Yes I have been gone for a long while. A really long while. The simple fact is that I was in the middle of conducting a research project and getting good grades in college. I have now graduated Summa Cum Laude with a Degree in Psychology, minor in Philosophy, and an award for my research. That was a crap load of work, but it is over. I am back and have enough free time to write something here for my non-existent readers. It has always seemed like a stupid idea to keep a running record of stupidity for posterity to look at, but I believe in unwavering honesty about my ignorance and (hopefully) evolving intelligence. I think it keeps me in check should I ever become so full of myself that I think I am infallible.
Of course who cares about this crap, let's talk about inflation. First of all, what is inflation? Inflation is the relative change in price of one commodity in relation to another. I must make sure this is understood. There is no one inflation, there are hundreds of inflations, and a few averages we use. For the purposes of this discussion, we will only be talking about inflation of commodities relative to money.
The best way to explain why inflation occurs is to imagine that you wanted to buy apples. You certainly would not buy just one apple every time you went to a supermarket, the gas would quickly add up. Instead you would probably buy say, two dozen apples so that you could make some apple pies or apple butter. Suppose for a moment that the man from the farmers market had exactly 24 apples, and that he could sell them to you for $15 (organic is expensive). Well, assuming you thought this was a fair price, you would buy those apples.
Now suppose the next year he had a bumper crop of 40 apples. Well he could sell them for the same price of 8 apples for $5, but past experience tells him that you would only buy 24 apples. Indeed, you probably don't want much more than that because while you may like apples, more apples can be boring. Indeed, each additional apple would be worth less to you than the previous apple. The farmer though has more apples, and it would be crazy to sell you 24 apples for $15 and then get stuck with 16 apples that he cannot sell. After all, his apples are worth something. The solution is that you lower the price of the apples with regard to how many he wishes to sell (all of them). You may not be willing to buy more apples at the current price, but a slightly lower price would eventually be found so that the farmer could make his extra sum of money and yet you would still be willing to buy.
Now the Farmer has a bad crop and only has 16 apples to sell. He still wants to make the most he can make of his crop, but he does not have the supply. The farmer could try to sell the apples at the usual price of a normal crop, but if he did, he would make only $10. The simple fact is that the farmer would want to raise the prices so he could make more per apple. Sure, you would not want to buy as many apples if they cost more, but he does not care if you are unwilling to buy 24 apples if he only has 16!
How does this apply to inflation? Remember that all other commodities are supposed to be fixed (to a certain extent) while the monetary supply is increasing. If we were bartering corn for apples, a certain amount of corn would be worth a certain amount of apples depending on their demand and supply. Also a certain amount of money would be equal to those two quantities of commodities. However if the amount of money in the system increases, the amount of apples used to buy corn is still the same, yet there is more money. So either the money is not circulated, or the money loses value in comparison to the apples and corn. Adding money does not add wealth like so many Keynesian scholars may have you believe (even Keynes would disagree with this idea so I am not really sure where this idea comes from). Wealth is the usable resources that are in existence. Money is merely a commodity used to standardize bartering practices. Printing money does not create more food, build more houses, make new games, design new phones. The only thing money does is create a standard that all people can use to trade value for value. Indeed, as long as the purpose of the commodity is clear, it does not matter what is used. If everyone began to use paperclips as a standard of value, that would work just as well. This is not that far fetched. After all, most money is now electronic bits.
I think I am done for the day. I will be back later next week to talk more about inflation.
Nowhereman
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Thursday, June 2, 2011
Friday, July 31, 2009
Why Government Intervention Will Always Fail
Many people often claim that more government intervention is necessary for a market's success to become assured. Examples abound everywhere. Just recently, it has become a mantra of congress and the media (excluding Fox news and a few newspapers) that this entire crisis was caused by individuals not being regulated enough. The idea is, as a caller on a radio show I listen to on occasion said, is that if people are given less choice (his words, not mine) then the market will be less volatile. In other words, if people are controlled just right, the market itself can be controlled in a free market system.
The reason people want to control the market has not really changed much for a long time. It all revolves around this idea of 'social fairness'. The idea is that our current system allows for greed, and that these greedy people, through acting in their own best interest, affect the markets adversely. It is also claimed further that after these markets collapse, the “rich” come out on top while the “poor” lose their shirts. These cycles of greed as any good liberal may call them are what is supposed to cause the bubbles and bursts of a market.
