Fezziwig wrote: 'supply and demand' is not a deterministic relationship. Each of 'supply' and 'demand' have separate price/unit relations and the Equilibrium Point is what the market seeks. Many factors can shift the curves or change their slopes.
This isn't a shift in prices or a change of slopes. It is a DOUBLING of pricing. What caused that extremely rapid DOUBLING of prices?
Fezziwig wrote: 'supply and demand' is not a deterministic relationship. Each of 'supply' and 'demand' have separate price/unit relations and the Equilibrium Point is what the market seeks. Many factors can shift the curves or change their slopes.
This isn't a shift in prices or a change of slopes. It is a DOUBLING of pricing. What caused that extremely rapid DOUBLING of prices?
The proximate 'cause' of the rapid movement of the equilibrium point toward higher prices was that vendors shifted the Supply curve toward higher prices (vendors control the Supply curve in our Enterprise system, but in a socialist or fascist system the government may attempt to control it). Ordinarily, that would be reacted to by consumers moving downward on the Demand curve. BUT we have created a major problem in our Demand curve called Inflexible Demand, i.e., where the slope of the Demand Curve is such that we will buy at ANY price. Very bad. If you're the vendor, it's only a matter of time before you raise prices precipitously. Like drug peddlers. Why not?
The root problem is that we have not taken steps (especially over the past 35 years since the OPEC embargo) to make our oil Demand curve less steep by introducing other suppliers or competitive energy sources. In fact, we have systematically undermined competitive energy sources in favor of an oil monopoly. Bad decisions. We have fewer choices now because of decisions over the past couple decades. We Should have diversified. We should have promoted competitive energy sources. Probably we should have promoted conservation to shift the Demand curve, but that doesn't change the slope and we would still have Inflexible Demand (just at a different consumption level) and still be subject to sudden rapid price increases.
Nevertheless, conservation is the fastest acting weapon we, as consumers, have to combat against vendors. We can start conserving and cut consumption overnight, and we citizens have proven that both in the 73 OPEC and the recent California/Enron situation where citizens made 10-20% conservation moves quickly. We can see this in the recent barrel price reductions (which are migrating to the retail level as the retail gas oligopoly slowly reacts)
If the US grants more oil leases to oil companies it will have almost no effect on the Supply curve because the oil companies can simply not drill. They know that drilling and producing more will decrease their prices by increasing supply (and that is the manifest goal of the US government) so they won't cut their own throats. They'll just hold the leases in reserve for the future, at the greatly reduced royalties of inactive leases. We will have sold our heritage for a pittance and laid the path for our future oil woes.
We are past the point of diminishing returns with oil, too. But that's another subject.
* This post was
edited 08/21/08 06:15pm by Fezziwig *
The proximate 'cause' of the rapid movement of the equilibrium point toward higher prices was that vendors shifted the Supply curve toward higher prices
HOW did they accomplish this "shift"? Are you saying that the "vendors" simply raised the price?
Yes. Vendors determine their own Supply curve, just as consumers determine their own Demand curve.
That's the nature of the Economic Game. Presumably, each constructs their own strategy based on their private evaluations of what is best for themselves. Then, the point at which goods trade is at the point where they coincide, the Equilibrium Point, where each has the same price and quantity.
Fezziwig wrote: Yes. Vendors determine their own Supply curve, just as consumers determine their own Demand curve.
That's the nature of the Economic Game. Presumably, each constructs their own strategy based on their private evaluations of what is best for themselves. Then, the point at which goods trade is at the point where they coincide, the Equilibrium Point, where each has the same price and quantity.
You say vendors. I say OPEC. (currently 40% of the world's supply)
What happens to OPEC when we open ourselves up for more drilling? They close the spigot even more? They blast it wide open to lower prices so we can't drill profitably? Maybe they keep an even keel and let the money be spread around?
That's the rub. We let ourselves get hooked on cheap oil. Thanks to them. I know less than 10% actually comes here from OPEC suppliers, but it is a world market. What they do with their supply effects all prices.
What about more drilling with time limits to extract or the lease is up. That's being tossed around in Congress. Use it or lose it.
