The Crumminist Manifesto » Blog Archive » Simple Economics, part 1 (Fuel prices)

Simple Economics, part 1 (Fuel prices)

Male Sex Enhancement Oils Accutane Eye Twitch How Is Purim Celebrated Paxil Breastfeeding Sandoz Laboratories Cafergot Viagra Hemmeroids Inderal Half-life Pregnancy Abdominal Pain With Celebrex Generic Cialis Canadian Nexium Swollen Lip Problems Brite Midnight Archive Boldenone Propecia Effexor Medication Chat Cytotec For Missed Ab Prednisone Adrenal Insufficiency Scotch Brite Quick Clean Griddle Cleaner Allegra Printing Indianapolis Can I Swim While Taking Prednisone Is Cephalexin Safe While Breastfeeding Hoodia Smart Burn Breast Augmentation In Rhode Island Zyprexa Eye Problems Generic Lipitor Online Pharmacy Ge Brite Stick Glucophage Medication Lisinopril Hctz 20 12 Ta Fda And Enhance Zetia Study Atacand 8mg Wean From Lexapro To Cymbalta Prednisone In Cats Muscle Tone Cla Safety Retin-a Micro Benefits For Aging Skin Prozac And Tardive Dyskinesia Topamax Adverse Drug Effects Risperdal Catapres For Kids Use Of Macrobid Vs Cipro Washington Breast Enhancement Cold Water Pill Extraction Tramadol Using Zoloft With Lorazepam Prednisone Fat Crossdressing Breast Enhancement Fda Approved Dose For Neurontin Quitting Topamax Topamax Knoxville Fosamax Patent Expiry Calcium Carbonate Molecular Weight Lamictal For Migraine Daytime Dosage Extra Pyramidal Symptoms With Risperdal Dilantin Tegretol Milk Of Magnesia And Cipro

I’ve got a series of blog entries that I intend to write to address the various kinds of alarmist propaganda that the media is heavily engaged in making us believe so that we’ll stay tuned in to their media outlets and pay attention to their advertising. The first topic I’d like to discuss is rising fuel prices.

Fuel prices are simple: most of the worlds’ oil comes from a conglomerate of oil producing and exporting countries (OPEC). This organization decides how much oil is going to be produced and exported. Since demand is generally a known quantity (we know how much oil we all use and we can safely forecast demand for oil in the future) and OPEC controls supply, then in a sense OPEC controls price since price is a function of supply and demand. Everyone knows this. If demand grows at a much faster rate than supply, then prices will increase and continue increasing until the growth rate of supply and the growth rate of demand are equal. This, coupled with the decline in the value of the dollar against other currencies, has led to steadily increasing prices.

This leads us to a very small set of solutions if we do not want the price of oil to continue to grow: (A) we need to find a way to increase the supply of oil, (B) we need to decrease the demand for oil and/or (C) we need to steadily increase the buying power of the dollar versus other currencies. Of these three solutions, option A is the only one that is entirely within our capability.

Option B is unrealistic: we have no control over the oil consumption of the rest of the world, and if our objective is to decrease the price of oil the only options are rationing it or investing in research which has no guaranteed outcome. It would be illogical and foolish to assume that oil supply would stay the same even if demand decreases since we would still be subject to OPEC’s psuedo-price control.

Option C would require a pretty substantial overhaul of federal monetary policy, and I believe that the applicability of this solution vector to our problem is limited: we could not go on increasing the value of the dollar forever because the money markets logically move towards a state of equilibrium.

So we are left with option A: increasing the supply of oil. We must make the assumption that the potential supply of oil is unbounded, so our capability to extract oil must scale linearly with the desire to increase supply. This is a reasonable assumption if we also assume the ability to remove domestic governmental restrictions. The idea that the world’s natural oil reserves are near depletion is still under heavy debate and is regarded by many as unfounded alarmist propaganda, so I have excluded this possibility from consideration.

Oil Rig

We’ve now reduced the problem of rising oil prices into a tangible solution that looks like eliminating government regulation that prohibits drilling and eliminating regulation that discourages the construction of oil refineries. By doing this, we’ve also shielded ourselves from international instability because we have increased our national self-dependence and we have dramatically reduced the amount of money that is flowing from our country into militant Islamic states and Marxist dictatorships.

Unfortunately, I don’t see this happening for quite a while due to a controlling political party that is full of people who pander to environmentalists. Therefore, dogmatic obsession with the unsupported theory of global warming and wildlife overprotectionism is going to dramatically slow our economy and it’s all going to get blamed on our “lack of public education funding” and socialized healthcare (because goodness knows those both have a measurable effect on productivity).

