Nine years ago The Economist ran a big story on oil, which was then selling for $10 a barrel. The magazine warned that this might not last. Instead, it suggested, oil might well fall to $5 a barrel.Alrighty, then. Mr. Krugman notes that all commodities are getting really expensive relative to the U.S. dollar, and then furrows his brow mightily to try to understand why. Let's see, three possibilities: evil speculation, too much demand, not enough supply. Yep, that's the ticket -- we're running out of everything simultaneously! Amazing.
In any case, The Economist asserted, the world faced "the prospect of cheap, plentiful oil for the foreseeable future."
Last week, oil hit $117.
It's not just oil that has defied the complacency of a few years back. Food prices have also soared, as have the prices of basic metals. And the global surge in commodity prices is reviving a question we haven't heard much since the 1970s: Will limited supplies of natural resources pose an obstacle to future world economic growth?
How you answer this question depends largely on what you believe is driving the rise in resource prices. Broadly speaking, there are three competing views.
The first is that it's mainly speculation - that investors, looking for high returns at a time of low interest rates, have piled into commodity futures, driving up prices. On this view, someday soon the bubble will burst and high resource prices will go the way of Pets.com.
The second view is that soaring resource prices do, in fact, have a basis in fundamentals - especially rapidly growing demand from newly meat-eating, car-driving Chinese - but that given time we'll drill more wells, plant more acres, and increased supply will push prices right back down again.
The third view is that the era of cheap resources is over for good - that we're running out of oil, running out of land to expand food production and generally running out of planet to exploit.
You know, Mr. Krugman's list of pricey items (in U.S. dollars) is hardly exhaustive. There's also the euro, which is going through the proverbial roof. I know -- there's only so many euros buried beneath the earth's crust, and we're running out of those, too!
Could it be, Mr. Krugman, that the dollar price of everything going up might be another way of saying that the dollar's value is dropping ballistically? Or would that be too obvious?
Think about it for a moment. Pull out some federal reserve notes from your wallet. Never mind all the new gay colors (not that there's anything wrong with that!) and Monopoly-money layout. What does the printing on the thing say? Does it claim to be redeemable for some amount of gold or silver or copper or aluminum or oil or natural gas? Nope. It says it's a dollar, because Uncle says it's a dollar -- whatever a "dollar" is, anyway. Here in the U.S., Uncle's words on the subject carry some force, because Uncle can throw the peasants (you and me, that is) in jail if we disrespect his semi-fancy paper in some way, such as refusing to sell for it, or -- horror of horrors! -- conducting commerce using any "alternative" or private money. Overseas, Uncle's power of jailing people is, so far, less comprehensive; and there, the perceived value of the dollar is related to U.S. economic and productive capability and fiscal responsibility.
And them furriners is a-startin' to catch on.
The U.S. is increasingly recognizable, the world around, as the moral and economic equivalent of a drunk who immediately spends any shred of wealth that falls into his hands on more booze and on really big firecrackers that go BANG! really loudly. And when that drunk scrawls out IOU after IOU and declares this paper to be as good as gold, if not better ... well, let's just say that the rest of the world finds itself increasingly in disagreement.
The American Empire is going broke, and, for the world in general, I think that's a very good thing. For we low-ranking imperial subjects, however, it's going to be a hell of a rough ride.