Strengthening Constitutional Self-Government

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Traditional Market Logic is Failing Us Now

...Dr. Pat Deneen reports that the WALL STREET JOURNAL is baffled when it comes to oil: When demand goes up, the incentive should be there to increase the supply. But not so with oil these days, and so economists really can’t predict how high the price might go. Deneen sticks it to the economists even more: How come they can’t explain why people aren’t acting more like "rational actors" and rapidly curtailing their dependence on oil? I’m not a "peak oil" guy for now, but there’s cause for concern. Our inflation numbers would already look a lot worse if the rapid increase in the cost of oil wasn’t compensated for by the falling cost of houses. Question for discussion: Exactly how much concern makes sense? At the beginning of this campaign, the Giuliani supporters especially were touting the excellent performance of our economy. How far have we moved away from those days?

Discussions - 5 Comments

OK ... for starters, we are not talking about a free market in any sense of the word when it comes to oil.

From cartels to governments who restrict drilling (the U.S. in this case) to those who do what they can, they market is far from free.

And, when you factor in junk science and the speculators who rely on such, then you have a volital mix which is what we are seeing today.

Why we haven't exlpoited our natural resources of oil today is entirely due to NIMBYs and the pathetic excuse for environment movement we have today.

But, hey, this is what some of them have wanted and they don't seem to like it. Good ... in a way.

But aren't folks actually starting to curtail their use of petroleum products? Aren't SUV sales way down? Deneen is wise to remind us that homo economicus is no more a real person than was homo Sovieticus, but that doesn't mean that people don't respond to incentives - it just sometimes takes a bit of time, I'd guess.

Two good corrections to Dr. Pat.

I love Pat, but I think he's drunk too much of the Kool Aid on this topic. I've posted the following comment on his blog:


Slow down a little bit. Peak oil will be true some day, and might be the right reason today. However, it is also true that production cycles for oil are like inflation and the money supply--except that the lag time is even longer. Right now a lot of old wells in this country, in places like Oklahoma, that were shut down in the mid-1980s when oil prices collapsed, are being reopened, because new technology and the current price make them profitable. But it takes months if not years to get production going again (and believe it or not there is a shortage of drilling equipment and crews in this country), and until recently, my oil friends tell me, they weren't willing to produce at a price point above $50, because they didn't believe the current high prices are sustainable, and don't want to go through 1986 again. (You think the housing collapse today is bad? Go back and check out Houston and Oklahoma in 1986-87, which was a factor in the S & L debacle.) Meanwhile, I was talking last week with a leading explorer in the natural gas industry, and he is confident that a LOT of domestic natural gas is about to come online, because of the current high prices. He walked me through places and amounts that he has in development in this country, and it is staggering.

Meanwhile, Americans are finally starting to cut back significantly on gasoline. Looks like the market works after all. Don't be surprised if this whole scene looks very different in two to three years from now.

Steve, finding known reserves of product, coal, crude, natural gas, has never been the problem.

It's developing those reserves that's proven to be not just problematic, but downright impossible.

The rise in price is mostly attributable to the petrokingdoms establishing a floor for their price, and by their sharp control over the amount produced. The market isn't a true one.

As for conservation, ------------------------ that's a joke, for any amount that will be "saved" due to conservation can easily be accounted for by minor alterations in the amount of crude produced. For every change in our consuming habits, the supplier can make corresponding changes, which will enable him to continuously maintain a high price.

The only response is for the United States itself, and not just American companies to enter the market, and enter the market in a commanding way. How? By liquefied coal. America then could easily threaten to bring the price of crude per barrel down near where it was in the early '70s, and that was about $3/barrel. Such a threat, and the knowledge that we could easily make good on that threat, would force the petrokingdoms to alter their habitual anti-semitism, and their habitual support of muslim mayhem.

As for the coal to oil refineries themselves, we could even offshore them. If the environmentalists prohibit construction of such refineries in America, then build them on the Pacific islands, build two or three on New Guinea, another on New Britain, another on Wake Island, put another on Truk. And there are other islands where they can be constructed. If we're imaginative, we can find locales friendly to the United States more than willing to take such plants, and the easy tax dollars that would naturally flow from such plants. This is a rather easy problem to fix.

We should initiate a policy of detonating OPEC's ability to manipulate price. And we should do so for strategic purposes, as well as economic. We should reverse the situation where American Presidents make the trek to Riyadh begging for the price to drop. And instead initiate a policy whereby the sauds are begging us to allow the price to stay at least over $10 per barrel. The petrokingdoms haven't any real economy that stands behind their petroleum industry. America however has a 13 trillion dollar economy, that's more than able to run a coal to oil business at a loss, and run it at a loss for decades if necessary. Could the house of saud survive if the price of crude falls below 10 bucks per barrel? and stayed below that for a decade. I very much doubt it. Where would Iran get the money to bankroll their Manhattan project, if the price of crude plummeted? How would they be able to continue as the patron of Hamas, Islamic Jihad and Hezbollah, without the money provided by crude.

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