 status before landfall) is likely to result in 40% of US Gulf of Mexico oil production being taken off-line for 30 days, with longer outages for some rigs, terminals, and refineries; therefore, given the fact that fuel supplies in the US are already tight, this is a good time to load up on oil futures.

But Noooooo. That’s not how the market works. Because the expectation of storm damage was higher, Monday’s trading was actually dominated by a sell-off.

This tells us just how important the market and price signals are in helping us prepare for the inevitable decline in world oil production. To wit: not very.

When the oil price was above $140 and commentators were forecasting a continuing spike up past $200, it was easy for Peak Oilers to feel vindicated and to hop on board the giddy Ferris wheel ride. Newspapers, television, NPR—everyone was talking about Peak Oil.

But now as the oil price drifts toward $110 or maybe $100—even though this is still a historically high price range—the excitement is over. Page views on Peak Oil websites have fallen. All that talk of the party being over was just so much scaremongering.

The price of oil is a single number. The media want information that can be summarized in a short phrase. But reality is complicated. World oil supply is only understandable in terms of the production histories of dozens of countries, thousands of oil fields, and decades of trends in discovery and depletion.

Moral of the story: In the task of waking humanity up to the plight of resource depletion, the market is not very helpful, even if it occasionally does give useful warning signs. It’s a bit like the broken clock that tells perfect time twice a day.

Well, it’s about freaking time someone (besides me) said it. Markets are dumber than the computer you’re reading this on (which is to say, dumber than a sack of rocks), in that they do one thing, and one thing only: They allocate resources in response to price signals. Period. Any concerns about human welfare, justice (economic or otherwise), saving our butts from the terrors of global warming, peak oil, fresh water shortages, rising sea levels, etc. happens only to the extent that people force the issue. Individuals contribute their time, money, and effort to charities and other good causes, and they agree to do things like pay higher taxes or higher rates for green electricity to help fund important projects that the free market won’t provide on its own.

Why in the world is any of this news to the online community? Why does Heinberg even have to say it? For that matter, why do I have to follow up with this post?

Simple: Far too many of the online commentators not only don’t know how markets work, they actually believe the ridiculous fairy tales they tell each other about [ominous organ music] economists and businesspeople. They complain endlessly about how the mainstream doesn’t pay enough or any attention to them or the topic of peak oil (with considerable justification, I would add), then they resort to the hyper-polarizing, knee-jerk reaction to and rejection of almost anything said by “the other side”. You can find essentially the same yawning chasm separating the camps on the issue of anthropocentric global warming.

This situation is so bad that when I give presentations on energy issues I go out of my way to avoid using the phrase “peak oil” as long as possible. That expression has now gained just a bit of mind share in the mainstream, and thanks to the online community it’s seen mostly as a cult of misanthropic wack jobs.[1] That’s why I typically talk about “the end of cheap oil”, the easy, cheap reserves being used up first, and why we’re very likely headed for a near-time maximum in how much of it we can pull out of the ground per day. Of course, that’s a textbook description of an approach to peak oil, just without the baggage of the term itself.

And frankly, I’m sick of this polarizing nonsense beyond my ability to express it in polite language; you will have to rely on your imagination.

But rather than dwell on Hannibal Lecter-esque flights of fancy about what I’d like to do to such hyper partisans, let me return to markets and offer something positive.

I believe it is critical for humanity as we deal with all these interrelated energy and environmental problems that we understand as accurately as possible what markets can and cannot do.

The free market is like an economic version of the Internet: It’s a massively parallel, massively distributed, but ultimately simple, system. Just as a computer or the Internet can be used for wonderful purposes, such as providing education to people in remote locations or helping an engineer or artist in the creative process, it can also be used to spread terrorism and hate speech, as well as any number of other despicable endeavors. Left entirely on its own, the Internet is entirely value-neutral. The emergent properties of the Internet are what they are, with precisely zero concern for human concerns, except to the extent that we take explicit steps to make them comply with our needs and desires. While mostly those steps are positive (e.g. parents keeping their kids away from sites with adult content), there are also the stomach turning examples, like country-level censorship.

And so it is with the free market. It’s nothing more than a tool, which has to be explicitly influenced by private actions and public policy to serve our needs. The market is not an all-seeing, all-knowing, wise and benevolent god; it’s a huge, powerful economic engine that’s utterly blind to human values. This is why I constantly say that the complete lack of “government interference” in markets is not utopia, as some on the right would have us believe. It’s anarchy, a world in which Enron-level debacles, mortgage meltdowns, lead-laced toys, and far worse examples of the stupid and powerful exploiting consumers would be far more prevalent than they are today. The only thing keeping us from that fate is our collective agreement that we need laws and regulations to restrain some economic actors.

But peak oil, global warming, and the whole Pandora’s box of nightmares we’re unleashing on ourselves are changing the equation. It’s no longer enough that take steps to protect the economically weak from the powerful. We now must become much more assertive in the implementation of our collective determination to act in our own best interest. Production tax credits for solar and wind power are a minor, but good, example of the kind of steps needed. Sadly, they’re nowhere near enough.

We all need to grow up, recognize the depth, breadth, and urgency of the problems we face, and take intelligent action at all levels of our economy, from individual consumers up to the largest concentrations of power. And the first step in doing so is to reject the absurd extremists at both ends of the spectrum. The Cornucopians who tell us everything is fine, let the free market handle everything, are in effect telling us to surrender to all these looming problems. They’re just as wrong and unintentionally destructive as the Apocalypticons who see monsters in every shadow and evil intent in every action, and only manage to drive mainstreamers away from the serious discussion we must have, even while they revel in their web site hit counts.

Enough!

[1] I talk to a lot of peak oil-aware people in e-mail, as you might guess, and I’m stunned by how often one of them will spontaneously mention one or another peak oil web site most people who read TCOE have certainly heard of and refer to it as a “cult”. I’ve heard at least four sites referred to this way in the last few months. And these are our own people calling them cults!