French truckers and British motorists must remember the basic laws of economics

Share

There is nothing like an oil-price crisis for reminding people of some basic and uncomfortable laws of economics. When demand exceeds supply, the price of a commodity tends to rise. For the past eight years, the world economy (apart from parts of the western Pacific littoral from Japan to Indonesia) has been booming, and economic growth in oil-based economies increases the demand for oil.

There is nothing like an oil-price crisis for reminding people of some basic and uncomfortable laws of economics. When demand exceeds supply, the price of a commodity tends to rise. For the past eight years, the world economy (apart from parts of the western Pacific littoral from Japan to Indonesia) has been booming, and economic growth in oil-based economies increases the demand for oil.

The second basic law of economics is that when the price of something rises, consumers get cross and blame wickedness or greed. Just because a large part of the price of petrol or diesel is tax, the French farmers, truckers, taxi-drivers and fishermen blame their government and demand tax cuts (or, in the case of fishermen, whose diesel is untaxed, subsidies).

We British, who like to think we are a bit more sophisticated about these things, tend to mock the ignorance of the modern Continental peasantry. Our own "Dump the Pump" protest fizzled, making several tabloid newspapers look foolish. Perhaps we are wise enough to know that tax cuts (or subsidies) will have to be made up elsewhere, and grudgingly accept that if things have to be heavily taxed, there might as well be an environmental rationale for it.

We think we know, too, that the real villain of the economics seminar is the cartel of the big oil-producing countries, Opec, which tries to maintain high prices by refusing to increase production. Except that we are just as wrong about that as any French farmer is about their government.

Opec is not the power it once was, and it was only that for a brief period in the early Seventies. Since then, the main feature of its attempts to keep the price of oil high has been how unsuccessful they have been.

This is where a third law of economics comes into play. If the price rises, producers have a greater incentive to increase production. Opec will always be vulnerable to one of its number breaking ranks and taking short-term profits rather than sharing them. What is more, several large producers, including Britain (currently bringing marginal North Sea oilfields back into production), Norway, Mexico and Russia, are not members.

The likelihood is, therefore, that - after a time lag - oil production will increase and the price will come down again.

This may be "good news for motorists" and a relief for businesses facing cripplingly high transport costs, but there is no escaping the underlying fact that much higher oil prices would be good news for the sustainability of life on the planet. Burning oil and gas is already changing the Earth's climate, and the best means of restraining consumption is by raising the price. Ideally, this should be done by taxation, rather than by siphoning monopoly profits into a cartel of exporting states.

This is an infinitely harder task than parking tractors across the Channel Tunnel entrance, because it means persuading the US to raise tax from the current 8.5p per litre towards the British 62p per litre. It means taxing aviation fuel. It means a global effort to co-ordinate tax policy in order to use market forces to shift the world economy from high energy use to low.

The laws of supply and demand suggest that the price of oil will come down in the next few years, but the needs of the environment suggest it should go up further.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

SQL Technical Implementation Consultant (Java, BA, Oracle, VBA)

£45000 - £55000 per annum + Benefits + Bonus: Harrington Starr: SQL Technical ...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Lead C# Developer (.Net, nHibernate, MVC, SQL) Surrey

£55000 - £60000 per annum + Benefits + Bonus: Harrington Starr: Lead C# Develo...

Day In a Page

 

i Editor's Letter: Still all to play for at our live iDebate

Oliver Duff Oliver Duff
'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering