Greenspan on gas

Alan Greenspan gave a speech today on the current energy market. And while the media reports I've seen so far have played up the more negative aspect of his remarks, overall he seems fairly upbeat (at least, as upbeat as an economist can be).

The money quote comes right at the end:

We are unable to judge with certainty how technological possibilities will play out in the future, but we can say with some assurance that developments in energy markets will remain central in determining the longer-run health of our nation's economy. The experience of the past fifty years--and indeed much longer than that--affirms that market forces play the key role in conserving scarce energy resources, directing those resources to their most highly valued uses. Adequate productive capacity, of course, is driven also by nonmarket and policy considerations.

To be sure, energy issues present policymakers and citizens with difficult decisions and tradeoffs to make outside the market process. But those concerns, one hopes, will be addressed in a manner that, to the greatest extent possible, does not distort or stifle the meaningful functioning of our markets. We must remember that the same price signals that are so critical for balancing energy supply and demand in the short run also signal profit opportunities for long-term supply expansion. Moreover, they stimulate the research and development that will unlock new approaches to energy production and use that we can now only scarcely envision.

Which means that, as painful as high oil prices may be in the short term, we should not believe that the age of $50 oil is a harbinger of economic armageddon.