Anybody else remember “peak oil”?
“Peak oil” was the name given to a once-popular claim that worldwide demand for oil would soon outstrip the ability of producers to supply it, sending energy prices skyrocketing. The idea wasn’t that we were on the verge of running out of oil in the immediate future—though some of the more excitable types did frame the issue that way—but that cheap oil and gas were, or soon would be, things of the past.
Of course, the opposite was the case. The bundle of techniques known colloquially as “fracking” opened up supplies of oil and gas previously thought too expensive to extract. We pointy-headed types with stacks of Milton Friedman books were not particularly surprised by that, because one of the things free markets do—if we let them—is discover new, more efficient ways to do familiar tasks. The promise of upward pressure on the price of oil encouraged innovation and investment in efficiency. A technology that isn’t economical with a barrel of oil at $x might prove very economical with a barrel of oil at $2.2x. And once a technology has been brought online, then the miracle of marginality comes into play: It cost Apple something well north of $1 billion to build the first iPhone, but the second iPhone probably cost about $80. Spread that initial $1 billion development cost across the 2.5 billion or so iPhones that have been sold so far, and it looks like a bargain.
Of course, econ nerds are not the only ones who might have seen the problem with “peak oil.” People with a general familiarity with recent history might have guessed as much.