TheAgitator.com
When Trial Lawyers Attempt Economics
Thursday, January 3rd, 2008CNN had a clip of John Edwards earlier this afternoon. He was responding to a question about what we should do about oil closing at over $100 a barrel today.
First, Edwards said, we should launch an immediate investigation into whether the oil companies are price gouging. If they’re coming “right up to the line of the law” without violating it, he said, then we should change the law.
Huh? Edwards was asked about the price of oil on the global market, and his first reaction is . . . to investigate U.S. oil companies for price gouging? Even if you believe American oil companies are fixing prices, that would happen after the oil leaves the world market for the refineries, and then to the gas stations. That oil is going for $100 per barrel has nothing whatsoever to do with price gouging by U.S. firms. If anything, it’s evidence against price fixing. Gas is more expensive because oil is trading at higher prices.
The second part of Edwards’ answer was that we need to reduce our dependence on oil by investing in alternative energy sources. The third was that we need to open the strategic petroleum reserves to give consumers relief at the pump. These two solutions, taken together, are perverse.
The best way to reduce our dependence on oil is for oil to become expensive enough that energy companies start looking for ways to make alternative energy sources profitable. When gas prices get high enough, it will begin to make sense to look into other ways of getting around. When gas gets expensive enough, someone will take a risk, invest in a new source of energy, and get rich. But a guy like Edwards can’t trust the free market. So he’ll use government to keep gas artificially inexpensive (staving off market incentives to develop alternative fuels), while giving billions of taxpayer dollars to research and development boondoggles (also known as corporate welfare) to find replacements for gas.
Waste, waste, and more waste.
He’s just pandering to the typical uneducated liberal elitist.
I’m a Democrat, but it’s comments like this that put me in the “anyone but Edwards” camp.
In the eyes of his audience, doing “something” is better than doing nothing. I can imagine the crickets chirping if he said we shouldn’t do anything, and let the markets sort it out. “B-but but Mr. Edwards, oil is 100$ a barrel!”
How expensive does gas have to get? We pay about 9 dollars a gallon over here at the moment, which gives me a good incentive to walk or use my bike whenever possible.
I bet he takes a private jet between cities, then rents a SUV to drive to his speeches.
Rad,
I don’t get how the oil industries making uprecedented profits with oil prices both before and after ‘world market’ so high, is any kind of incentive for them to initiate long-term investment in alternative, sustainable energy development. You’re making a distinction between U.S.-owned and not, for some reason.
Are you suggesting that these high prices will cause demand for oil/gasoline to drop so precipitously (due to — alternative energy magically becoming available and accessible to the every day consumer — and gas industry profiteer?) that the “leaders” we’re talking about here; the established oil industry related corporations, will be pressured into investing in alternative sources of profit . . . that will ‘naturally’ involve utilizing and providing alternative energy to consumers..? Or does that none of that make sense?
There are a lot of people who have been experimenting, developing and using alternative energy for decades, particularly with an eye toward sustainability. I remember the day Reagan told us -on national television, that he decided “we” are not going to invest in alternative energy because it would take too long to develop; he said it could take 20 years!
That was almost 30 years ago.
The people who have been tinkering around with solar, wind, hydrogen, biofuels, etcetera, have learned a lot and developed a lot of viable options with no thanks to that national policy. They know their stuff but they are not in a great position to compete with those established oil-industry corporations. (It’s what I call a bully market.)
If you hadn’t noticed, the idea of sustainable energy kind of flies in the face of the fiscal profit motive that is the raison d’etre of those established industries. Unlike government. (Hello?) No, those corporations sure don’t need corporate welfare, and it is not in our best interests to give it to them, (-of all potential recipients!) but they’re the ones who are getting it.
In your critique of Edwards you’re talking about the obscure laws of an imaginary physics as far as I’m concerned; I don’t really care if Edwards does or does not know those details intimately. (Although it would be nice for a change to have a president who presented himself well.)
I’m not sure if you’re misunderstanding Edwards or I you, but I do know that anyone with half a brain who becomes President of the U.S. will have appropriate and comprehensible expertise at their disposal and take full advantage of it.
Quite unfortunately Edwards does seem to be the only candidate who has so much as a clue that environmental issues are vitally important. Environmental sustainability is Economics 101, that IS the real economy. Sustainability is the singular, core principle of real economics that self-indulgent profit junkies cannot bring themselves to acknowledge. It just seems for some reason to be way over the heads of the devotees of laissez-faire economics. I think it has to do with a willful and self-serving conviction that greed rather than self-preservation (or reciprocal generosity) drives humanity, drives “civilization”.
We haven’t much time left to humor that kind of ignorance.
