Sunday, November 23, 2008

It's Hard To Be Right All The Time

Gas here has dropped to under $2/gallon.

I said this was going to happen. Nobody believed me.

This guy claims the high cost of oil is what caused the economic, eh, glitches we're having right at the moment.

True or not, it is true that oil prices going up suppresses the economy. The suppressed economy reduces demand for oil. The economy is fragile enough that something like this can (and often does) result in enough economic contraction that the countries that jacked up the price in the first place end up getting a lot less per barrel than a slow increase would have.

Oil: Delicious and ironic. Or is it karmic?


  1. This steep drop has really surprised me. I thought I had the high prices all worked out, and understood it. Not sure I thoroughly understand the market now.

    By the way, thanks for your post at Althouse.

  2. My Kroger right up the street has a gas station in front. For the last 3 weeks or so, it is consistently 2-3 cars deep at every pump. Apparently some people are afraid it won't last and are loading up at every opportunity.

  3. Darcy,

    The thing about free markets is that they can't be fully understood. That's why central planning fails. It's those thousand of invisible hands making adjustments.

    And you're welcome, though I'm not sure which post you're referring to. Heh.

  4. Knox,

    It won't last. It'll go up or it'll go down. While that's not exactly groundbreaking, it's helpful to remember that things change.

    It's when people start talking about things always doing anything (going up, going down, staying the same), that's when you know trouble's coming.

  5. blake,

    Yeah, that's where I landed, too. The problem is that I'd "won" an argument at work about the reasons for the high prices when they peaked a while ago, and that argument doesn't work now, in reverse. Any day now...I'm waiting for the pounce at work, lol. I'm toast. :)

    The bit about compassion and character @ Althouse. I was hoping someone would say that, and it was seriously bothering me that no one seemed to be stepping up.

  6. Yeah, we're often wrong about the "why" of things. People made the same arguments to me about "peak oil"--you can see me ridiculing peak oil on the blog, heh, and I have a friend who counsels people dealing with "peak oil blues", no joke--and China and India, etc. etc., but they never, in my mind, justified the speed of the jump.

    Gas doesn't go from $1.50 to $3.50 because of a change in demand. It's not that demand can't change that fast, it's that I don't think the infrastructure can support a change that fast.

    I mean, if you're out in Whoknowswhere, India, and you suddenly need double the gas, or the nation of China needs 10x the gas, or whatever--well, you still gotta build pipelines or gas stations and roads have to be maintained, etc. etc. etc.

    The demand first has to be great enough and sustained enough to spur the infrastructure.

    So in my cynicism I imagined myself as controlling oil, and tightening the flow of oil to make myself some money.

    But as the price goes up, competitive sources get more viable, so I have to keep it at the price where competition isn't viable. And if it does start to become competitive, I need to make sure I slash prices so that the demand doesn't sustain.

    That's what happened in the '70s: Fake oil crisis, alternatives start to emerge, bam, no more oil crisis.

  7. Yeah, people are funny about the fat thing.

    There's one segment of the population that's completely fatalistic about it. No respect for the physics.

    There's another segment that feels it's as simple as diet and exercise; that in only rare cases is there any other factor whatsoever involved. No respect for the human factor.

    Both extremes have the tinge of despair.


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