$5000 Op-Ad

I'm not sure how much the New York Times usually charges for advertisements on its Op-Ed page, or even if it usually accepts them, but it sure looks like Matthew Simmons paid $5000 to advertise his new book in this column today. John Tierney's column today is about a bet he made with Simmons on the future price of oil, not coincidentally the subject of Simmons's book.

There is a very strange oddity in the bet: Tierney offered to bet him that the price of oil would not go up more than average worker's salaries between now and 2010, but Simmons insisted on a much riskier bet that the price of oil would exceed $200/barrel in 2005 dollars. Simmons is the president of an investment bank, so it's pretty plausible that he's a rational economic actor. Why would a rational actor seek out an obviously less favorable bet? My guess: publicity for his book, and publicity for the idea he's selling - that a huge rise in oil prices in likely and soon.

I think oil is going up myself, but $200, averaged over a whole year (the terms of the bet) seems crazy. Some smart guys, e.g. Daniel Yergin think that lots of new capacity is coming online and that a glut by 2010 is possible. More importantly, $200 oil seems cetain to trigger a massive recession, or depression, which would collapse oil demand.

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