Posted: Thu Jun 12, 2008 1:55 pm Post subject: At what price will people lose faith in the invisible hand?
It seems that most people have studied the concepts of Adam Smith that demonstrate the supply-demand price relationship. As scarcity develops, prices go up. In turn, that both stimulates production and restrains consumption which leads to another equilibrium price. Seems simple and most of us have even passed tests on it.
Yet, more and more these days, we see polticians and the media decrying speculators as the bad guys in the run up of oil prices.
"Josh Landis and Mitch Butler of The Fast Draw narrated the tale of "Gus" -- a gallon of gas -- in a brief animation portraying crude oil's journey from the ground to your car's tank.
The animation traces Gus' travels across the sea to the United States, explaining how his initial five-cent -- that's right -- five-cent value grows through -- speculation -- and the law of supply and demand. Add the cost of refining and delivering the product, not to mention taxes, marketing, and your local gas station's cut, and Gus goes from five-cents to $4.
"We were most surprised," Landis later told co-anchor Harry Smith, by the fact that, before the oil even reaches the shores here, speculators and the law of supply and demand have already priced the final price up to within 80 percent of its final amount. ... "
I find it a bit strange that no mention is made in this story of declining spot inventories or the overwhelming saga, over so many years now, that discoveries have dminished compared to production as the key point of interest. And, the chronicle seems childish to say the least to make a cartoon character out of an inanimate object.
I guess its easier to blame speculators, as even the name sounds nasty. But, in leading people to look for an external villain, does it not turn them into avoiders of their own role in demanding so much oil? If our economy is built on the economic concept of the open market and free enterprise, why do people want to create an artificial enemy out of speculators who have a valid place in the economy?
I fear the next step will be price controls and that will lead to real shortages, just as we had in the 70's. It may even encourage "shut in" oil, in essence a producers strike.
Last edited by Denny on Thu Jun 12, 2008 2:34 pm; edited 1 time in total
Posted: Thu Jun 12, 2008 3:07 pm Post subject: Re: At what price will people lose faith in the invisible ha
Whether or not speculation is a significant contributor of today's prices, you have to love the hypocrisy of the free market cheerleaders who sat on their hands while speculation boosted the value of their houses, stocks, etc.
Only when speculation hits them in the pocket personally do they begin to cry foul.
If it truly is a bubble, they should either (a) get on the rollercoaster and make some money, or (b) sit and wait for the bubble to burst, and SHUT UP, as the Fox commentators like to say. _________________ "Who knows what the Second Law of Thermodynamics will be like in a hundred years?" - Economist speaking during planning for World Population Conference in early 1970s
Last edited by CrudeAwakening on Thu Jun 12, 2008 3:20 pm; edited 1 time in total
Joined: Nov 08, 2005 Posts: 261 Location: The Maple State
Posted: Thu Jun 12, 2008 3:19 pm Post subject: Re: At what price will people lose faith in the invisible ha
I guess I'm in the lost faith (delusions) camp when the following seems to me like a decent description of WallStreet's current invisible hand game:
Quote:
When an individual not familiar with the shell game encounters a game on the streets, it appears that bets are being placed by numerous players, when in reality, most of the persons standing around a game are in league with the operator in a confidence ring. Shell game gangs generally prefer to swindle one "player" (victim or mark), at a time. The apparent players actually serve various roles in the swindle: they act as lookouts for the police; they also serve as "muscle" to intimidate marks who become unruly and some are shills, whose job is to pretend to play the game, and entice the mark into betting. Once a mark enters the circle of apparent players and faces the operator, the gang surrounds them to discourage an easy exit and to keep other pedestrians from entering and disrupting the confidence trick gang's action on the main mark. The job of crowding around also protects the operator from any incriminating photographs being taken of the act. The operator and the shills will try to get the mark into a heightened state of anger or greed. Once this is accomplished, one shill will pretend to disclose a winning strategy to the mark. It is all a ruse to get the mark to place a large bet.
The operator's trick is sleight of hand. A skilled operator can remove a pea from under any shell (or shells) and place it (or not) under any shell (or shells) undetected by a mark. So it is never of any benefit for the mark to watch the movement of either the shells or the operator's hands.
Posted: Thu Jun 12, 2008 3:26 pm Post subject: Re: At what price will people lose faith in the invisible ha
Especially when Calpers is one of the biggest speculators. A lot of peoples retirements are tied up in oil, and they don't have a clue that they are they ones getting the 'wind fall'. _________________ HOLDING THE CENTER
Joined: Dec 07, 2005 Posts: 1855 Location: Australia
Posted: Fri Jun 13, 2008 8:20 am Post subject: Re: At what price will people lose faith in the invisible ha
Of course they blame the speculators. TPTB wants a skapegoat.
99% of people haven't even begun to understand how manipulated the markets are. Adam Smiths invisible hand in not the market, it is the PPT, the treasuries, the CB's.
