Re: Oil price overcomplication?

On Mon, 01 May 2006 02:37:05 GMT, Dan Bloomquist
<public21@xxxxxxxxxxx> wrote:


Hi Bill,
I won't snip this round...

Bill Ward wrote:

On Sun, 30 Apr 2006 22:02:04 GMT, Dan Bloomquist
<public21@xxxxxxxxxxx> wrote:

Bill Ward wrote:

Now my question is: If the US is one of the richest
countries in the world, why are we whining, bitching and
moaning so much about the price of oil, when poor countries
pay the same as we do? Why can't _we_ afford it?

I think the bitching is overrated. Just because the media seeks out the
bitchers for the 6:00pm news doesn't mean it is prevalent. At that, I
don't watch network news so I'm guessing that is where it is coming from.

Instead of giving everyone a hundred bucks to shut up, or
demonizing the people who are selling oil, why not let the
market work and the price come to equilibrium?

We have been here before. The market doesn't fix a lack of natural
resources. It exploits that resource for profit only. The market is
human driven so it is opportunistic and myopic. Apply that to the bigger
picture of economies that require growth and you have a real problem.

If companies had faith that they could make money developing
other energy sources, the profits would be ploughed back
into research by people who know what they are doing,
instead of the politically well-connected funded by
government handouts.

There is no cheaper replacement for oil. You stick a straw in the ground
and take it. Alternatives require intense investments of capital. Here
is the Hirsch report:
http://lakeweb.com/tmp/Hirsch.pdf


Let's all take a deep breath, calm down, use only the fuel
we can afford, and for a change just let the system work.

The system has failed.

Has it failed or just been overregulated by special
interests? Remember, people currently value designer water
more than oil.

No, it has failed. In a rational system we would not wait until it is
too late to deal with it.

We don't have the time required to mitigate the
problem.

Assuming facts not in evidence. You'd be surprised what
people who know what they are doing can accomplish when
there's money to be made.

I've been looking at the numbers for a long time. The facts most
certainly are in evidence. Production declines are kicking in and we
have no plan B.

So stay with plan A and let the price reduce demand while it
drives R&D on new sources.

We don't have an economic system that can survive without growth.

So keep it growing, Don't tax it to death.

It has nothing to do with taxes. The mechanics of money require growth
to work. Taxes are just part of the mechanism.

I think growth might have _something_ to do with taxes.
Every time taxes have been reduced, the economy has grown.
Art Laffer mentioned it to Reagan, IIRC.

If I'm missing something, I'm sure somebody will tell me all
about it.

I've been posting this stuff for a long time. Where do you think I'm
getting it wrong.

The part you snipped. I'll repost it for convenience in
discussion:
-------------
<begin repost>
"The price of a barrel of oil is just what the market will
bear - the price buyers are willing to pay, and sellers are
willing to accept. At the moment, there is a ready market,
even at >$70/bbl. China, India, Pakistan, Bangladesh - they
are all bidding for the same oil we are, and paying the same
price."
<end repost>
-------------

At $70/barrel and there is still excess capacity. What happens when we
cross the line? Who's paper will OPEC take when the bidding gets to
$150, $250 U.S. dollars? What is new is that there will soon be more
demand than the ability to produce.

Aha - you make my point. Who _would_ buy oil at $250/bbl?

At that price, the supply would exceed the demand.

If there is anyone who would buy at $250/bbl, then why isn't
that the price now? Philanthropic oil companies just trying
to be nice?

If the US is so wealthy, why can't we outbid China, et al
for oil?

You don't seem to trust markets, but I haven't seen the
above point addressed. Is there anything factually
incorrect there? It seems absolutely fundamental to me.

Markets have worked as long as there are excess resources to exploit.
The future will not be the same as the past. At that, markets and money
mechanics are two different things.

The whole point of a free market is to balance supply and
demand. If a market is working, there is no excess or
shortfall. Money is just a common feedback signal to avoid
bartering. That's an example of looking at the basics,
instead of invoking mysteries. KISS. (acronym, not verb or
noun) ;-)

In fact the increased price _does_ reduce the demand.
People decide not to buy as much oil because they can't
afford to. The price increase matches the demand to the
supply.

So the money supply starts to contract.

Right now it seems to be inflating.

Present debt quality is worse
than it was at the end of the roaring twenties. This time around we
don't have an endless supply of resources to exploit.

That's why we need an efficient way to allocate scarce
resources. Government ain't it, IMHO.

In a predictable market (regulatory) environment,
that price increase would go towards increasing the supply
and thus increasing overall profits. The increased supply
then reduces the price and the market is back in balance.
It's a classic closed loop feedback system.

Then you tell me how it was possible to have the great depression. If
every thing is always in balance it should never have happened.

Beats me. My best guess is the collapse of the stock market
bubble. People were borrowing money to bid up stocks beyond
their actual value. I don't see any relation to the
present, but perhaps the dotcom bubble was similar.

Markets may not be perfect, but they sure beat
bureaucracies.

If the profits can be declared "windfall" and confiscated,
there is less incentive to do the necessary R&D to bump the
supply up, so the price signal is lost, opening or
distorting the feedback loop.

It is too late to worry about 'R&D'. We should have started fixing this
30 years ago. Did you read the Hirsch report?

Other than R&D, what choices do we have? It seems to me the
question is: Who picks the research directions, riskless
bureaucrats, or people betting their own money?


Regards,

Bill Ward
.

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