Friday, February 10, 2006

Guest Writer - Excellent!

Hi All!

I'm not sure I will leave this on the blog forever, but as I was composing a post to my Merkur Club listserv regarding the price of oil, a fellow named Harry King said almost all of it.

All that I would add is that we should allow Big Oil to spend all those profits on building domestic capacity. Screw the Caribou.

Here goes:

I apologize for contributing to this. I said I wouldn't, because I know the
mentality in question. And a person who is convinced he is a victem is
nearly impossible to convince he is not. But it has gotten so ridiculous,
I have to say something.

So, I would request and challenge folks to stop, and think for a moment.
Listen to what is being said with an open mind, rather than with an eye
towards making a counter argument. There is no point in arguing if you
aren't trying to learn something from the debate.

The opposite position of "the oil companies are making too much profit" is
one in which I recently found myself (and still do, for that matter). I
took a job with Ford a little over 5 years ago for a non-competitive base
pay, but a profit sharing opportunity that was 20% of my base pay. Well,
profits evaporated, and so did 20% of my salary. Blaming oil companies for
high prices would be analogous to me blaming you for not buying a Ford.
Demanding price controls would be analogous to the government FORCING
consumers to buy only Ford and/or GM products, and making used cars be
destroyed. This, of course, would be to maintain the status quo with which
employees had become comfortable.

So, how would you like that? You think domesitcs would be worth a crap if
they didn't have Japanese and Europeans to force them to be competitive?

The price of oil is set by supply and demand. Economics 101. I've had a
few economics courses, I suspect not everyone has. In the case of oil,
demand has increased due to several things. Most notably, and recently, the
emergence of Asian economies, as discussed previously. When demand goes up,
two things happen. First, prices rise. Second, supply increases. In the
case of oil, it is about maxed out. That makes the price extremely
volatile, or suspect to canges in demand. As supply rises, a new balance is
met. At any rate, China has about 4 times the population of the USA. So if
even 20% of the population starts using more oil, it would be like adding
another US to the consumer base.

Anyone notice how quickly junkyards turnover their inventories nowadays?
Why is that? There is a LOT of money in scrap. Should we pass laws forcing
junkyards to keep their scrap longer because those of us driving Merkurs
depend on it? Not in my opinion - I'm happy these guys can make a little
more money right now. It is also driving newer ways of running junkyards.
You-pull-its are a lot more common than they were a few years ago, and their
pricese are dirt cheap. That is a direct result of the same thing driving
up the cost of oil.

Of course, another thing happens when demand increases. Consumers seek, and
providers develop, substitute goods. I'll get to that in a moment.

As for who is the problem: Saying you are not part of the problem is like
saying your vote doesn't count. If you stopped using oil, no one would
notice. But when 100 million people do, it is huge. How are you part of
the problem? You contribute to demand. How close was the 2000 election?

Taxes are not a means of profit control. They are levied after profit is
made. And this nonsense about corporate taxation is rather misleading. We
are talking about publicly traded entities. The overwhelming bulk of taxes
is paid by people like those of us on this board. We recieve a dividend,
which is added to our income, see form 1099-DIV.

Command versus market economies. Command economies have very stable prices,
but zero growth. There is no incentive for it, as distribution is
controlled by government, rather than consumers. Market economies have
volatile prices, but extreme growth. For example, when the Soviet Union
broke apart, a Russian company made a splash in a niche market here. Anyone
playing (electric) guitar in the late 80's/early 90's may recall the name
"Sovtek." They made amplifiers. Tube amplifiers. Because the Soviet Union
hadn't begun using transistors, which were invinted here in the 50's, yet.
We've been using them since the late 50's.

Government control of profits for the oil companies woudl drive these
multinational corporations out of the US, and we'd have NONE. That is
because command economies set prices, and ration goods. If a multinational
corporation can sell their commodity for $65 a barrell in China, or $10 a
barrell in the US, the US won't get a bit of it, and our economy will
flat-out collapse.

Now, you have the option of seeking alternate methods of transportation,
whether you are willing to admit it, or not. Bicycles, carpools, mass
transit, economy cars, etc. are options we can all pursue. Even minizing
trips, and running all errands at the same time. Many of us (myself
included) do not. Having lived in Atlanta at the time, I witnessed people
adopt this when the Olympics came. Everyone took Marta, everywhere, and
there were very few cars on the road. If that kind of thing happened,
demand falls, prices fall, and a new balance of consumption (demand) and
price is established. The fact that behavior hasn't changed large scale
means we can still expect higher prices.

And for clarification:
FBI - Federal Beureau of Investigation. They inivestigate domestic CRIMES,
not control prices. Making a profit is not a crime.
OHSA - Occupational Health and Safety Administration. They set safety
standards in the work place, not control prices. Making a profit is not a
safety hazard.
FCC - Federal Communications CrudidontrecallthelastC. They regulate
airwaves so a college radio station won't interfere with air traffic
control, causing a midair collision, and the death of a bunch of people.
Providing a dedicated channel to your favorite radio station actually helps
enable a profit.
Patents and Copyrights - they exist for the sole purpose of protecting an
entity's right to make a profit off of his/its invention.

Laws exist to protect people, not to prevent profit.

As for the accusation that everything is getting more expensive goes.....I
don't really even know how to reply. That is so far removed from reality
that I could probably write a book of examples showing the opposite. The
easiest example, to keep this car related, is Henry Ford, himself. He set
out to make an affordable car that everyone could afford, paid his workers a
wage that allowed them to buy one, and became the most successful
businessman in history to that point in time. True profit is in maximizing
the volume of goods produced, not minimizing it. Of course F-22's cost more
than a Curtis Jenny - the technology packed into them demands it.

Havinig said all of that, I am personally glad to see prices higher. As I
stated earlier, when prices get high enough, substitute goods become both
developed, and desired. George Washington Carver and Henry Ford pioneered
biodiesel from soy in the 30's. It wasn't economically viable, then. The
US has an abundance of corn (check out how much stuff has high fructose corn
syrup in it!). The Rockies have a lot of crude oil, as large a deposit as
Saudi Arabia by some estimates, in shale. To this point, extracting it
hasn't been economically viable, either.

I'm done,

So am I. Cheers!



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