The house of cards is starting to swoon so you can bet they will try to nail the blame on someone else. _________________ Lets take a ride, and run with the dogs tonight
In suburbia
You cant hide, run with the dogs tonight
In suburbia
- Pet Shop Boys
Joined: Sep 29, 2004 Posts: 2330 Location: Pennsylvania, USA
Posted: Fri Jun 13, 2008 8:50 am Post subject: Re: At what price will people lose faith in the invisible ha
The free market is sending us a message: "OIL DEMAND IS EXCEEDING SUPPLY." That's the writing on the wall, what you do with it is your business. _________________ "That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
Posted: Mon Jun 16, 2008 3:50 am Post subject: Re: At what price will people lose faith in the invisible ha
You do not have to study or understand physics to be affected by gravity. Most people are quite happy when prices are falling in real terms, and their own purchasing power and living standards are rising. And, if not, then obviously someone else is to blame! _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Joined: Dec 07, 2005 Posts: 1855 Location: Australia
Posted: Mon Jun 16, 2008 6:05 pm Post subject: Re: At what price will people lose faith in the invisible ha
Quote:
China and India already subsidize fuel and control the price.
Venzuela, Saudi, Mexico and some other big exporters sell gas from their own production at below market prices in their home markets.
Subsidies is not the same as price controls.
Besides, most of these countries will shortly cease subsidising as it hurts their economy too much.
Just the other day there was an article here with Malaysia facing bancrupcy if they don't rapidly cut back on subsidies.
Mexico will probably be next in line as they move from major exporter to importer.
The big problem will be when they try to control price by limiting trading, putting price controls in retail level etc.
It usually results in drop in supply and thriving black markets.
It is especially hard for any single nation to do anything to cap the price as if a product can't be sold more profitably to someone else, it will be. _________________ Lets take a ride, and run with the dogs tonight
In suburbia
You cant hide, run with the dogs tonight
In suburbia
- Pet Shop Boys
Posted: Mon Jun 16, 2008 7:06 pm Post subject: Re: At what price will people lose faith in the invisible ha
It's happening now. The invisible hand is great in a resource rich nation, with a collective sense of fairness, decency and proportion. In other words when the hand is invisible but open and friendly and has access to limitless resources, people have a great deal of faith in it.
But when CEO's of failing corporations make multi millions per year, plus bonuses, while they lay workers off, the average Joe feels the invisible hand has just balled itself into a fist and punched his lights out. When resources become scarce, he experiences a one two knock out punch. After he comes out of his coma, is no time to lecture him about the individual's responsibility for his own mistakes. BS. We lived in a world of free market propaganda 24/7, all of our lives. We have had few decent leaders, fewer real heroes, and real meaning has been stripped from our lives, in a system we DIDN'T ask for. No wonder people used to tank up and try to drown their miseries with the banality of shopping.
Posted: Tue Jun 17, 2008 1:51 am Post subject: Re: At what price will people lose faith in the invisible ha
Who DID ask for the system we have? The invisible hand of the state has been picking the taxpayers' pockets for generations. In some cases 50-percent of every honest dollar earned every year. It makes the recent run-up in prices seem insignificant in comparison.
When Average Joe is suffering it is very easy to try to link that issue to Fat Cat CEOs pay packets. It is easy, but not very helpful. It obscures why those layoffs are happening in the first place.
We are going through a painful economic transition that I fear will end in lower living standards for nearly everyone. We have to understand the real reason that is happening and plan accordingly.
Everything we have done up to now. 10%. What we do next. 90%! _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Tue Jun 17, 2008 2:54 am Post subject: Re: At what price will people lose faith in the invisible ha
threadbear wrote:
It's happening now. The invisible hand is great in a resource rich nation, with a collective sense of fairness, decency and proportion. In other words when the hand is invisible but open and friendly and has access to limitless resources, people have a great deal of faith in it.
But when CEO's of failing corporations make multi millions per year, plus bonuses, while they lay workers off, the average Joe feels the invisible hand has just balled itself into a fist and punched his lights out. When resources become scarce, he experiences a one two knock out punch. After he comes out of his coma, is no time to lecture him about the individual's responsibility for his own mistakes. BS. We lived in a world of free market propaganda 24/7, all of our lives. We have had few decent leaders, fewer real heroes, and real meaning has been stripped from our lives, in a system we DIDN'T ask for. No wonder people used to tank up and try to drown their miseries with the banality of shopping.
Threadbear, when (not if) the current economic system gets replaced, Joe Sixpack isn't going to be any better off then he is today.
History has shown that whenever the title "world superpower" changes hands the economic rules that everyone else must abide by gets "revised" a little.
Call it whatever you want, the invisible hand or the invisible fist. US economic policy really isn't that bad.
What type of economic policy will China + Russia + India implement when they become the next world powers? Perhaps a hint of the future can be seen by looking at their current economic policies today.
If that doesn't give you goosebumps I don't know what will.
//
Complain all you want --> this is as good as it gets!
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