A little more background before I start. In his work “The End of Laissez-Fair”(1926 ), John Maynard Keynes wrote about the most basic parts of this theory of why we were doomed to fail in a truly free market system. In section three of this particular article he made several claims that, given his description of laissez-fair, seemed to work.
To quote “...the conclusion that individuals acting independently for their own advantage will produce the greatest aggregate of wealth, depends on a variety of unreal assumptions to the effect that the processes of production and consumption are in no way organic, that there exists a sufficient foreknowledge of conditions and requirements, and that there are adequate opportunities of obtaining this foreknowledge.”
To put his statement simply, his strong refutation of laissez-fair is that people could never possibly be able to predict, and therefore control the market for their own benefit. Hence, the idea that everyone benefits in the long run due to individual initiative is a crock. Unfortunately for Keynes, this argument works far better against himself than it does against Laissez-Fair economics.
Keynes's idea is that while an individual would not likely be able to help himself, let alone the whole of the populous, a large group of people, like a government, could. It is s simple enough hypothesis. Suppose you were trying to make a million dollars. You try to do this in, say, corn. To make it easy, we could suppose you were an expert farmer. Even given all of this information, all of this declarative knowledge, you can't possibly know everything that will have an effect on the price of corn. That would require knowing what the harvest would be like in every country at every point in time in the year, the quality of that corn, what diseases are rampant in what area and at what times, what new technologies will come out to increase the price of corn, any and all food fads that affect demand, and then both the purchasing power, and the affinity for your particular product, corn. If it seems impossible to hold all of that in your head, don't worry, you should not be able to.
Instead of just one expert, as in the last example, Keynes suggests that a market can be controlled through the joint knowledge of many experts all studying one thing, the economy. This idea makes sense if you ignore some problems I mention later. Suppose you have four farmers all working together. One farmer focuses all his time on harvest yields, another on technologies,and another on food demand, and the last one on diseases. It would be a lot easier to study the entire system if everyone involved only studied a part of it. This is where Keynes is coming from, more people equals more knowledge, more knowledge allows for better control. So if you get enough experts into government, then that government can literally control the market for the greater good of all of mankind.
However as history shows us, his theory does not hold scientific water. Keynes was right, it is not possible for any individual to know what would happen everywhere all at once so that he/she could predict the markets. He was wrong about the reason though. His assumption is that a lack of knowledge was the cause of this individual not being an accurate predictor of the world, but it isn't the knowledge that he does not have, but the actions he makes based on the knowledge he does have.
A simple fact of life is that the market is made up of a lot of people, billions of people in fact, all making decisions on the basis of some incomplete knowledge of the world. Suppose though that a large entity like a government, based on more complete knowledge of the current market conditions decided to help farmers make more money by buying up corn. Farmers, knowing that corn is a favorite staple food, respond by planting more corn and consumers, expecting corn prices to go up, respond by switching to other staple foods. Suddenly farmers of corn that can't be sold fast enough and the excess rots.
Suppose I built a time machine and happen to discover that a certain stock increases in value by 300% next week. So I take a large amount of money and buy a large share of that stock. So everyone else noticing the decrease in availability in stock, sell to make a smaller, but more assured profit. The stock tanks and I lose my shirt.
The point is that you cannot know what will happen not because of a lack of knowledge, but because your very attempts to control the free market, affect the free market. Just like the Heisenberg uncertainty principal, the very act of measuring the market, affects the market. Further, the more people you get in the pool trying to make a large wave, the less predictable the waves become. Go back to the time travel story, if I had bought only 100 shares, would that have a smaller impact on the market than if I tried to buy one million?
Because individuals have a much smaller impact, the fact they know far less than the government is inconsequential to their success. They need only read a very small number of trends and then follow the wave long enough to get rooted. A government though will always create a large splash because 1) they are extremely visible, and therefor so are their actions, 2) their foreknowledge of the events are often public, if they think a bank will suffer, the fact they think that will make the bank suffer even if the information the government has is wrong, and 3) the actions tend to be very very large, so large in fact that a single small transaction by the government is equal to the net worth of even the richest of the rich. These facts make it so that every action the government makes will be anticipated and the market changes automatically.
Further, Keynes's assertion that the market would be more stable with more government is insane. Just suppose the government, after buying all that corn and forcing the prices to go up temporarily, decides to release its corn to the public to allow the prices to drop. What reactions would take place? People might not buy corn for a little while, and those who do (seeing the prices dropped back down) won't buy enough to make up for the decrease in profit. Suppose this continued with the government just 'tweaking everything until it gets it just right' for awhile. Would you invest in farms or corn futures? Would you even know? The short answer is no.
