Disingenuous Markets. Responding to the certain demise of cheap oil, the consensus of mainstream media, the business community with their cohorts in government, buttressed by Bunny Rabbit Economics,  has been to  affirm their blind faith in the magic of free markets.  Arguing that as the demand for a commodity exceeds the supply, price will rise thus reducing demand while also encouraging adoption of  alternatives as they inturn gain economic appeal due to the higher price for the commodity relative to some alternative.  Nice theory unfortunately "Oil" is just not just another everyday commodity. Oil is power,  conveniently liquid packaged energy, and at this point in history the life blood of modern civilisation. Yes the text book theory of rising price cutting demand does hold at the margins of discretionary voluntary  consumption,  such-as deciding not to drive as far for the family's holidays as the allowance for petrol is relatively fixed segment of the holiday's budget. Unfortunately such domestic scale,  discretionary  margin experience are what the general populace draw upon as 'common sense' when confronted by the issue of Cheap Oil's demise. But as international experience has clearly demonstrated with the historical machination of  world oil markets,  prices tends to change the dynamics of the market-place itself, rather than directly influencing global levels of demand for oil. As oil price rise rather than demand dropping because less  people choose to purchase at the higher price-point, the demand has on occasions fallen because efforts to maintain consumption at previous consumption highs ruptured the purchaser's  national economies' into bouts  of economic downturns, precipitating a collapse in demand for all commodities not just highly priced oil  (as traditional market theory was pre-disposed to predict). An alternative effect that has been witnessed  is, as most of the world oil markets where denominated in US dollars,  rising oil prices lead to inflation in the USA economy devaluing the relative value of the US dollar so that when viewed as a historical trend  after taking inflation into account the effective price was steady! The most counter-intuitive repercussion 'Oil being packaged power, rather than just another commodity' was last year when rising oil prices  accelerated demand for oil! The inexplicable acceleration of demand for oil as the price rose is only a conundrum when constricted to the purchaser's expectation of how market's behave.  From the broader  perspective it is quite easy to see what is happening.  Most oil (like the 25% of world supplies consumed by the 5% of the world population that is the USA) is purchased by the industrialised world from less highly  complex economies. As the price of oil rose in real terms it increased the purchasing power of oil exporting countries. This extra real wealth enabled oil exporters to increase consumption of other commodities from  third manufacturing countries.  Here is the unexpected feedback mechanism, as emerging manufacturing economies, (most notably China & India ) geared up to meet the oil producer growing demand for manufactured  goods, they inturn required additional energy to manufacture additional products. So what happened as Oil is energy, the manufactures (not the traditional purchaser's ) additional demand drove the price of oil higher in  what was already a tight market. So the Bunny Rabbit Economist got it all wrong, not because of any inherent flaw in Classical Economic theory, but rather their own blind arrogance of interpreting the world solely from the perspective of their powerful patrons.   The Arthritic Invisible Hand. Prior to the Industrial Revolution Adam Smith in expounding his concepts of how the ideal market functioned, had postulated the effect he coined 'the Invisible Hand'. The idea being that 'free'  (of external manipulation) open markets lead to the efficient allocation of commodities between competing interest, as if allocation decisions where being made by some by some impartial 'Invisible Hand'. While 'Prior to  the Industrial Revolution' this idea had a lot of merit, it does not any longer. With an increase in speed thence volatility of markets, in-concert with trading hydrocarbons fuels  (coal & oil) which by being  'power' distort the market, the 'Invisible Hand' is now a positive impediment to the wise allocation of resource! The Conservatives' addiction to a reliance on market signals to determine allocation of the  worlds finite oil heritage, makes about as much sense as a general waiting to count his dead at the end of a battle, before settling on what his plans about how that same battle would be best fought!  This is not  to deny that rising prices for oil in the market are a potent signal, just that such signal will arrive after it is too late to be of much use.  The spin that higher oil prices will encourage the uptake of alternatives is meaningless if the more expensive alternative's infrastructure is non-existent when the demand for it erupts.  The whole 'switching to alternatives' position becomes more bizarre when it is realized THERE ARE NO ALTERNATIVES for cheap to obtain, easy to handle, highly energy dense Oil. All the so-called 'alternate energy' solutions are niche answers for a small handful (from a mind-boggling large collection) of technical problems to be faced in a post-oil world. Untangling Mixed Signals. Before examining how markets maybe improved to the benefit of all, it is necessary to better understand the short-comings of the two main historical varieties.. Command & Control Model = targeted BUT inflexible. Karl Marx was very diligent in his economic research, accurately identifying many problems with the inner-workings of 19th century Bourgeoisie Capitalism. Unfortunately Marx's analysis proved to be  very much awry in viewing his own time as the penultimate development in the evolution of social forms.  Just as Marx saw the Industrial Revolution giving birth to the proletariat, he simultaneously  failed to see that future time irrespective of what every system existed would with the march of technology continue to morph society again, and again into various new strata and classes. Lenin's model  of controlled economies with their characteristic rolling 'Five year plans' have proved effective at bootstrapping the development of backward countries. Over time however they inevitably fail as the  technocrat central planners fall victim to "group think".  A daily experience of shortages, then tensions in maintaining control of the broader society eventually comes to characterize inflexible  Centrally Planned Economies. Capitalist Model = flexible BUT untargeted. By contrast the Modern Consumer Society Capitalist Model is highly flexible, quickly responding to any new opportunity for profit presented by consumers' desires. While being in a direct descendant of  the Bourgeoisie Capitalism that Marx railed against, the Modern form ( sometimes if only for public-relations reasons) is generally less mercenary.  This is thanks in no small part to Karl Marx's  profound historical influence through Church thinking and the Labour Movements. Liberal philosophy and other Social Reform movements have also contributed by showing that Capitals'  long-term  interest are best served by a contented, happy, health workforce.  As long as demand on the world's resources and humanities population pressure remained within cooee of the Earth's carrying  capacity, the Consumer Capitalist Model proved a run-away success! The first major cracks appearing as they did in the late 1960's as the Cold War threatened to become a Nuclear Holocaust.where  understanably promptly overlooked. Eventually the intinsic logic of the Capitalism to Privatize Profits while Socializing Losses, so stimulating overshoot of population, while precipitating massive  environmental degradation that many have come to view the current markets as defective as the failed Leninist variety.    Green Sustainable Markets. So the characteristic that we require of markets to go forward into a sustainable future are;- Open and transparent. Responsive but structurally enamoured against speculative volatility. (Tobin Tax etc.) Targeted at Environmental Restoration & Protection. Targeted at long-term Sustainablilty. Targeted at remaining within the ecosystems carrying capacity. Flexible to respond to environmental demands. Flexible to respond to Social & Cultural changes. Flexible to readily meet the challenges of disasters. Flexible to gain best benefit for all from discoveries & technical advances. All commodities to encapsulate the full cost. That is to say no externalities of cost being offloaded onto the environment or society at large. Comments to webmaster Copyright © Rupert Edwards 1998-2005 Last update:  January 2007 Southern Summer This page is located at http://www.geocities.com/RainForest/Canopy/2265/