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The Reason Behind High Oil Prices
businessweek.com — On May 13, the price of a barrel of oil briefly hit a record of $126.98 on the New York Mercantile Exchange The reason was ostensibly that Iran was cutting oil production. But there is no gas shortage. So why are prices still going up?
chris1234- 81 diggs
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- StingingNettle, on 05/16/2008, -0/+1Is it because there is only so much oil that can be extracted out of the ground and a endless supply of dollars that can be created?
The msm is always blaming "speculation", but what is speculation other than to many dollars out there that need to bid something up?- jmpeagle, on 05/16/2008, -0/+1you realize economics is essentially the study or relative prices. Printing countless amounts of money has no effect on relative prices. Money is essentially economically neutral in the long run. If we double the money supply, prices will simply double but production would stay constant. Only innovation and productivity can change relative prices. Long run economic growth merely stems from the falling relative prices of goods with respect to labor.
- macman2k, on 05/16/2008, -0/+1Printing countless amounts of money does effectively transfer money from the general population to the creators of money. In this case, it is a tax on the poor and middle class for the benefit of the rich.
Inflation is the result of new debt creation which necessitates more debt in the future to pay off the interest on old debts. Your only choices as a society are more debt or default. Either way the banks get the collateral or the money.- jmpeagle, on 05/16/2008, -0/+1inflation is the result of either one of two things. An increase in the money supply or an increase in the "velocity" of money (the rate at which money changes hands). This identity must hold by definition P(prices)*Y(output)=M(Money supply)*V(velocity)=nominal GDP.
You do not need debt to cause inflation. Just look at all the OPEC countries that are running huge surpluses but have loose monetary policies due to them being tied to the dollar and therefore having 10% inflation despite running fiscal surpluses.
- jmpeagle, on 05/16/2008, -0/+1inflation is the result of either one of two things. An increase in the money supply or an increase in the "velocity" of money (the rate at which money changes hands). This identity must hold by definition P(prices)*Y(output)=M(Money supply)*V(velocity)=nominal GDP.
- macman2k, on 05/16/2008, -0/+1Printing countless amounts of money does effectively transfer money from the general population to the creators of money. In this case, it is a tax on the poor and middle class for the benefit of the rich.
- jmpeagle, on 05/16/2008, -0/+1you realize economics is essentially the study or relative prices. Printing countless amounts of money has no effect on relative prices. Money is essentially economically neutral in the long run. If we double the money supply, prices will simply double but production would stay constant. Only innovation and productivity can change relative prices. Long run economic growth merely stems from the falling relative prices of goods with respect to labor.
- juankovo, on 05/16/2008, -0/+1This guy is an idiot. FTA: "It's unregulated commodities markets and greed". Uh, no. How exactly do you plan to regulate the entire world? Oil is rising in price largely because dollars are falling in value. Some schooling for the author: http://mises.org/story/2940
- lukeev, on 05/16/2008, -0/+1What you say is true and I agree (big fan of Mises.org btw!) - but I'm just not so sure that oil prices (even in a truly free market or stable economy) would really be low anyway. You guys in the States complain about high oil prices, when we (U.K) pay around five times as much! If you think about why oil prices are (relatively) 'low' it's artificially decreased by government interventionism - subsidies, tax breaks, political protectionism, wars for land and resources funded by tax payer's money etc. None of these costs are figured into the actual price at the pump (oil spills, war etc). Now I've read very well researched articles (I'll send some PDFs if you want) which puts the true price of oil, at the pump, to around $15 and rising if actual external costs are figured in.
The reason people freak out is because they think oil is some kind of 'right' (like free schooling, health care) which must be protected or fought for (cue heroic government intervention etc).
This is probably the reason why we still haven't shifted from a dirty fossil fuel economy. People love to blame Big Oil and I agree that they are somewhat responsible, but once again at the core of it is government interventionism in the markets, stifling innovation and shifting costs onto the taxpayer or at best just distorting the market. It's the entire political system that is broken and corrupt; lobbying for and buying off politicians. Just look at the corn-ethanol growers making a *fortune* at the expense of food prices and market distortion thanks to the agricultural lobby pressuring for government subsidies and incentives.
- lukeev, on 05/16/2008, -0/+1What you say is true and I agree (big fan of Mises.org btw!) - but I'm just not so sure that oil prices (even in a truly free market or stable economy) would really be low anyway. You guys in the States complain about high oil prices, when we (U.K) pay around five times as much! If you think about why oil prices are (relatively) 'low' it's artificially decreased by government interventionism - subsidies, tax breaks, political protectionism, wars for land and resources funded by tax payer's money etc. None of these costs are figured into the actual price at the pump (oil spills, war etc). Now I've read very well researched articles (I'll send some PDFs if you want) which puts the true price of oil, at the pump, to around $15 and rising if actual external costs are figured in.
- lazybat, on 05/16/2008, -0/+1Dick Cheneys and other parasites of our world
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