When the market becomes unstable it becomes hard to predict. It would be like trying to predict the waves in a pond that was shot with a hundred rounds. The only option is to sit back and wait for things to calm down and become more predictable. This is also true of the economy. Suppose the economy became extremely unstable, would you invest or wait to see how things go? The problem is that when the market becomes unstable due to these effects, people don't invest money in the market in the form of businesses and jobs. This means that government intervention, which naturally causes instability, causes job losses and therefor recessions. This is true no matter the type of intervention used.
The only way Keynes could ever be proven right is to remove the free market altogether. You see, Keynesian economics works only in the event every facet can be controlled, including the people in the free market. However without free people making free choices, you do not have a free market. You have a government market. Only when freedom, or at least all forms of economic freedom are abolished can the market become truly predictable and controllable.
The conclusion then is that the government, assuming they are not stupid, wants to and needs to destroy the free market and replace it with some sort of feudalism. People cannot be permitted to make decisions of any sort. Not even about what he or she wants to eat or what doctor he or she wants to see. If you can make that decision, then the government cannot control the market, and as the market is made up of the people, controlling the market necessarily requires controlling the people.
Remember, the only people who will ever tell you they can control the market for you is either an idiot or a tyrant. Don't be fooled into thinking you are getting a sweet deal, because the cards will fall and the house always wins when you choose to gamble with them.
The reason people want to control the market has not really changed much for a long time. It all revolves around this idea of 'social fairness'. The idea is that our current system allows for greed, and that these greedy people, through acting in their own best interest, affect the markets adversely. It is also claimed further that after these markets collapse, the “rich” come out on top while the “poor” lose their shirts. These cycles of greed as any good liberal may call them are what is supposed to cause the bubbles and bursts of a market.
A little more background before I start. In his work “The End of Laissez-Fair”(1926 ), John Maynard Keynes wrote about the most basic parts of this theory of why we were doomed to fail in a truly free market system. In section three of this particular article he made several claims that, given his description of laissez-fair, seemed to work.
To quote “...the conclusion that individuals acting independently for their own advantage will produce the greatest aggregate of wealth, depends on a variety of unreal assumptions to the effect that the processes of production and consumption are in no way organic, that there exists a sufficient foreknowledge of conditions and requirements, and that there are adequate opportunities of obtaining this foreknowledge.”
To put his statement simply, his strong refutation of laissez-fair is that people could never possibly be able to predict, and therefore control the market for their own benefit. Hence, the idea that everyone benefits in the long run due to individual initiative is a crock. Unfortunately for Keynes, this argument works far better against himself than it does against Laissez-Fair economics.
Keynes's idea is that while an individual would not likely be able to help himself, let alone the whole of the populous, a large group of people, like a government, could. It is s simple enough hypothesis. Suppose you were trying to make a million dollars. You try to do this in, say, corn. To make it easy, we could suppose you were an expert farmer. Even given all of this information, all of this declarative knowledge, you can't possibly know everything that will have an effect on the price of corn. That would require knowing what the harvest would be like in every country at every point in time in the year, the quality of that corn, what diseases are rampant in what area and at what times, what new technologies will come out to increase the price of corn, any and all food fads that affect demand, and then both the purchasing power, and the affinity for your particular product, corn. If it seems impossible to hold all of that in your head, don't worry, you should not be able to.
Instead of just one expert, as in the last example, Keynes suggests that a market can be controlled through the joint knowledge of many experts all studying one thing, the economy. This idea makes sense if you ignore some problems I mention later. Suppose you have four farmers all working together. One farmer focuses all his time on harvest yields, another on technologies,and another on food demand, and the last one on diseases. It would be a lot easier to study the entire system if everyone involved only studied a part of it. This is where Keynes is coming from, more people equals more knowledge, more knowledge allows for better control. So if you get enough experts into government, then that government can literally control the market for the greater good of all of mankind.
However as history shows us, his theory does not hold scientific water. Keynes was right, it is not possible for any individual to know what would happen everywhere all at once so that he/she could predict the markets. He was wrong about the reason though. His assumption is that a lack of knowledge was the cause of this individual not being an accurate predictor of the world, but it isn't the knowledge that he does not have, but the actions he makes based on the knowledge he does have.
