ONE OF THEM IS PAUL KRUGMAN: How Two Nobel Prize Winning Economists Got Oil Wrong.
In a May 12 2008 column, Krugman pooh-poohed the idea that speculation was driving the oil price (then at $125 a barrel), saying: “all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China.”
Further, he attributed the tendency to blame speculators on conservatives in this instance, a reversal of the usual politic spectrum, and especially because of their failure to recognize that “a realistic view of what’s happened over the past few years suggests that we’re heading into an era of increasingly scarce, costly oil.” He later doubled down on this, describing “the way ideas go from crazy stuff that only DFHs believe to stuff everyone knows, without ever going through a stage in which the holders of conventional wisdom acknowledge that they were wrong. Oh, and the people who were right are still considered DFHs; you see, they were right too soon.
It looks as if peak oil may be going that way.” [DFH is an acronym that can’t be translated here, but consider ‘treehuggers’ as a good equivalent.]
In this case, the problems are that a) Professor Krugman is not an expert on resource economics, b) he has viewed this through political lenses, c), he has assumed temporary price trends are due to long-term changes; and d) cardinal error: he takes a bad price forecast as evidence of bad underlying theory.
Predictions are hard — especially about the future, as Krugman should know.