This entry was posted on Tuesday, May 6th, 2008 at 1:41 pm and is filed under Political. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

12 Responses to “Simple Economics, part 1 (Fuel prices)”

JR Says:
May 6th, 2008 at 3:52 pm
I agree with most of what you say, and would like to provide a somewhat more big picture perspective if I may.

one fundamental mindset that many leaders lack is that this world is not going to supply humanity for an infinite amount of time. from a resources standpoint, everything is in a constant state of slow decline. So, while conservationism has its place, in the end this ideal is really slowing down what is going to happen anyway, that is, the end of Earth’s ability to provide resources at the rate we demand them. This will happen at some point, no matter how many environmentalists are lobbying.

so, to deny America a resource that is within our grasp is a very narrow-minded approach, especially when this approach almost single-handedly brings our economy to its knees. ryan you’re right. all it would take is a simple but dramatic shift in policy within our government about oil, and we’re very much back on track. President Carter’s 56 million acres of untouchable land in Alaska would have to get ‘touched’, but so be it, if we’re talking about the survival of our economy.
Kristian Says:
May 6th, 2008 at 9:38 pm
Good to see the site back up and running!

I was just curious about one thing, fin relation to Option B are you saying that you do not believe in research in alternate fuel sources all together? This is not a question of antagonism, just more for clarification and/or curiosity.

Also in relation to Option B as the US is the largest consumer of petroleum in the world (http://www.economist.com/images/ga/2007w27/Petrol.jpg), would this not be a start to reduce consumption? Being a good example or whatever…
JR Says:
May 6th, 2008 at 9:57 pm
I should clarify something from my previous comment. When I said ‘finite resources’ a better way to put that would have been ‘finite ability to expansion’. The earth has a limited amount of space for people and cities, and the more we consume, the less will be available. The earth cannot continue to support the rapid growth of humanity and the demand for resources that comes with it. However, if more resources are available within our own country, we are flat out dumb for not using them.
Ryan Says:
May 6th, 2008 at 10:24 pm
I do believe in research into alternate fuel technology, but it shouldn’t be counted upon as a sole solution to the problem like many people are proposing. “Don’t drill, just subsidize research grants.” That is gambling; we have yet to find a convenient source of energy that comes close to the chemical potential energy of petroleum (minus nuclear fission).

As far as reducing consumption, China and India are expected to surpass the United States pretty quickly. Reducing consumption isn’t a long term solution to the problem of increasing gas prices. We would have to continuously reduce our consumption (not just a fixed one-time reduction) to compensate for increased consumption abroad if we want demand to remand constant. This enforced reduction, coupled with a heavy and expensive investment in research that may not yield results for years, could stalemate an economy that depends very heavily upon transportation infrastructure. See, the problem isn’t that it just costs us more to get from point A to point B. The problem is that it costs a lot more for everything we use to get to us. Food prices are rising because it is costing a lot more for the food to get to us, etc, etc.
JR Says:
May 7th, 2008 at 3:01 pm
ahhhhh very good! perhaps the segue into next weeks post?
JR Says:
May 9th, 2008 at 3:42 pm
http://www.foxbusiness.com/story/markets/industries/finance/pennies-heaven/
Davidt Says:
May 13th, 2008 at 6:13 pm
We need to drill drill drill! And until we find a feasible alternate energy. We need to drill. What the heck is up with these humanity haters? What about the polar bears?! What about the silly birds!? Boo-hoo. I say, “What about mankind?!” There is plenty of space to go around. I also think nuclear energy should be utilized.

The one major thing affecting our economy is dependence on foreign oil. It’s driving prices up, and driving the dollar down. And it’s funding terrorism. Inflation!!! Help! Give me some refineries! Screw polar bears…
richard Says:
May 13th, 2008 at 11:34 pm
anwar!
Davidt Says:
May 15th, 2008 at 7:27 pm
And they JUST put the polar bear on the endangered species list! Like the day after I wrote my last post! This hurts drilling in Antartica… as if it wasnt expensive enough already to drill there….
richard Says:
May 15th, 2008 at 10:27 pm
there are no polar bears in antartica.
JR Says:
May 19th, 2008 at 11:31 pm
man, you’ve cranked out a lot of megadeth in the last hour.. nice going. see you tomorrow.
JR Says:
May 26th, 2008 at 3:56 pm
this website is becoming a manifestation of disappointment, as we return again and again only to discover neglect and torment.