A simple fact of life is that the market is made up of a lot of people, billions of people in fact, all making decisions on the basis of some incomplete knowledge of the world. Suppose though that a large entity like a government, based on more complete knowledge of the current market conditions decided to help farmers make more money by buying up corn. Farmers, knowing that corn is a favorite staple food, respond by planting more corn and consumers, expecting corn prices to go up, respond by switching to other staple foods. Suddenly farmers of corn that can't be sold fast enough and the excess rots.
Suppose I built a time machine and happen to discover that a certain stock increases in value by 300% next week. So I take a large amount of money and buy a large share of that stock. So everyone else noticing the decrease in availability in stock, sell to make a smaller, but more assured profit. The stock tanks and I lose my shirt.
The point is that you cannot know what will happen not because of a lack of knowledge, but because your very attempts to control the free market, affect the free market. Just like the Heisenberg uncertainty principal, the very act of measuring the market, affects the market. Further, the more people you get in the pool trying to make a large wave, the less predictable the waves become. Go back to the time travel story, if I had bought only 100 shares, would that have a smaller impact on the market than if I tried to buy one million?
Because individuals have a much smaller impact, the fact they know far less than the government is inconsequential to their success. They need only read a very small number of trends and then follow the wave long enough to get rooted. A government though will always create a large splash because 1) they are extremely visible, and therefor so are their actions, 2) their foreknowledge of the events are often public, if they think a bank will suffer, the fact they think that will make the bank suffer even if the information the government has is wrong, and 3) the actions tend to be very very large, so large in fact that a single small transaction by the government is equal to the net worth of even the richest of the rich. These facts make it so that every action the government makes will be anticipated and the market changes automatically.
Further, Keynes's assertion that the market would be more stable with more government is insane. Just suppose the government, after buying all that corn and forcing the prices to go up temporarily, decides to release its corn to the public to allow the prices to drop. What reactions would take place? People might not buy corn for a little while, and those who do (seeing the prices dropped back down) won't buy enough to make up for the decrease in profit. Suppose this continued with the government just 'tweaking everything until it gets it just right' for awhile. Would you invest in farms or corn futures? Would you even know? The short answer is no.
When the market becomes unstable it becomes hard to predict. It would be like trying to predict the waves in a pond that was shot with a hundred rounds. The only option is to sit back and wait for things to calm down and become more predictable. This is also true of the economy. Suppose the economy became extremely unstable, would you invest or wait to see how things go? The problem is that when the market becomes unstable due to these effects, people don't invest money in the market in the form of businesses and jobs. This means that government intervention, which naturally causes instability, causes job losses and therefor recessions. This is true no matter the type of intervention used.
The only way Keynes could ever be proven right is to remove the free market altogether. You see, Keynesian economics works only in the event every facet can be controlled, including the people in the free market. However without free people making free choices, you do not have a free market. You have a government market. Only when freedom, or at least all forms of economic freedom are abolished can the market become truly predictable and controllable.
The conclusion then is that the government, assuming they are not stupid, wants to and needs to destroy the free market and replace it with some sort of feudalism. People cannot be permitted to make decisions of any sort. Not even about what he or she wants to eat or what doctor he or she wants to see. If you can make that decision, then the government cannot control the market, and as the market is made up of the people, controlling the market necessarily requires controlling the people.
Remember, the only people who will ever tell you they can control the market for you is either an idiot or a tyrant. Don't be fooled into thinking you are getting a sweet deal, because the cards will fall and the house always wins when you choose to gamble with them.
Tuesday, October 7, 2008
Where is the self-destruct button?
I am an idiot. I must be because when I saw the House shoot down the bailout I honestly thought that those representatives were standing on principle. Turns out all they really wanted was some more pork. It was kind of like a Jambalaya from hell. Don’t believe me? Look at the bill yourself. http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf
I look at this crap; The Mental health Parity Act, The Hurricane Ike Disaster Relief, The Secure Rural School and Community Self-determination Plan? No it turns out the real reason we didn’t pass the bailout the first time is because several House members needed an excuse to usurp several banks and loans. “I didn’t vote for the bailout, I voted for the disaster relief.” “No, you see, I really voted on the Mental Health Parity Act. Do you hate the mentally challenged?” I am sick and tired of these creeps covering their own behinds. A well trained sniper would have a hard time taking a shot at their butts. Where are the courageous representatives who stand up and say “No, I will not tolerate this. I will stop you from going beyond your enumerated power and stop this bill.”
