I agree there is some validity in your reply. But it is a largely subjective thing and depends on the person. And meanwhile the teacups are still teacups that hold the same amount of tea just as solidly.

A person such as myself recognises a thing for its beauty and usefulness. I don't care how cheap it was or how mass-produced.

I'd like to cite an example. I have 2 Bechstein model 5 (= model 10) pianos. The market price of these is relatively low because ignorant people (= the vast majority) assume that non-overstrung pianos are inferior. But I myself just recognised outstanding, brilliantly-designed pianos for what they were - it is so rare to find pianos that have good uniform tone etc., let alone with a smaller size too. Only later via the internet did I learn that expert others with the required discernment of quality recognise these as some of the best pianos ever made (and in my experience there are far more Bechstein 5s/10s than any other model of any make, a reflection of that fact). Personally I don't give a fig that the ignorant assume these to be less valuable, more fool them. By the way, quality pianos have been in great part mass-produced for the past 150 years, big deal. The higher the quality the masser the production (because huge research and expertise is involved)!

Good observations. I've thought about a related concept in regards to digital reproduction of art.

In the recent past the (audio) quality of recorded music would decline over time, and there was little that could be done about it. Now with digital storage, it can be copied and what's more, distributed around the world in an identical state. Does it lose value through this, or gain it?

As a musician, I'm socially dissuaded from investing all my time in songwriting/performing, because so much music is available due to modern distribution channels (internet/tv music channels/radio). I think my inclination to write/perform comes - to a degree - from the wish to acquire social capital. But since there's now a global market to compete with, I'm forced more into the (more detrimental) aquisition of financial capital instead.

I have often thought how much difference it would make to social outcomes of musicians if music could not be recorded or amplified. Performance would be limited to small groups. The same applies to many art forms.

The market economy is only relevant to the price, not to the differing values it has to different people. The market makes not the slightest difference to the sound etc of my piano. Or the elegance of a fine design. The high prices of Rolex watches do not make them any less ugly, let alone more attractive than my £20 highly-accurate and reliable Lorus which is actually elegant unlike any Rolex I've seen.

I am reminded of the bidders one encounters on ebay, whom I call loonies. They have no concept of how much it is worth to themselves. For instance I happen to want a second widget w to go with my present widget w, which works well with my already-installed system. So a w is worth twice for me what it is for others. But when the looney sees that I bid 80 for it he then "reasons" that it must be worth at least 85 for him. And so on ad idioticum to his """winning""" the auction at whatever idiotic cost it takes. There's a way of beating these loonies but that's a trade secret not to be given away here.

Unfortunately most of the loonies bidding on oil futures are working to a presumption that the price is "high" at present and will come down even in the longterm.

Sorry for mixing defs. I expect a real 5% drop in production to have a bigger impact on exports given the current 5% drop in exports I'd say a 5% drop in production will cut exports even more say 5-10%. Also of course the production drop won't just be in exporting countries in fact I think the US is going to or is already seeing a sharp drop in production thins drop in internal production will have to be met by increasing imports so as you see when real production begins to drop things get messy since the largest drops should be in the politically stable producing areas. In short import demand goes up. So this is why I said a 5% real drop in production is probably 500 a dollar barrel oil. I suspect we are in broad agreement on this.
Also added on top is a projection that starting this year and going forward we will see real declines in light sweet production which has a larger impact on price then heavy sour production. Also included is increasing problem from more expensive NG and its tie to heavy sour. And finally export land moves on.

And the last factor demand reduction to date seems to be driven by a slowing of growth and eventually a slight decline. However there is a huge difference between this and decline via a real declining economy.
Historically and posted in this thread demand drops greater then 2% will probably begin to hit inelastic demand. Also of course for political reasons we can be pretty sure that OPEC will be willing to cut production if they think they need too regardless of decline.

So second part of your question answer 500 dollar oil by 2011 ?
Yes I believe once you get a 5% drop in production we will see 500 dollar oil the price response is non-linear and secondary factors like I mentioned will serve to magnify the effect.

Just to lay it out.

I think we will see 160-200 dollar oil by December with oil near 300 by the end of 2009. 400 by the end of 2010 and 500 by 2011. The range of changes is +/- 50 dollars or so. So we could end with 450 dollar oil in 2010 as prices cross about 250 or so I don't think it really matters since we will be in the inelastic demand period and prices will be going up based more on economic destruction. However at least till 2010-2011 the losers are going to be the poorest countries which collectively don't use a lot of oil.
However they will try and hang in as long as possible thus ensuring strong price increases.
Also I feel that all currencies will begin to slide in value vs oil. Over the very short term I expect OPEC to pull back on production for a number of reasons including real production declines to force oil back over 140 for sure regardless of the economic consequences to importing nations. And last but not least this political feedback problem will have a impact.

If you just assume prices are increasing by 25% every 12 months and take 100 in 2007 as the base you get this.

2007 100
2008 125
2009 156
2010 195
2011 243

What I'm basically assuming is a increase of about 50% every 12 months.

2007 100
2008 150
2009 225
2010 338
2011 507

But its shifted slightly with stronger increases in 2009-2010 is inelastic demand is hit but the economies are basically still functioning and in slow 1-2% declines with oil usage demand at say 0.2-0.5% with at least a 1-2% decline in production each year ending 2011 down about 5%.