My interpretation from watching John Edwards over the years is that these statements aren’t due to economic ignorance. He seems to be fully aware of the folly of his proposals. I mean, we’re talking about an ambulance chaser who decries the high cost of health care.
Edwards is just your stereotypical lawyer. Much like most of the prosecutors you discuss earlier, he’ll say whatever it takes to convince the jury to vote for his client, right or wrong. He’s just got a bigger jury and is his own client.
Actually, the problem is what I call the “myth of the nominal dollar”. If you look at world currencies you’ll see that the price of crude oil has remained about constant — it’s the US dollar that’s falling against the oil. In other words, nothing needs to be done directly. If the weak dollar is a problem, that should be addressed, but the price of oil only seems high because it’s reported in dollars.
The problem is that for some reason the people of the US (and, to a lesser extend, the rest of the world) seem to believe that the dollar has no inflation whatsoever, no matter what the evidence shows — they consider a “dollar” to be a fixed reference point for world prices. The obvious examples are the dollar amounts in laws that are never adjusted for inflation (all the way from the $20 threshold for filing suit federal courts to the AMT).
In particular, regarding dependence on foreign oil, if you want oil to become more expensive in real dollars you’ll have to raise gas taxes. Indeed that’s what they do in Europe. I’m always amused by comments like “in Europe they achieved better gas milage without regulation”. It’s true that car fuel efficiency isn’t regulated there, but a main reason for gas taxes being so high is that the government wants people to buy more fuel-efficient cars.
Continuing the idea of my previous comment: all “all-time highs” in the US are given in nominal dollars. Due to inflation, you expect total federal revenue, or the GDP, or state spending, or whatever, to increase nominally year-to-year. Yet this doesn’t stop the media from reporting every year that this stat of that reached an “all-time high”.
There are two differences between “actual prices” and “nominal dollars”. One is inflation within the US (the difference between “real dollars” and “nominal dollars”, as in the AMT); the other is the value of the dollar in the world currency market: one “real dollar” should buy about the same amount of stuff in the US no matter when, but the price of oil is not determined by the intra-US market. Even when people correct for the first effect, the second effect is rarely discussed. For one analysis, see here. In particular, this figure.
All the market forces in the world can’t cause a “new energy source” to be developed if a source doesn’t exist. Hopefully, we can develop better ways to utilize what we have.
That said, Edwards is a typical politician pandering to a sadly undereducated electorate. He ought to be ashamed of himself, but he probably doesn’t even realize it.
I can’t believe I’m going to take respond to Olive’s nonsense, but as a former energer researcher, this is an absolute joke: “The people who have been tinkering around with solar, wind, hydrogen, biofuels, etcetera, have learned a lot and developed a lot of viable options with no thanks to that national policy. They know their stuff but they are not in a great position to compete with those established oil-industry corporations. ” First of all, nearly all of this research is funded by the government, primarily the DOE and also the EPA, NSF, NASA, etc. The research companies alluded to aren’t in a position to compete 1) because they’re research companies not manufacturers and 2) because gas is still really cheap and fantastic for many reason and 3) the alternative energy you mentioned is only practical for power stations, not automobiles (and, amazingly, very few people know that no gasoline and very little natural gas is used for power generation.)
The people who have been tinkering around with solar, wind, hydrogen, biofuels, etcetera, have learned a lot and developed a lot of viable options
And not one of them has developed a fuel that will power an automobile at less than 75 cents a mile. Oil at $100 a barrel is still roughly 18 cents a mile for a gas guzzling car. Cheap AND convenient! A plug-in electric car might get down to about 12 cents a mile even taking into account the batteries, but then you start losing a lot of convenience as far as the time it takes to “fill up” (8 hours versus 2 minutes) and cold weather reliability.
Research will continue and improvements will be made, but the problems won’t solved because an elected official set a deadline. Scientific R&D doesn’t work that way. In the real world, corporate executives set deadlines and budgets and the R&D has to be compromised to meet the time/cost constraints. That will continue to be the case whether the deadlines and budgets are set by corporate executives or by bureaucrats.
Olive,
I’m not sure why you would think that prices of gasoline increasing wouldn’t decrease the demand. Any freshman in macro economics can tell you that when the price goes up and everything else remains the same, the demand will go down (ignoring elasticity, but consider that one of the factors of elasticity is the availability of substitutes).
So, yes, as the price goes up, demand for oil will go down. Either by people buying more efficient vehicles, or… if we have a truly free market, by some enterprising people willing to invest money to come up with a cheaper source of energy to fuel vehicles (which will change the elasticity of the energy), so that THEY can make the money instead of the oil companies. See how that works?
