<The Borg: A Financial Allegory The Oil Drum The Ford Global Challenge - Deakin Uni Air Powered T2 Wins the Prize>
<DrumBeat: October 6, 2008 DrumBeat DrumBeat: October 8, 2008>

289 comments on DrumBeat: October 7, 2008

Comments can no longer be added to this story.

Show without comments | PDF version

Ignorant on October 7, 2008 - 9:20am Permalink | Subthread | Parent | Comments top

It's totally weird that many economists don't grasp the concept of the laws of supply and demand... especially when it comes to gasoline.

Comments can no longer be added to this story.
joule on October 7, 2008 - 9:42am Permalink | Subthread | Parent | Comments top

Ignorant -

I am ignorant as to whether any economist has actually put forth a classical Econ 101 type of of supply/demand curve for gasoline that even halfway reflects reality and even halfway has any predictive power.

Or is it more the case that both the supply curve and the demand curve are constantly being changed by a whole host of influences that are probably not even fully known much less quantifiable? And in the real world, does supply and demand for gasoline ever really come into equiibrium or is the very notion of 'equilibrium' just a convenient construct, say like a 'point mass' or 'ideal gas'?

As you may have guessed by now, I am not an economist, so maybe these questions are off base, but I get this nagging feeling that many of our basic economic assumptions are due for a major overhaul.

Comments can no longer be added to this story.
puhkawn on October 7, 2008 - 10:03am Permalink | Subthread | Parent | Comments top

Try this one for openers:

http://www.econbrowser.com/

Search the site for "energy."

If that's too technical try CARPE DIEM:

http://mjperry.blogspot.com/

Comments can no longer be added to this story.
joule on October 7, 2008 - 1:23pm Permalink | Subthread | Parent | Comments top

puhkawn -

Thanks for providing me with those two links.

Unfortunately, as best I can tell neither in any way addresses my question re supply/demand curves for gasoline that I posed above.

So, what is your take on it?

Comments can no longer be added to this story.
puhkawn on October 7, 2008 - 1:50pm Permalink | Subthread | Parent | Comments top

See my comment about a melange gumbo.

My seat of the pants guess is that the near term is still down in gasoline prices. The Gulf coast is coming back on line, the economy is weakening, the dollar is strengthening, go figure, and the perception is for lower prices. Supply is increasing and demand still seems to be going down plus a stronger dollar equals cheaper gas at the pump is my guess. Remember this comes from the seat of my pants.

Comments can no longer be added to this story.
xeroid on October 7, 2008 - 5:34pm Permalink | Subthread | Parent | Comments top

The price just balances actual supply and actual demand - if you know what they will be at every price you can predict the price of the balance point. Clearly an impossible task as the pundits prove every hour of every day! Don't waste your time, life is too short.

All you can say is if the price is falling relative to income there is potentially adequate extra supply (albeit maybe at a higher price) peak oil is a nonsense and we are all saved, and if the price is rising and becoming less affordable, supply is inadequate to meet current growth aspirations.

Actually, since people the whole world over have aspirations for economic growth and Governments are desperate to make it happen, but oil supply is basically flat, expect the price of oil to rise as a proportion of income.

Whether you think your income/wealth will fall in real terms (deflation) or the prices will rise (inflation) I leave up to your seat of pants to guess - but at the moment for most people (although they don't yet fully realise it) deflation has, by far, the upper hand. You only feel the full effect of inflation or deflation when you buy or sell something!

In an era of deflation your accumulated wealth declines, in an era of inflation your real income declines - so in the long run you probably lose out either way unless you have some kind of hedging strategy.

Comments can no longer be added to this story.
puhkawn on October 7, 2008 - 9:43am Permalink | Subthread | Parent | Comments top

Call me curious. Just where do "many" economists miss grasping the concept of the laws of supply and demand? Do you mean they have a poor record of predictions or exactly what? Please be specific.

Comments can no longer be added to this story.
NeverLNG on October 7, 2008 - 10:03am Permalink | Subthread | Parent | Comments top

Real economists don't appear to concern themselves with trifles such as "gasoline."

They appear to study the supply and demand of wigets, as those entities are more mathematically tractable.

Comments can no longer be added to this story.
puhkawn on October 7, 2008 - 10:14am Permalink | Subthread | Parent | Comments top

Pure BS, you obviously don't read many many blogs by economists.

Here is a short list of some of the more better known ones:

http://mjperry.blogspot.com/
http://www.econbrowser.com/
http://calculatedrisk.blogspot.com/
http://cafehayek.typepad.com/
http://econlog.econlib.org/
http://meganmcardle.theatlantic.com/
http://gregmankiw.blogspot.com/

Good luck on finding a widget...

Comments can no longer be added to this story.
NeverLNG on October 7, 2008 - 6:41pm Permalink | Subthread | Parent | Comments top

It didn't take me long to find widgets-- from the econbrowser

To get this point across, suppose you want to compute the real value of imported widgets. You have data for W, the quantity of imported widgets and P, the price of widgets. The price index of widgets is P or some constant p times P. If you compute the real value of imported widgets in 2000$ with “a deflator specific to” widgets, you get W*P/(p*P)*(p P2000) =W*P2000 where P2000 is the price of widgets in the year 2000. What does that series look like? It looks exactly like W multiplied by a constant, which tells you nothing about the real value of imported widgets. You should instead deflate with the CPI for all items.

You're right, I don't spend much time on econ sites -- mainly because I never thought they had much to do with the "real" world. Thanks for the URL's -- I hope to be proven wrong (that economists don't really care) and hope they will be marching in the streets and assailing the Treasury.

I hope to see an "Economists for Social Responsibilty" or Union of Concerned Economists spring up.

Comments can no longer be added to this story.
Ignorant on October 7, 2008 - 11:47am Permalink | Subthread | Parent | Comments top

Puhkawn,

The article (as written) seems to say that the inflationary effect will be the primary driver on the price of oil (or else why even bring it up?).

My response:

1) A lot of money "evaporated" with these bad investments. (defacto) Money supply may - for all practical purposes - be driven down... along with inflationary pressures.

2) Lower prices may in themselves be enough to increase demand (and price). That may have more of an affect on price than inflation might.

3) Most oil is sold through futures commodities. That, it seems, has a substantial impact of oil prices. Probably more affect than inflation.

This article doesn't say much to me. It's about the same as if I said, "three people will die of cancer today, while two will perish from a malfunction of a heart muscle" without providing any more details. Statistically a pretty safe prediction.

Comments can no longer be added to this story.
puhkawn on October 7, 2008 - 1:28pm Permalink | Subthread | Parent | Comments top

I'll buy that. I didn't particularly find the article very useful either.(Past experience, however, says I am wrong more than I am right in commodity markets.) Things are very volatile at the moment and I find my crystal ball is very very cloudy. It is not to hard to figure out the major factors at the moment. The declining US economy, strengthening dollar, the EU melt down, OPEC making noise about cutbacks, possible Eastern economies decline, and so far the continuing decline in demand for petroleum in the US and elsewhere. In Cajun French when you throw all that in the gumbo pot it is called a melange. Just what this melange is going to taste like God only knows.

Comments can no longer be added to this story.

289 comments on DrumBeat: October 7, 2008

Comments can no longer be added to this story.

Show without comments | PDF version