Likelihood of Success

Ron Coleman’s pretty good blog

Remember the price signals thingy?

Posted by Ron Coleman on December 4, 2008

I do! I was reminded by this post over at Rick Moore’s:

Back when the economic crisis first hit at the end of September, Donald Trump predicted that oil could fall to $20 a barrel. Gulf Oil thinks that’s where it’s headed:

RANDOLPH — Gulf Oil CEO Joe Petrowski said on Wednesday that the price of oil could sink to $20 per barrel, and there is a chance gasoline prices could drop as low as $1 per gallon by early next year. . .

Ah, yep.  Sounds really familiar to me, theme-wise.  Because here’s what I said in October in response to a surprising policy prescription urged by Glorious Leader:

You thought Instapundit was a libertarian? So did I! At least on economics issues. But check this:

BOB ZUBRIN: Obama’s Energy Plan a Mix of Bad and Good. “Moreover, there is one part of the Obama plan which is absolutely splendid, and that is his explicit promise to require flex fuel capability on all new cars sold in the USA by the end of his first term. This is indeed a potential real game changer, especially if the flex fuel standard is written to include not only automobile compatibility with gasoline and ethanol, but methanol as well.” You can make methanol from kudzu. ‘Nuff said.

Well, not ’nuff for me. What happened to the free market? Is it inconceivable that oil could be $40 a barrel at the end of Obama’s first term — and cars will either be X dollars more expensive because of this requirement, or perhaps won’t work right, or… whatever?

Whatever, indeed. We see how easy it is to fix massive policy problems merely by legislating a solution, right?

Right.  Did I say “by the end of Obama’s first term”?

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2 Responses to “Remember the price signals thingy?”

  1. James H said

    Ron:

    Should we be paying attention to what ANY market is saying right now? The wild shifts in prices, including oil prices and the Dow’s swaying, imply the markets are basically confused right now and won’t settle down until there’s a more certain economic policy in place.

    Next point: The downward shift in oil prices may be only a short-term pressure. In the long term, aren’t oil prices more likely to rise?

  2. Markets have short-term bubbles, yes, but if you look at the trends the bubble was the preposterous pricing of this fall, not the current price.

    Anyway, even if you were right, when is this “long term”? Would you buy a CD that promised to pay you back a great return “in the long term”? Would you make me buy one, i.e., use taxpayer money to guess at these trends?

    And why on earth would you think that the long term for oil is different from other commodities? Because there’s a finite supply? That’s true of all commodities , yet prices do not merely rise, and frequently fall, because of the effects of how the free market directs choice and long run optimization of the allocation of most resources. The same is true of oil. Haven’t you ever read Julian Simon? Here‘s a thoughtful discussion — and I include the comments — of some of the issues, actually, though comments trail off well before the recent drop in prices.

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