If you look at the votes on this bill on congress.org, then you will see those that, hopefully, did just that. Unfortunately only the few seemed to pay attention to those pesky words in that irritating document our founders mistakenly wrote. I don’t doubt that if our founders had another go at it John Adams would have said “Hey, you know what we should add in here? We should add something like ‘and the congress shall have power to impose their will upon the markets in times that shall be determined my congress.’” On the bright side, Jefferson’s spinning body could be harnessed for some green energy.
If they were not so isolationist, I just might switch my registration to Libertarian. Unfortunately the Republican party has been taken over by cowards and moderates. (Moderate is liberal speak for a Democrat who is quite fond of elephants.) Most people at the grass roots are happy for the mere existence of Sarah Palin. Unfortunately her existence does me little good if McCain insists on her reading from scripts.
However do not get me wrong. Our ideas are not dead. The fact that I am posting this up here on the internet proves that. Trickledown theory is still popular, collectivism is still opposed harshly and the peaceniks still tick most people off. Conservatives are not dead, Conservatism is not dead. The party though, it is crashing. Politics have taken over and instead of standing up for what we believe in, the politicians stand up for what will get them re-elected.
These people are starting to disappoint me. It seems that there is little chance of people like me just getting rid of these guys the old fashioned way. So join me and let’s find that self-destruct button. Maybe we could start all over again, but most likely not. Until the Republican party grows a backbone we wont be able to do this our most sacred duty, which is get these guys out of office.
I look at this crap; The Mental health Parity Act, The Hurricane Ike Disaster Relief, The Secure Rural School and Community Self-determination Plan? No it turns out the real reason we didn’t pass the bailout the first time is because several House members needed an excuse to usurp several banks and loans. “I didn’t vote for the bailout, I voted for the disaster relief.” “No, you see, I really voted on the Mental Health Parity Act. Do you hate the mentally challenged?” I am sick and tired of these creeps covering their own behinds. A well trained sniper would have a hard time taking a shot at their butts. Where are the courageous representatives who stand up and say “No, I will not tolerate this. I will stop you from going beyond your enumerated power and stop this bill.”
If you look at the votes on this bill on congress.org, then you will see those that, hopefully, did just that. Unfortunately only the few seemed to pay attention to those pesky words in that irritating document our founders mistakenly wrote. I don’t doubt that if our founders had another go at it John Adams would have said “Hey, you know what we should add in here? We should add something like ‘and the congress shall have power to impose their will upon the markets in times that shall be determined my congress.’” On the bright side, Jefferson’s spinning body could be harnessed for some green energy.
If they were not so isolationist, I just might switch my registration to Libertarian. Unfortunately the Republican party has been taken over by cowards and moderates. (Moderate is liberal speak for a Democrat who is quite fond of elephants.) Most people at the grass roots are happy for the mere existence of Sarah Palin. Unfortunately her existence does me little good if McCain insists on her reading from scripts.
However do not get me wrong. Our ideas are not dead. The fact that I am posting this up here on the internet proves that. Trickledown theory is still popular, collectivism is still opposed harshly and the peaceniks still tick most people off. Conservatives are not dead, Conservatism is not dead. The party though, it is crashing. Politics have taken over and instead of standing up for what we believe in, the politicians stand up for what will get them re-elected.
These people are starting to disappoint me. It seems that there is little chance of people like me just getting rid of these guys the old fashioned way. So join me and let’s find that self-destruct button. Maybe we could start all over again, but most likely not. Until the Republican party grows a backbone we wont be able to do this our most sacred duty, which is get these guys out of office.
Sunday, September 21, 2008
Fannie Pack-age
Congratulations, you are eligible to lose about 1.5 to 5k dollars. With the numbers still rising on the Fannie Mae and Freddy Mac bailouts we can be rest assured that we will be paying the bill. Let’s forget for a moment the ignorance required to believe this is a good idea; let’s ask the question "How is this even constitutional?”
There is nothing, nothing in the constitution that allows this. What is this you ask? Well literally buying three companies (Fannie Mae, Freddy Mac and AIG). The government will get the stock majority of these three companies and essentially run them into the ground. Apparently a bunch of House Dems took us seriously when we told them to “try running their own company”. The federal government is supposed to dismantle the failed corporations once the bailout is complete but this assumes the government actually does what it is supposed to do. Sorry if I don’t believe their sincerity, but then again this same government said Social Security is to be used only for Social Security.
