economics

Oil hits $120 a barrel

Demand for oil will continue to rise. The supply is not rising. The only solution is massive coal to liquid plants. Coal to liquid plants can produce substitutes for gasoline, such as methy isobutyl ether, at about a dollar a gallon at the refinery gate. So why is it not happening?

Coal to diesel is a more mature technology. Coal to gasoline substitute is still theory and experiment. Maybe it is not happening because they are still working on it. But even coal to diesel is only happening on a rather small scale, a fraction of a percent of the scale needed to keep the price of oil from rising even further.

We are seeing the much predicted resource crisis and associated hunger that the greens have long predicted. Capitalism and the free market should, in theory, remedy this, providing a smooth conversion from oil to coal. No smooth conversion is happening, which may well be part of the reason so many people are losing faith in capitalism. The subprime crisis is not a good advertisement for capitalism either. Of course capitalism, unlike socialism, manages to resolve such crises without murdering millions, but this does not mean that it is working satisfactorily. When capitalism screws up badly, as is happening right now, people are inclined to listen to demagogues who tell them that if only the demagogue got to make decisions, instead of those wicked capitalists, all would be well.

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