Wednesday, June 18, 2008

The Law of Supply

The conservative advocacy group Freedom Watch -- which used to focus on national security issues but apparently now has no particular "cause" -- has announced that it will be making robocalls into a few dozen Congressional districts, including the Kansas 2nd (Nancy Boyda). The group said the ads will focus on gas prices and Rep. Boyda's vote against offshore drilling.

This obsession with affecting gas prices by increasing supply infuriates me.

I don't know if y'all remember Econ 101, but there are two sides to that chart that looks like an X. You've got the supply part down. In theory, increasing supply while demand remains constant will decrease the price (though economists believe IF such a theory were to work, it would take nearly a decade to see any noticeable affect).

The problem is, most economists believe any increase in supply will result in a corresponding increase in demand, thereby negating any downward pressure on price and perhaps even causing it to rise some. Not to mention increasing carbon output and ignoring our reliance on carbon-based fuels of which we have a finite supply.

I'm not going to go so far as to imply that its a poorly disguised attempt to increase oil consumption and thus increase the profits of oil companies, but it sort of makes you wonder.

That other line? That's called demand. On this side, the theory is if demand decreases while supply remains constant, prices will decrease.

The answer is conservation. Jimmy Carter hit the nail on the head in his American Malaise speech, though he was chastised for it, the only way to truly ween ourselves off of oil is to enact policies that affect demand, not supply.

We need to be focusing on designing and developing American cars that might actually be feasible to sell 10 years from now. The SUV, the 5,000 lbs car and the 6.5 liter V8 are dying, and it's time for Detroit to realize that.

We need to enact policies that make public transportation in the midwest a real possibility.

We need to start dedicating federal research dollars to developing wind, solar, nuclear, geothermal and any other non-carbon-based form of energy production. (Thanks for twice voting against those taxbreaks to encourage alternative fuel research, Sen. Roberts)

We need to start investing in ethanol that is not made from things that we might want to eat.

We need to stop promoting shortsighted policies that do nothing more than increase the profits of oil companies.

The truth is, no matter what we do, gas prices aren't going to be $2.00 a gallon anymore. The only real solution is taking steps to ween ourselves off of ALL oil, not just foreign oil.


CTL said...

I am hoping that urban Democrats align with conservative Republicansin order to defeat subsidies for ethanol. It is habitat devastation, hunger,and perhaps even more air pollution than you would get with oil production when you look at the production process.

I will link to your blog fellow Kansan.

Anonymous said...

Your intro theory on law of supply and demand only convinces me for certain, your grade in economic theory must not have very good.

Where did you get this theory of yours? Grade school?

What a simplistic theory that is absolutely wrong throughout. This is one of the worst theories I have ever seen on any political blog. You should delete before more people notice your ignorance.

Anonymous said...

It's called supply and demand, I'm sure the author got it from an Econ textbook. Where did you get your theory? Oh wait, you haven't provided one.

Anonymous said...

If an increase in the supply also means an increase in price, why wouldn't any oil producer want to pump as much oil as they possibly could?

Anonymous said...

It's an indirect relationship, an increase in supply would (in theory) cause a decrease in price. Because demand is not being affected in this scenario, it's logical to assume that demand (which is artificially stunted right now by high prices) will rise as a result of the low price, which will cause the price to again rise. It's the same reason the gas tax holiday is a bad idea. As long as we aren't doing anything about demand, gas prices will continue to rise.

Anonymous said...

One of the bloggers is absolutely right in that I did proffer any economic theory despite having an MBA. I do not try to be an expert or write on issues I have no specialized expertise in. Unlike the moderator.

For when any person tries to be an expert, when they are not, more experience people will realize the writings of someone like that, is merely the writings of a fool.

Wisdom is the realization of how stupid you are in most things. Stupid is thinking you are expert in all things.

Anonymous said...

Do you really believe you don't put yourself off as an expert? Yes you don't offer a theory, but you sure seem to be informed enough to know a "bad" theory when you see one.

To summarize, you know the theory is bad, but you won't explain why because you don't want to come off as an expert. Nice.

FWiW, ff the moderator of this blog is who I think it is, she has a phd in economics.

Anonymous said...

The moderator is not going to disclose who they are, much less their educational background. Usually because moderators of political blogs are cowards. In regard to addressing all the errors in this economic "theory" would take a lot more space than I can provide in the comments.

Even the experts acknowleged on various tv stations that drilling offshore or in Anwar, would be a positive impact on the economy. Especially on the foreign trade deficit which would then strengthen the cheap U.S. dollar. Their only objection was it would take 5 years to take effect. Well, that 5 years is from the date of implementing increased domestic oil production. So why should we wait, if all agree a positive benefit in 5 years.

If we wait, just add another year for each year we do not increase domestic oil and gas production.

The only rationale or guess why we are not increasing domestic production seems to be preserving domestic oil and gas supplies as a strategic resource. Or in case OPEC stops selling their oil and gas. The longer we delay domestic production, the more money the domestic oil and gas co. get for their oil reserves.

Economists and their theories are the problem in America. If they were so absolutely correct in their theories, then why is America so screwed.

I reject modern economic theories including this nonsense about globalization. I favor protectionism. When did protecting American mfg., labor and wages become a bad thing?

Naturally, with Bush and his plans for a new world order. Bushism or lunacy. You pick.

Anonymous said...

After reading that last comment (I thought you didn't have enough room in the comments) your arguments are starting to make more sense. You're not hopelessly misinformed, you're just a lunatic.

You miss the point however. Yes, obviously, drilling offshore and tapping our strategic reserves would increase the supply of oil, which would in theory lower the price of energy, at least temporarily. However such an approach is treating the symptom rather than the disease. The only LONG TERM solution to the problem is lowering demand. Increasing supply is just a band aid.

Anonymous said...

I never stated the problem with oil and gas was consumption. I agree the root is consumption. The problem is there is going to be no solution to consumption by voluntary efforts. For example, are you volunteering to cut back your consumption?

The only solution to consumption is excessive prices. Which is taking on effect on reduced demand. But this effect happened when gas crossed a buck a gallon. And again when the price hit 2 bucks. Three bucks. Now 4 bucks.

Now gas prices are going to drop back after Labor Day. Just like gas does every year. When consumption just continues same as before.

We could start rationing gas. Which would just tick a lot of people off. That would reduce consumption real quick. But also take the economy along with it.

Then, if you heat your home with gas or heating oil, hold on to another huge price increase just like last year. I was in a conference call with Senator Roberts the other night. One person made a good suggestion. Nationalize oil and gas industry. That would be a solution. And more than likely will happen sooner or later.