Understand that when the government says you will bailout Fannie and Freddie (no I did mean you); it means the debt incurred by the “inevitable” bailout. I wonder what Biden would say about this. Whether or not he supports this is probably determined by how it affects Amtrak. No this is a problem for Barrack Obama. He has received the second largest amount from PACs and individuals associated with Fanny and Freddy totaling $126,349. (individuals includes employees of those two companies. Data courtesy of OpenSecrets.org)
This debt incurred will start as half a trillion to, some say, as high as 1.8 trillion dollars but we have to pay interest on that sum too. In the end we will all bite this big one. Not because we have to or even should, but because the government has once again started playing SimCity with the market. Somehow throwing money at the problem seems like the opposite of what we need to do.
Don’t get me wrong either, this once again is a bi-partisan effort to screw us all. G.W. himself said we ‘need’ to do this. Seems like every time I can start to be happy again about him being in office he says something stupid. McCain has also bought into this dogma. God save us all.
I suggest we forget this all. Let every company that is going to fail do just that, fail. Sure, the stock market will take one hell of a hit. Many people will find themselves in trouble but in the end the stock market will strike back strong and most people will get their assets in order. However if we go down this path, which believe me we will, then the entire U.S. economy will suffer for it. The corporations will suffer from higher taxes and our countries credit will crumble further. Inflation will definitely occur and in the end someone will make millions writing a book about how we might have made a mistake. Well someone has to benefit from this.
There is nothing, nothing in the constitution that allows this. What is this you ask? Well literally buying three companies (Fannie Mae, Freddy Mac and AIG). The government will get the stock majority of these three companies and essentially run them into the ground. Apparently a bunch of House Dems took us seriously when we told them to “try running their own company”. The federal government is supposed to dismantle the failed corporations once the bailout is complete but this assumes the government actually does what it is supposed to do. Sorry if I don’t believe their sincerity, but then again this same government said Social Security is to be used only for Social Security.
Understand that when the government says you will bailout Fannie and Freddie (no I did mean you); it means the debt incurred by the “inevitable” bailout. I wonder what Biden would say about this. Whether or not he supports this is probably determined by how it affects Amtrak. No this is a problem for Barrack Obama. He has received the second largest amount from PACs and individuals associated with Fanny and Freddy totaling $126,349. (individuals includes employees of those two companies. Data courtesy of OpenSecrets.org)
This debt incurred will start as half a trillion to, some say, as high as 1.8 trillion dollars but we have to pay interest on that sum too. In the end we will all bite this big one. Not because we have to or even should, but because the government has once again started playing SimCity with the market. Somehow throwing money at the problem seems like the opposite of what we need to do.
Don’t get me wrong either, this once again is a bi-partisan effort to screw us all. G.W. himself said we ‘need’ to do this. Seems like every time I can start to be happy again about him being in office he says something stupid. McCain has also bought into this dogma. God save us all.
I suggest we forget this all. Let every company that is going to fail do just that, fail. Sure, the stock market will take one hell of a hit. Many people will find themselves in trouble but in the end the stock market will strike back strong and most people will get their assets in order. However if we go down this path, which believe me we will, then the entire U.S. economy will suffer for it. The corporations will suffer from higher taxes and our countries credit will crumble further. Inflation will definitely occur and in the end someone will make millions writing a book about how we might have made a mistake. Well someone has to benefit from this.
Friday, June 20, 2008
Gas doesn't grow on trees.
At least not in the literal sense. Yes, gas prices suck. I am now paying over $80 dollars a week on this required commodity, and I drive a 4 door sedan. Why the heck are these prices so outrageous!? Well, that depends on who you ask.
How could this be is a matter of perspective. It can't be actually. It is just that many of these people responsible are trying to cover their butts. Such is the nature of politics.
The first myth, it is all the oil companies fault. This sounds plausible if you ignore economics. Simply put, commodities are bought and sold at certain prices and the prices affect demand for those commodities. If I was selling bananas for a dime I would never doubt that you would buy as many as you could carry. If i sold those same bananas for three dollars, though, it would be a rip-off and I would be lucky to sell one. Likewise the oil companies that refine their oil and distribute it sell their gas at a certain price margin. This price margin happens to currently be about 8 1/2 cents per gallon. Sounds small? Well, consider that 300 million people buy billions of gallons of gas and now that sounds like a lot. In fact, Exxon Mobil made over 404 billion dollars net in 2007. (From Exxon Mobil's Form 10-K. SEC. Retrieved on 2008-04-21). That is massive. This theory sounds even better now, except that even if they made zero-profit margin the gas price would drop only eight cents. For this to have any real effect on fuel prices at the pump the oil companies like Exxon Mobil would have to take two dollars loss on every gallon of gas. This "evil" company would fold over night.
