It is becoming apparent that if oil prices can be raised to a high enough level, a lot more oil is available. Figure 5 shows how I see this as happening. We start at the top of the triangle, where there is a relatively small quantity of inexpensive oil, and we gradually work toward the expensive oil at the bottom.
The amount of oil (or for that matter, any other resource) isn’t a fixed amount. If the price can be made to rise to a very high level, the quantity that can be extracted will also tend to rise–in fact, by a rather large amount. The “catch” is that wages for the vast majority of workers don’t rise at the same time. As a result, goods made with high-priced oil soon become too expensive for workers to afford, and the economy falls into recession. The result is prices that fall below the cost of production. Thus, the limit on oil supply is not the amount of oil in the ground; instead, it is how high oil prices can rise, without causing serious recession. (my emphasis /SR)
While wages don’t rise with spiking oil prices, increasing debt can be used to hide the problem, at least temporarily. For example, cars and homes become less affordable with higher oil prices, since oil is used in making them. If governments can lower interest rates, monthly payments for new homes and cars can be lowered sufficiently that new car and home sales don’t fall too far. Eventually, this cover-up reaches limits. This happens when interest rates start turning negative, as they now are in some parts of the world.