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Markets work

Posted by Richard on August 24, 2005

Larry Kudlow, who knows a thing or two about business and markets, interrupted all the wailing and hand-wringing over the price of oil to offer a calmer, more optimistic assessment. First, he reminded us that, when the price of something rises, the supply increases and the demand decreases. Then, he noted that nuclear power is returning to public favor and that some of the government barriers to development of energy supplies are coming down. Finally, he predicted that the long-term consequences of the oil price rise are likely to be good:

Meanwhile the spread of global capitalism to places like China, India, eastern Europe and elsewhere (which is a very good thing for world prosperity) is the main cause of the spike in energy.

So supply will rise exponentially in the years ahead, demand will slow a bit and we’ll all live happily ever after. The moral of this story: markets work if you let them.

That kind of Pollyanna attitude may grate a bit if you’ve recently had to fill your gas tank (I drive a Pathfinder, so it grates a bit on me). But he’s probably right.

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