Can anyone explain to me the mechanism in which 'over-inflated' futures of oil is causing prices today to rise?
Or how regulating the 'Enron loophole' would cause "[t]he price of retail gasoline would fall by half, to around $2 a gallon, within 30 days of passage of a law to limit speculation in energy futures markets."
The left is trotting out the accusation that those evil speculators are manipulating oil prices. They even cart out the evil bugaboo Enron (oooh, scary!) to make it seem more sinister.
This canard was repeated by one of my classmates, to which I responded:
I was just re-reading those numbers. At 85 billion barrels a day I find it astonishing that anyone, even a government could buy enough oil to make a significant enough purchase to be accused of 'manipulating' the price.
85 BILLION barrels, at the bargain price of $100/barrel that is $8.5 Trillion/day. How much would someone have to buy in order to affect the price? 1%? That's $8.5 Billion dollars - for just one day.
The more I think about it the more ludicrous accusations of manipulation sound.
Those numbers are just mind boggling, and if they are within an order of magnitude, anyone that thinks that someone is manipulating the market is a fucking moron.
One of the things that I like about amateur interest in economics is that you can make sense of it without getting deep into the math. Its not that I'm not good at math, but my dyslexia makes memorizing formulas a bit challenging. (thank god for spell check!)
My arch nemesis in engineering school was the physics of electricity - I had a hard enough time figuring out left from right, never mind getting directions out of it.
ANYWAY, I'm having a hard time keeping elasticity of demand straight. It would seem to me that if something had a high elasticity then demand would stay consistent regardless of the changes in price. I understand this is wrong and my issue is just in the way that I think about the word elastic. (demand will stretch to the price)
Is there another way to think about elasticity that will lead me in the correction direction besides realizing that the way I want to think about it is wrong?
One of my classmates posted this:
Melissa, our assumption is that the United Statutes is a democratic country, on paper maybe, but in reality it's a capitalistic country. The man with the gold makes the rules. In other words, if you are poor you are nothing but a free slave. Slave, because you have no choice but to work for someone else and on their terms.
I stewed and stewed on this for awhile. I originally just intended to leave well enough alone and ignore such obvious ignorance. But I couldn't let it stand - responding thusly:
I can think of nothing more democratic than capitalism. The goods and services that are available are chosen directly by the people.
Capitalism drives so much choice that nearly every preference can be accommodated.
Careers aren't chosen for us by a faceless bureaucracy, they are the result of the choices that we make and the preferences that we exercise.
The comparison to workers as slaves is deeply offensive as it makes light the true plight of slavery - looking at the wealth that the average American (indeed even the poorest American) has it is difficult to imagine the American system as anything remotely close to the abject humiliation, cruelty and barren living conditions experienced by slavery.
Really, its true - trade can make everyone better off. A mistake most people make is to look at a slice of time, or a slice of people and ignore the huge effects that trade creates over time.
Yes, the workers at the textile mill that just closed down face a burden, some for a short period, some for a long. But everyone else (including themselves) have access to cheaper clothing - this makes us better off.
It is very hard to image with any confidence the way things would have been - but would we really be better off without all of those goods that China sells us for cheap? People get really angry when prices rise, why do they also get angry when prices decline?
Change is hard, but it incrementally gets us to a better place.
With an approval rating hovering around 20%, a full 10% under Bush's fantastic ratings - why is everyone so confident that the Democrats are going to expand their margins in Congress?
The other major flaw with most regulation is understanding that people respond to incentives. They are typically written with a "assuming nothing else changes" mentality.
They raise taxes assuming people's spending habits or even citizenship won't change. They raise the cost of doing business assuming that businesses will just pay them instead of finding greener pastures.
You can look at nearly any "market failure" as popularly described in the media and find government interventions in the background. Enron and the re-regulation of California energy markets. Rising healthcare costs and government subsidies of 3rd party payments. Executive manipulation of earnings and caps on executive pay (at least the tax deductible parts). Just look at the tax code could probably come up with a million distortions of behavior - some "good" some "bad."
The world would be a much, much better place if government officials had to take, and pass, a basic economic competence test, if only to learn this one simple lesson. People respond to incentives.
I have heard more than one person proclaim "if markets worked someone would have figured out something to replace gasoline" or something to that effect.
The truth is there are LOTS of someones trying to figure something to replace gasoline. In the meantime we are all making small adjustments to our lifestyle and choices to cope with this additional cost to our budgets.
None of these changes are earth shattering - that is what is meant by "at the margin." We are driving less, we are taking more public transportation, we are buying homes closer to work and we are deferring purchases that we would have otherwise made.
We aren't rushing out to buy a new home just because the price of gas is high - but if we are in the market for a new house, we will take its proximity to work or public transportation into account. Its the billions and billions of little decisions like this that drive the economy forward.
When a company is looking for opportunities to become more efficient they don't look at redesigning the whole factory. The look for opportunities to cut a penny here or a couple seconds there. In the long run they add up to real money/productivity.
This is one of the most glaring failures of government programs. They don't look to make incremental improvements, it is big bang or nothing. No politician is ever going to run an election with the slogan "I made collecting taxes 1% more efficient." So therefore, government never gets any better, it just gets more costly.
The left will deny that this would ever happen here and then as soon as they had incentive to do this here they would do it. I have no doubts.The report shocked the nation and prompted the government to pass legislation to force the Japanese to shape up. The laws to address what the Japanese have come to call "metabo" take effect this year. They've given the government and employers, long dominant forces in Japanese workers' lives, places at the dinner table in ordinary Japanese homes. They've also sparked a flurry of products to help Japanese keep trim or shed extra pounds.
One regulation, effective in April, requires all citizens over the age of 40 to have their waists measured every year. If a man's waist is more than 33.5 inches or a woman's more than 35.5 inches, they are considered at risk and referred for counseling and close monitoring. The government is also requiring companies to slim down their workers or face higher payments into the national insurance program.
The second of Mankiw's 10 principles, I think that Mankiw intended it to be reinforce the concept of opportunity costs. It is also important in another way. The "correct" price of any good or service is the price that was paid for it.
You here a lot of people and pundits complaining that the cost of gasoline is "too high" as they rip out their credit card to pay for filling up their Hummer. Or complaining that no one wants to buy their house at "fair market value."
This isn't to say that their aren't bubbles or depressed markets, but you never really know for certain that you are in a bubble or under-priced market until its over do you? After all everyone was convinced that housing prices would never go down and that e-commerce had ushered in a new economy that didn't follow the normal economic rules.
Then reality set in and every figured out that economic rules still apply and we were in a bubble after all.
Hindsight is always 20/20.
