Some commentary [Ed note: from Goldman’s 2010 commodity outlook]:
As we start a new decade with the global economy emerging from the worst recession of the post-war era, we expect the commodity supply-side constraints of the past decade to once again reemerge, reinforcing the sustainability of higher long-term commodity prices – a theme we first began discussing at the turn of the current decade. However, the inability to grow supply after a decade of sharply higher prices turns the question of the sustainability of higher long-term commodity prices into one of the sustainability of higher long-term growth. Anemic supply growth of energy and basic materials runs head-on into the ongoing revolution in emerging markets generated by more than a billion people rising into the ranks of the middle class over the next decade.
We maintain that this undesirable outcome is not the inevitable result of dismal Malthusian logic, but rather the result of deliberate choices as expressed through policy. At the beginning of the current decade, we argued that decades of inadequate investment in commodity productive infrastructure were leading to a “Revenge of the Old Economy”, where a constrained supply base would sustain higher commodity prices. Toward the end of the current decade we argued that the “Revenge of the Old Economy” had turned into the “Revenge of the Old ‘Political’ Economy” where significant policy constraints on the free flow of capital, labour and technology were substantially constraining supply growth for many commodities, regardless of price or expected return. Furthermore, these protectionist policies caused capital not to flow to the most efficient commodity investment but rather to the most freely accessible one that was usually inefficient, extremely high cost/tax with poor rates of return, which put more upward pressure on prices, or in some cases the capital did not flow at all, creating outright physical shortages.