tag:blogger.com,1999:blog-11148260.post112554329957859337..comments2023-09-06T08:56:14.610-04:00Comments on Eidelblog: Rising oil costs: still nothing to worry aboutUnknownnoreply@blogger.comBlogger4125tag:blogger.com,1999:blog-11148260.post-1125634241568596792005-09-02T00:10:00.000-04:002005-09-02T00:10:00.000-04:00Mises taught us how prices really work, and he and...Mises taught us how prices really work, and he and the rest of the Austrians taught us that value is all subjective. There's simply no way for anyone to make a fully objective decision as to an object's value, because you cannot extract, as you term it, the psychology. It's better described as each individual's particular knowledge of time and place, which are critical to each individual's particular actions.<BR/><BR/>Economics does include psychology, because it's fundamentally the science of human choices and their consequences. On the whole, people <I>do</I> make decisions rationally. Are you going to pay $2 for a single banana? If I have no knowledge of your circumstances, I'd probably say, "No, that seems a bit high." Yet if you're sufficiently hungry and have sufficient money (a condition I am not necessarily privy to), you will agree to that exchange.<BR/><BR/>Walter Williams once said, "Only unreasonable people pay unreasonable prices." People wouldn't be willing to pay $70 per barrel of oil unless they believed they gained from the exchange, i.e. that the barrel of oil is worth at least a little more than $70. It's perhaps fueled by false information or a false conclusion, but the decision itself is still rational.Perry Eidelbushttps://www.blogger.com/profile/09707615907666584863noreply@blogger.comtag:blogger.com,1999:blog-11148260.post-1125631985872653672005-09-01T23:33:00.000-04:002005-09-01T23:33:00.000-04:00I'm not a BIG Von Mises fan, but in comparison to ...I'm not a BIG Von Mises fan, but in comparison to Keynes and his ilk he is the god emperor of the universe.<BR/><BR/>By objective factors I mean the ecatual basic economic demand absent psycholigically fueled speculation. Others have referred to this as natural pricing or demand pricing what have you.<BR/><BR/>I don't believe in inhernet value economics (down that road lies monetarism and advocacy of specie currency.. bad bad bad); something is worth whatever osmeone is willing to exchange for it, and at the moment we are willing to echange $3.25 or so for a gallon of gasoline.<BR/><BR/>I am trying to make the point that I beleive the potential for panic has nothing to do with the economics of the situation, but in peoples irrational psychology. You keep falling back to saying rationality will rule, and I'm saying it wont.<BR/><BR/>Perhaps you jsut have more faith in humanity than I do.AnarchAngelhttps://www.blogger.com/profile/06447178964096399015noreply@blogger.comtag:blogger.com,1999:blog-11148260.post-1125623061475638612005-09-01T21:04:00.000-04:002005-09-01T21:04:00.000-04:00Don't take this badly, but in referring to "object...Don't take this badly, but in referring to "objective factors," you fall into a trap well over two centuries old. In a free market system, there's no such thing as objectivity. It took Austrian economics, with its subjective theory of value, to save us from the erroneous "labor theory of value" (and similar concepts about price being determined by what goes into it) that Adam Smith, David Ricardo and Karl Max put forth.<BR/><BR/>People paid $20, $30 and $40 per barrel of crude because at those times, that's what they believed it was worth. They pay ~$70 today because that's what they believe it's worth. What anyone else thinks is irrelevant. Standing on the sidelines, we might think we're being objective, but actually we're as subjective as anyone else. We don't have the specific knowledge of time and place that oil buyers do (a concept of knowledge that Hayek developed), thus we don't know their motivations -- regardless of any speculation -- in paying what we think is "too high" a price. They have to stay in business, and if they pay $70 per barrel of oil, by definition they can pay, and they consider it worth paying so that their companies can keep operating.<BR/><BR/>No matter how rampant the speculation, don't worry: there is a price ceiling above which buyers cannot afford to buy oil. Successful buying requires the willingness and <I>ability</I> to pay what the supplier asks. Even if you monopolized a particular resource and limited its supply so you could charge supposedly whatever you wanted, that must give way to reality: you can't charge above how much your buyers value it and can afford to pay. And as the price of crude rises, that opens up many new sources of oil (and its substitutes) that previously weren't worthwhile. This will stabilize prices.<BR/><BR/>The best thing to do with the risk of further supply disruptions is to let prices keep rising. Yes, that's a serious statement, and it's very true. High prices will force people to conserve a resource that is suddenly scarce. High prices are how society doesn't waste a lot of time (i.e. incur large search costs) searching for a resource that is underpriced. However, I will agree to loaning crude from the SPR for two reasons. In filling it up, the federal government "crowded out" private buyers, because federal demand raised the price of crude. Second, the federal government is not selling, but loaning it at interest. So anyone "borrowing" from the SRP, by definition, is banking on lower oil prices in the future, or that if oil prices get even higher, it's worth keeping the firm operating.<BR/><BR/>And by the way, Austrian economics is the only discipline whose business cycle theory explains not just the Depression but <I>every</I> recession. Keynesian economics can't; Milton Friedman's monetarism explains the Depression but not every recession. Basically the Great Depression was like every other economic downturn, with overexuberant businesses overproducing for overestimated demand. Thus an economic downturn is a <I>necessary</I> thing to correct these errors.<BR/><BR/>It sounds harsh, but Austrian economics is "practical" in that if something is overextended, it should be allowed to (or even fail). Also, remember that while the Depression was inevitable, Federal Reserve policies in the late 1920s triggered the Depression to a far worse state than it should have been. The Depression also wouldn't have lasted as long had the federal government not tried to fix it, not just through massive "public works" spending and high tax rates that stifled business investment and destroyed companies, but by tragedies like Hawley-Smoot and farm subsidies.Perry Eidelbushttps://www.blogger.com/profile/09707615907666584863noreply@blogger.comtag:blogger.com,1999:blog-11148260.post-1125611270095253432005-09-01T17:47:00.000-04:002005-09-01T17:47:00.000-04:00Perry, as I said in response to comments on my pos...Perry, as I said in response to comments on my post, I'm not concerned about the objective factors. What I'm concerned about is the psychology of the market, especially as influenced by the media.<BR/><BR/>If the objective factors were ruling the market right now, we would see an oil price around $50 or thereabouts. Clearly the current inflation is a result of rampant speculation (as I pointed in my post).<BR/><BR/>What worries me is a combination of panic buying, and the possiblity of further disruption in supply. This could result in a sudden panic.<BR/><BR/>Would it be jsutified by ojective factors? No of course not; but neither was the depth and length of the '29-41 depression.<BR/><BR/>Your fundamental assumption is that sanity will prevail, mine is that sanity is barely holding right now, and one more major incident will be enough to cause panic. <BR/><BR/>If that panic doesnt occur, than I'm 100% with you; in fact possibly more optimistic.AnarchAngelhttps://www.blogger.com/profile/06447178964096399015noreply@blogger.com