Lately, I’ve been noticing that there’s a weird ideological element to debates over whether the current run-up in oil prices is driven primarily by speculation or primarily by the fundamentals. Why, I wondered, would it break down like that? Now that I’ve read it, I think Paul Krugman nailed it yesterday: If oil prices continue to rise, we’ll probably see more call for government intervention in public transit and energy efficiency, and “I don’t find that vision particularly abhorrent, but a lot of people, especially on the right, do. And so they want to believe that if only Goldman Sachs would stop having such a negative attitude, we’d quickly return to the good old days of abundant oil.”
Of course you can run this argument backwards — I prefer walkable, transit-oriented places so I’d like it to be the case that objective reality is trending in a manner that will make more people share my preferences. That said, Krugman’s argument (and Kevin Drum’s argument here) seems fairly persuasive to me.
But that said, the right way to resolve this dispute isn’t with punditry, it’s with speculative investments. A person who really thinks he has reason to believe we’re in the midst of an oil bubble could earn a lot of money off that belief. Seeing conservative institutions deciding to invest funds in selling oil short would be more persuasive than any number of arguments.