I don't dispute your supply/demand premise. I dispute where the supply is coming from. I don't like it. If we're paying top dollar, we may as well pay it to ourselves.
I don't know about you, but our family has done everything to lower our demand. (I wont give up the camper!) I just don't run the wheels off the TV.
Drill here, drill now. Keep the money close to home. Lower prices --it could happen. Conserve --if you're not, that's your problem, your money.
Chuck, Heidi, Jessica, Nicholas & Tan Puppy
2008 3/4-ton Yukon XL, Flagstaff 831BHSS
Equalizer Hitch and Prodigy
Fezziwig wrote: Yes. Vendors determine their own Supply curve, just as consumers determine their own Demand curve.
That's the nature of the Economic Game.
However, there is NOTHING to explain why the price has jumped so rapidly, unless you supply to the price gouging theory. If "Big Oil" isn't simply jacking the prices way up, then it has to be something else. Speculators in the commod. market does fit with all the known facts.
Fezziwig wrote: Yes. Vendors determine their own Supply curve, just as consumers determine their own Demand curve.
That's the nature of the Economic Game.
However, there is NOTHING to explain why the price has jumped so rapidly, unless you supply to the price gouging theory. If "Big Oil" isn't simply jacking the prices way up, then it has to be something else. Speculators in the commod. market does fit with all the known facts.
" "Oil has become the new gold a financial asset in which investors seek refuge as inflation rises and the dollar weakens." Investors seek refuge." There you go, the only intelligent thing Feinstein had in her whole diatribe. Now if her and her ilk would just get off their dead butts and fix the sh*t they can control (the weak dollar), you'd have a whole lot less investors trying to hedge against inflation and a weak dollar. What do you expect when they continue to f*** up the economy, sit back and lose your shirt, losing may work for you, doesn't work for me. I hedge my bets.
When I was working, we had an environmental engineer on staff from whom we often had to get permission to do certain things. He spoke a lot like Fezzwig.
Every one hated to deal with him because we never felt like he was giving answers that we could understand. Is anyone else having trouble understanding his reasoning or is it just me?
Unfortunately, the USA government has put us in a very bad position in the past few decades. Any oil drilled in the USA goes into the global oil pool, NOT into domestic oil use. This was done in the name of improved international trade, i.e., globalization. we knew that it would cost us something, but we WAY underestimated that cost. First, we gave away our industrial base. Now, we all have to work in service industries.
This has the unfortunate side effect, which we have yet to see fully manifested, of surrendering USA sovereignty to the WTO, in Brussels (that's in Belgium, which is next to France, a hotbed of socialism, beloved by one-world pinkos like jimbo).
In the immediate future we have simply given away control over our own oil supply. Once we grant an oil lease to any oil company (they are all international) we have no more say in when or how the oil is drilled or how it is sold. those oil leases are in-the-bank for oil companies. We only use 1/3 of all world oil, so 2/3 goes to foreigners (spelled C-h-i-n-a), so while we will surrender 100% of drilled oil we get back only 30% for end use. These ratios are going to get worse in the future: the more we drill the more subservient we become to foreign interests. We have voluntarily put ourselves in the position of being a colony, i.e., a country that exports it's raw materials cheap and re-imports it expensive.
There are few ways we can correct the oil situation. Traditionally, autocratic countries have simply Nationalized the resource, i.e., confiscated it from it's owners and started operating the resource on it's own. But that usually fails for reasons of poor management.
But we have good old American enterprise and capitalism. we can invent new energy sources and methods and we can invest in them for the capital to do initial development and manufacturing. That requires capital. That's what capitalism is about: invest in the means of production.
So we need to start investing and exploiting alternative energy sources: solar PV, solar thermal, alternate fuels, energy storage devices, geothermal, wind, wave motion, etc.
Alternate energy is the only way out of the oil globalization trap we have gotten ourselves into: the more we drill the broker we get!
Another thing is we should stop subsidizing oil in every way that we can: tax breaks, outright subsidies, expensive wars 10,000 miles away, etc. Foreigners will reap the benefits of our largess, not Americans.
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Is anyone else having trouble understanding his reasoning or is it just me?