Once oil crosses 500 a barrel is when we enter the unknown. Needless to say I'm planning on being wherever I will be for a long time by 2011 at the latest.

One thing people don't do is explain exactly how demand destruction takes place. All my scenarios show that we won't see significant demand destruction int the wealthier countries until after all consumers default on their long term debts. The one exception was the crash of the housing markets. This precedes the serious waves of debt defaults and causes a real contraction in demand. But from basically now going forward we will see demand remain relatively strong but a tidal wave of debt defaults. This will take at least 2-3 years to accomplish simply because of shear inertia. Coupled with this will a steady decline in incomes.

Only once we get past this debt defaulting phase do we really reach the point that further increases in oil prices cannot be handled since they result in consumers exceeding their budgets for the basics food,rent,transportation etc.

This is in the 2011 time frame and coincides with 500 dollar a barrel oil and about 8-10 dollar a gallon gasoline in the US. I certainly see serious problems in the banking industry as far as consumer debt and commercial real estate goes. Also of course discretionary spending will take a nose dive. But you still have not gotten into the region that people are having real problems with food clothing and shelter.

Lets assume your a couple and you make 15k a year each with a total income of 30k.
Assume together you drive 40 mile a day five days a week and assume your car gets 20mpg.

Thats ten gallons of gas a week or so at 10 dollars a gallon that 100 dollars a week or 400 a month.
Lets say your take home income is 2000 a month. You still have 1600.
Assume food is 600 a month that leaves 1000 assume rent is 800 a month that leaves 200 dollars.
Assume car payment is 100 dollars this leaves 100 to spend.

Now this is a pretty low wage like 8 dollars and hour and even with that you could tweak the calculation to squeeze out some money rent you go lower say 500 a month for 1 bedroom. Since this is the minimum wage you can live anywhere and your income would not change. Given the large number of homes available. Rental expenses could be as low as 300 a month. A quick search on rent.com shows 1 bedroom apts available for 260-306.

These are people at what is now the lowest rung wage wise and I've not even added in actual conservation like using a motorcycle or more fuel efficient car etc into the equation add in some of that and these people can survive even with gasoline at 10 dollars a gallon. If you cannot come up with a good way to cause real demand destruction even with gasoline at 10 dollars a gallon for the poorest rung of society we can be pretty sure that demand will remain fairly inelastic for more affluent members. Just one step higher say at 15 dollars and hour and 10 dollars a gallon gasoline can be dealt with easily by moving to a existing and ok 1000 dollar a month 2 bedroom apt. 15 dollars a hour is about 30k.

I've done this sort of post a number of times and outside of the obvious that most people will ditch long term debt in favor of cheaper rental living and maybe some conservation the demand remains strong.

On a slightly bigger scale what we will see is workers with reasonable skills go from say 60k a year to 30k a year for the same job. Some with unneeded skills go from 60k to 15k a year but even with this drastic cut in wages we still have more then enough money to buy gasoline you just can't own a house at anything close to todays prices. Also of course because of gasoline costs it smarter to be more mobile via renting since it pays to move close to work with gas at 10 dollars a gallon. This is negated somewhat by the assumption of supporting two incomes with the potential for the job sites to be distant from each other.

But no matter how you do the math it seems demand for 10 dollar a gallon gasoline remains fairly strong.

My doubt is about the notion that the end of the middle class is not the end of the world. The problem is that within that middle class there are numerous timewasting occupations such as marketers and the judiciary, but also there are sure to be some rather crucial people whom we will have failed to appreciate till it is too late. Various sorts of engineers, agricultural experts , economics people, who knows. One day we wake up to find that there aren't any xxxatricticists available to prevent/correct some crucial problem and as a result the whole industrial system is totally gubbered.

Believe or not.

Not having that expert is not the end of the world. Sure factories may set idle for a few days waiting on some expert to show up look at Africa where you can find numerous examples of a stuttering economy. Also of course we can assume a fairly reasonable communications network even if it means satellite phones.

So given communication a expert can be found thats remote and the problem at least looked at.

Will the industrial machine have serious problems will electric grids go down sure but we can also expect that these costly mistakes will result in finding these experts or training them. I actually think the biggest problem won't be people or knowledge but missing spare parts that used to come from some factory in china thats now been closed. This is going to be a challenge. But I'm sure that people who lived in other parts of the world can chime in and explain how they managed to make it with what we would consider to be disastrous conditions. I used to live in Vietnam and the electricity supply went down for several hours every few days. We bought UPS's for the servers and basically everyone got a small holiday while the power was out and just worked a bit later that day. And this is losing electricity for 1-3 hours every 2-3 days.

Laptops where quite expensive at the time but today I'd just have everyone use a laptop. With a bit more money and say some solar wind power and extra batteries I could have the office running fairly smoothly with a even more erratic power supply. Also of course although we did not get one most places had backup diesel generators. People will store up critical parts etc etc.

I'm not saying we won't have problems but I think you will be surprised at what people can overcome.

Is it what we call a second/third world existence yes but its not the end of the world most of the worlds population lives this way right now.

Could we prevent it sure put in electric rail and support ELP.

Thanks a lot. I mostly agree with what you say. I am curious to know what eastender's (from Hungary) price model looks like.