Ryan Avent talks commodity prices:
My baseline is to agree with him that “prediction is hard, especially about the future.”
But here’s a model I’ve discussed before. Over time, we’ve seen more and more countries engage in spurts of “catch-up” growth in which they rapidly narrow the gap in living standards between themselves and the rich countries. What’s more, countries seem to be getting better at catching up. Japanese catch-up growth was the fastest thing ever seen in its day, but Korea was faster and China is faster still. Today, India is putting up numbers that would have blown minds in the 1960s but that today produce talk of falling behind China. It seems plausible to me that this kind of super-fast learning happening in large population poor countries will outpace the world’s ability to innovate in terms of natural resource extraction. It’s not that market incentives don’t work or we won’t see innovation, it’s just that it may not be possible to innovate as quickly as China and India can grow given that they basically just need to copy practices that exist in richer countries.
So you could easily have a scenario in which natural resource costs are falling relative to world GDP (because large poor countries are growing very fast) but rising relative to U.S. GDP (because we can’t grow as fast as poor countries) in which case we’re going to feel a ton of pain unless we can become a less energy-intensive society.