Quote of the Day

From Tam:

And there they were, being blatantly threatened by this gerrymandered race-baiting footsoldier of the class war, this remora on the flank of Leviathan, this vacuous sinkhole of consumption that does nothing but suck in tax dollars and shit out red tape and misery. In a perfect world, they wouldn’t have sat for that. In a just world, they’d have stood as one and walked from that room and let little Maxine foam away at her tinpot Trotskyite fantasies.

Read the whole thing.  The only thing that disturbs me more than that Maxine Waters said this was that I’ve heard so much of it from people, I’m frankly getting sick of it.  Oil company greed is not responsible for high prices.  Anyone with even the most basic understanding of economics can wrap their heads around that.  Yet you hear from a lot of people, even people with PhDs, that oil company profits are obscene.  Well, we have a shortage of petroleum products, and the profits are a signal to the market that we need more resources put into growing energy supplies.  If the politicians remove the profit, what we’ll have is ever rising prices, and if they monkey with that, shortages.

7 thoughts on “Quote of the Day”

  1. If there wasn’t potential collusion in the marketplace, I might agree with you.

    About me: I have three degrees in finance, mba, economics, and worked as an anti-trust economist. As an economist, I was working for an industry that was literally protected by an act of Congress and was allowed to collude. I know first hand how prices can be driven up from some pretty simple actions. In fact, that was my job, except that in an unusual case, it was legal for me.

    I think you’re naive yourself if you think there isn’t the possibility here. The fact is, if you want to get money from a VC, a legitimate question that they often want to know is how you’re going to gain a monopoly on your market. It’s legit to go after that. Right until the time your creating inefficient markets.

    Now, I haven’t followed the oil thing closely. I don’t know enough to know IF prices are getting driven by open market forces or not. With the centralization of markets in petro-chem, I don’t think it’s out of the realm of possibility. I think it’s equally glib to dismiss it out of hand. It’s almost good to have, as a corporate goal, monopolistic pricing and power. It’s sort of a good micro goal that occasionally has bad macro implications.

  2. P.S. I like making money. And I’m even ok at it. I don’t think there should be profits defined as obscene. But, there are occasionally good reasons for antitrust actions. I don’t know if this is one. But I have heard some pretty qualified economists posit that there IS monopolistic/oligarchic pricing problems in the petro industry. If so, the best strategy may still NOT be anti trust action, but investment in energy alternatives. Schumpeter’s Process of Creative Destruction at play.

  3. noops:

    Aren’t cartels notoriously difficult to hold together though? There’s too much incentive to cheat, especially if the price is so high.

  4. Well, I suppose OPEC, which is a cartel, has exercised a lot of discipline lately, but I wonder if that’s because they are pumping all they can, and actually can’t raise production.

  5. If I thought Maxine Waters or anyone who would lower themselves to talk or work for her had a clue about any of the issues raised in noops first post, I’d give her the benefit of the doubt.

    That not being the case, I’m much more inclined to think that the owners of oil fields are the ones benefitting from the high prices … and that generally isn’t the major oil companies. Most reserves are owned by the sovereign nation where the fields are … the oil companies may have a contractual right to extract, but since when has a contract held up well to the greed of governments?

    I suspect big oil may have a lot of cash coming in because of these high prices, but it has a corresponding lot of cash going out as they acquire the crude. Do their progits soar? Maybe temporarily, maybe sometimes because what they make is a percentage, not a fixed amount. But given the histroy of rising price, lots of that will go into paying for the next tankerfull of Arabian light crude.

    Someone needs to tell Maxine to go pound sand.

  6. Sorry, traveling this weekend. Sebastion, you’re right. Oligarchies do tend to sell each other out, and we may see that. Prisoner’s Dillemna applies. Right now, the discipline seems good though, with the Saudi’s leading the way. The Russians have undercut in the past. But their beginning to go elsewhere. That may be why the middle eastern OPEC nations are seeing a chance to re-instill some of their discipline. Then again. it may indeed just be demand.

    That’s why I’m all for alternative energy investment. Either way, whether it’s inefficient markets or efficient, our best bet is still to fundamentally change the market with investment (Schumpeter again). That way a whole new crop of people get rich, and we begin loosening our dependence. There’s not much trust busting we could do even if it IS pricing-based or intentional.

  7. Let’s not forget that a big part of the problem isn’t that oil’s going up, it’s that the dollar’s going down.

    Deckhand on Titanic: “Captain! Look! The sea is rising!

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