Some claim that oil companies are intentionally forcing the price upward. Ignoring the fact that their profit margin would have no increase and hence there is no incentive to do this, the "evil" corporations wouldn't want to anyway. Back to the bananas analogy, lets say my profit margin for every banana was x minus a nickle. So at ten cents my profit margin would be a nickle. It seems like a brilliant idea to simply increase your profit margin to make more money but eventually people start buying less. Less sales mean less profit. Oil companies can't allow their price to go too high, as you can see or else many people will simply take the bus or subway.
No, the real culprit is Congress. For thirty years there has been a ban on oil drilling of any kind and the building of oil refineries. Brilliant idea! Kill the supply, that will show those evil corporations. Naturally, as supply stayed roughly stable in the US and other countries, the demand rose as it was expected to. Supply and demand, something a fifth grader knows, naturally causes the price to go up as demand exceeds supply. This isn't just the Dem's fault, this isn't the republicans, nope, this is as bi-partisan as you can get. Don't you love how bi-partisanship only seems to exist in screw-ups?
We have enormous amounts of oil underneath the ground in the US. We could build dozens of refineries and drill up and down the coast of Florida, California and the Gulf of Mexico. This, yes, would take awhile, but I would rather have cheap gas in the future then no cheap gas at all.
A recent bit of misinformation being passed around is that increasing supply would not decrease price. One belief is that all the fuel would be shipped overseas to the world market. Where? Where would any company want to ship it that it could sell for a profit. It simply is cheaper to sell here, cheaper means less risk and hence a better overall decision. I wouldn't doubt that 50% of oil produced here would be used here.
The other one I have heard even more recently is a shift in blame from oil companies and onto oil futures traders. The misinformation here is that the price is made up primarily from these futures and that the price won't be affected much in any direction, as this is the 'real' problem. For those who don't know what oil futures are, a future is the guaranteed price on a commodity purchased at today's price. To be less esoteric, it would suffice to say that traders of the futures are buying commodities that do not exist yet at today's price in hopes that the price in the future is higher than today's price. It’s gambling on either a supply crisis or a demand boom. A recent example is corn. Due to the massive floods in several farm states the price of corn is expected to go up massively, as much as 400%. This means that anyone who bought futures in corn is having a heyday with their massive return.
This is roughly balanced, as prices are usually stable with increases following inflation but with the widely known supply shortage in oil, many futures traders are buying oil as there is little or no risk involved. It is almost a guarantee that they will make back their investment and more. As you can see this causes an artificial bubble in oil that increases oil prices. This theory is wrong, however, in one single way, the futures traders are not eternally stupid. Because of this they know that if the supply problem is solved then the price of oil, and therefore gas, will drop. If they know this is going to happen the futures traders will pull out, bursting the bubble. Many people will lose their shirts but let’s face it, the average American really does not care.
Congress is still refusing to open ANWR or allow offshore drilling. If you listen to Obama it becomes clear why. They don't want us to drive. They don't think oil companies are evil, they think we are evil. Us and our lack of concern for the environment. They can't make us believe in their Global Warming Delusion, so they have decided to make us comply with them. Make us drive hybrids and ride bicycles. The problem is that not everyone can afford a hybrid, not everyone can use a bicycle in common life. Some people need a truck to carry cement or tools or to carry groceries. I cannot afford a hybrid, and I cannot use a bicycle to get to work. I live over 40 miles away from where I work. Going even forty (I think I can only do twenty) it would take me an hour to get to work. I already wake up at three am. My father goes 70 miles up a mountain to get to work and then drives around all day. There is no way we could live without vehicles. Our nearest grocery store is ten miles away; and our family is not alone in this either. Once again, the 'enlightened' urbans think they know better than rural folk.
Cars cannot be eliminated, nor are any viable alternative fuels available. So drill dammit. Every week I am losing $80 until congress fixes this. I simply cannot wait for some pie in the sky idea. I need help with this now, so fix it.
How could this be is a matter of perspective. It can't be actually. It is just that many of these people responsible are trying to cover their butts. Such is the nature of politics.