The reason why this isn’t working (or won’t work) the way it should is because politicians (who are stupid, or corrupt for the most part) think they know what the best solution is, so they dole out money to their buddies, or to whatever project they think will make them look the best and the free market isn’t allowed to operate. Afterall, who is going to be able to compete in energy research with someone who is fully funded by the government, and what incentive does someone that is getting money from the government for free have to actually create a product that is viable? Not to mention the piles and piles of regulations that increase the costs, which are passed on to the consumer.
Maybe we should just have the government put a ceiling on gas prices so we can have mile long lines at the gas pump…
Olive: regarding the “unprecedented profits” of the oil companies, see my second comment. Say the value of the US dollar has gone down by 20% on the international market. Then the dollar price of oil in the US go up by 20%, and so do the oil industry dollar revenue and dollar profits. The nominal values might set records, but to think of this as an an unfair increase is silly. The made more dollars, but each dollar is worth less.
Even if their profit margins were unprecedented, I wouldn’t be too worried. That oil companies can profitable engage in currency speculation (e.g. by betting that the dollar will fall) should not be a major factor in the US energy policy.
I’m not thrilled with Edwards’ comments, but they’re not exactly out of step with the kind of pleasing horseshit that politicians of BOTH parties have been spewing for my entire adult life. And I think we all know that if any aspiring “leader” DID speak candidly about American energy habits, their costs, how to reform them, and so on, he’d be written off as a fringe loonie. So I dunno that I’d single Edwards out for some special criticism.
“…to reduce our dependence on oil…”
I, for one, reject the premise.
Why are we leaving *American* oil in the ground?
“Drill right now!
Drill today!
Drill all night,
Drill all the way!”
That’s what I always say.
Wow, I didn’t think anyone would actually read what I wrote here. This thread may be dead now but -
Lior,
I get that about the dollar. But do we know if the dollar difference has been accounted for in those record profit estimates, or not?
Robert,
I get demand side economics. What I was so unclearly getting at there was that a much more robust and (perhaps??) small-business, non-profit and infrastructure oriented government investment in stimulating SUPPLY side solutions MIGHT be a lot more efficient and expedient than leaving it to established monopoly-oriented energy-related industry behemoths (including auto industries, etc) that are recipients of various forms of corporate welfare and have a long-established record of investing fortunes rather in lobbying and astroturf pseudoscience etc efforts designed to stave off any such change.
By ‘government investment’ I don’t just mean financial investment, I mean investment in the broadest sense, to include things such as simply removing barriers to innovation, many of which have been put in place under pressure from those established industries; ie, inhibitory regulations that make it very difficult, quite nearly impossible for anyone who is not an already established industry behemoth (or willing to sell their soul) to get viable alternatives off the ground or on the road.
I mean ‘government investment’ in a sense that could include things like campaign finance and lobby reform.
Alex,
I’m referring to people I know, or know of through the grapevine. I’m not just talking about power plants, although I do know a group of people who started a small sustainable-energy power co/co-op a couple years ago.
I don’t think I know anyone who’s worked for a research company. Most of the people I know or know of messing around in this area are not in it for the profit; that is not the main motive, it’s more a labor of love. Which gives them an aspect of integrity and credibility you are not going to get from the industry behemoths or their spokespeople, btw. I’ve worked with some folks doing funded research at Cornell; there is that; academic research. But more are people who may or may not be employed at universities or elsewhere but tinker on the side, without funding.
There are a lot of people out there who are not necessarily pursuing these things in any official capacity but who have come up with proven, viable and promising alternatives you never heard of that could much more quickly become accessible to the every day consumer in some form given a more robust government investment in the supply of alternatives to the current energy production and usage system; a broad investment that is not held hostage to established energy industry-related behemoths.
Trial lawyers, journalists, and college professors make a living from words. Using words to sway opinions and persuade into action. Too often the words are empty words without substantive backup.
OO’s posts are typical of the unsubstantiated verbiage that guides modern societies–from global warming to peak oil to politics in general.
If any of these jokers ever had to actually present real world data to back up their arguments, they’d melt.
Omigod Fin,
As if statistics were not manipulatable.
You want examples? I have a ton.
It amazes me that the oil industry gets attacked on their profits vs. wall street and the banksters whose profit % overshadows the oil industry by far and for the most part they create out of thin air the products they provide including fiat money. Wall Street has no shame in issuing big bonuses even when they have screwed their own clients/shareholders and the banksters (the fed and other central banks) have been responsible for the dilution (inflation) of all fiat monies. When they screw the pooch and get into trouble they get bailed out with taxpayer dollars…what a racket and no one goes after them!
At least the oil industry produces something and spends much of their profits on exploration not to mention the many shareholders (including pension funds, etc.) that benefit as well. I would even bet the banksters and wall street do very well % off the oil industry as well.
Amazing!