The first myth, it is all the oil companies fault. This sounds plausible if you ignore economics. Simply put, commodities are bought and sold at certain prices and the prices affect demand for those commodities. If I was selling bananas for a dime I would never doubt that you would buy as many as you could carry. If i sold those same bananas for three dollars, though, it would be a rip-off and I would be lucky to sell one. Likewise the oil companies that refine their oil and distribute it sell their gas at a certain price margin. This price margin happens to currently be about 8 1/2 cents per gallon. Sounds small? Well, consider that 300 million people buy billions of gallons of gas and now that sounds like a lot. In fact, Exxon Mobil made over 404 billion dollars net in 2007. (From Exxon Mobil's Form 10-K. SEC. Retrieved on 2008-04-21). That is massive. This theory sounds even better now, except that even if they made zero-profit margin the gas price would drop only eight cents. For this to have any real effect on fuel prices at the pump the oil companies like Exxon Mobil would have to take two dollars loss on every gallon of gas. This "evil" company would fold over night.
Some claim that oil companies are intentionally forcing the price upward. Ignoring the fact that their profit margin would have no increase and hence there is no incentive to do this, the "evil" corporations wouldn't want to anyway. Back to the bananas analogy, lets say my profit margin for every banana was x minus a nickle. So at ten cents my profit margin would be a nickle. It seems like a brilliant idea to simply increase your profit margin to make more money but eventually people start buying less. Less sales mean less profit. Oil companies can't allow their price to go too high, as you can see or else many people will simply take the bus or subway.
No, the real culprit is Congress. For thirty years there has been a ban on oil drilling of any kind and the building of oil refineries. Brilliant idea! Kill the supply, that will show those evil corporations. Naturally, as supply stayed roughly stable in the US and other countries, the demand rose as it was expected to. Supply and demand, something a fifth grader knows, naturally causes the price to go up as demand exceeds supply. This isn't just the Dem's fault, this isn't the republicans, nope, this is as bi-partisan as you can get. Don't you love how bi-partisanship only seems to exist in screw-ups?
We have enormous amounts of oil underneath the ground in the US. We could build dozens of refineries and drill up and down the coast of Florida, California and the Gulf of Mexico. This, yes, would take awhile, but I would rather have cheap gas in the future then no cheap gas at all.
A recent bit of misinformation being passed around is that increasing supply would not decrease price. One belief is that all the fuel would be shipped overseas to the world market. Where? Where would any company want to ship it that it could sell for a profit. It simply is cheaper to sell here, cheaper means less risk and hence a better overall decision. I wouldn't doubt that 50% of oil produced here would be used here.
The other one I have heard even more recently is a shift in blame from oil companies and onto oil futures traders. The misinformation here is that the price is made up primarily from these futures and that the price won't be affected much in any direction, as this is the 'real' problem. For those who don't know what oil futures are, a future is the guaranteed price on a commodity purchased at today's price. To be less esoteric, it would suffice to say that traders of the futures are buying commodities that do not exist yet at today's price in hopes that the price in the future is higher than today's price. It’s gambling on either a supply crisis or a demand boom. A recent example is corn. Due to the massive floods in several farm states the price of corn is expected to go up massively, as much as 400%. This means that anyone who bought futures in corn is having a heyday with their massive return.
This is roughly balanced, as prices are usually stable with increases following inflation but with the widely known supply shortage in oil, many futures traders are buying oil as there is little or no risk involved. It is almost a guarantee that they will make back their investment and more. As you can see this causes an artificial bubble in oil that increases oil prices. This theory is wrong, however, in one single way, the futures traders are not eternally stupid. Because of this they know that if the supply problem is solved then the price of oil, and therefore gas, will drop. If they know this is going to happen the futures traders will pull out, bursting the bubble. Many people will lose their shirts but let’s face it, the average American really does not care.
Congress is still refusing to open ANWR or allow offshore drilling. If you listen to Obama it becomes clear why. They don't want us to drive. They don't think oil companies are evil, they think we are evil. Us and our lack of concern for the environment. They can't make us believe in their Global Warming Delusion, so they have decided to make us comply with them. Make us drive hybrids and ride bicycles. The problem is that not everyone can afford a hybrid, not everyone can use a bicycle in common life. Some people need a truck to carry cement or tools or to carry groceries. I cannot afford a hybrid, and I cannot use a bicycle to get to work. I live over 40 miles away from where I work. Going even forty (I think I can only do twenty) it would take me an hour to get to work. I already wake up at three am. My father goes 70 miles up a mountain to get to work and then drives around all day. There is no way we could live without vehicles. Our nearest grocery store is ten miles away; and our family is not alone in this either. Once again, the 'enlightened' urbans think they know better than rural folk.
Cars cannot be eliminated, nor are any viable alternative fuels available. So drill dammit. Every week I am losing $80 until congress fixes this. I simply cannot wait for some pie in the sky idea. I need help with this now, so fix it.
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