So therefore, OPEC felt justified in raising the price of oil. To 45 dollars a barrel. At the height of the commodities boom, oil was trading for three times that amount.
March 12, 2011 2:07 PM Subscribe
Why Gas Is So Expensive Today (Hint: It’s Not Libya) A long but enthralling proposal that current gas prices have nothing to do with supply and demand, but are instead due primarily to rampant unchecked commodities speculation ("unchecked" because it had been granted special exemption from the clearly-defined checks). Quotes heavily from this article and this book. (found via Hacker News)
Speculation is demand.
posted by empath at 2:24 PM on March 12, 2011 [8 favorites]
posted by empath at 2:24 PM on March 12, 2011 [8 favorites]
The kind of demand where the problem is people driving big cars.
posted by furiousxgeorge at 2:26 PM on March 12, 2011
posted by furiousxgeorge at 2:26 PM on March 12, 2011
Gas prices going up is a good thing for a lot of reasons. They should go up a lot more. Hell, we should tax it until its at least $10/gal or something.
posted by empath at 2:30 PM on March 12, 2011 [17 favorites]
posted by empath at 2:30 PM on March 12, 2011 [17 favorites]
Speculation is demand.
No. From the article (but really from Taibbi):
The idea that anything in the world is a legitimate part of the market is ludicrous. Economic theory uses that phrase "all else being equal" because you don't have to have a PhD to know that a millionaire and a hundredaire are not equal partners in any transaction between each other.
posted by notion at 2:39 PM on March 12, 2011 [47 favorites]
No. From the article (but really from Taibbi):
This system functioned more or less perfectly for about fifty years. It was tightly regulated by the government, which recognized that the influence of speculators had to be watched carefully. If speculators were allowed to buy up the whole corn crop, or even a big percentage of it, for instance, they could easily manipulate the price. So the government set up position limits, which guaranteed that at any given moment, the trading on the commodities markets would be dominated by the physical hedgers, with the speculators playing a purely functional role in the margins to keep things running smoothly...Speculation is simply a tool for the wealthy to create money without working. When unchecked, it's absolutely disastrous for an economy, because it exposes it to booms and busts that are exacerbated by irrational market speculation instead of the actual market.
...in 1991... the Goldman subsidiary wrote to the Commodity Futures Trading Commission (the government agency overseeing this market) and asked for one measly exception to the rules.
The whole definition of physical hedgers was needlessly restrictive, J. Aron argued. Sure, a corn farmer who bought futures contracts to hedge the risk of a glut in corn prices had a legitimate reason to be hedging his bets. After all, being a farmer was risky! Anything could happen to a farmer, what with nature being involved and all!
Everyone who grew any kind of crop was taking a risk, and it was only right and natural that the government should allow these good people to buy futures contracts to offset that risk.
But what about people on Wall Street? Were not they, too, like farmers, in the sense that they were taking a risk, exposing themselves to the whims of economic nature? After all, a speculator who bought up corn also had risk—investment risk. So, Goldman’s subsidiary argued, why not allow the poor speculator to escape those cruel position limits and be allowed to make transactions in unlimited amounts? Why even call him a speculator at all? Couldn’t J. Aron call itself a physical hedger too? After all, it was taking real risk—just like a farmer!
On October 18, 1991, the CFTC-in the person of Laurie Ferber, an appointee of the first President Bush—agreed with J. Aron’s letter. Ferber wrote that she understood that Aron was asking that its speculative activity be recognized as “bona fide hedging”—and, after a lot of jargon and legalese, she accepted that argument. This was the beginning of the end for position limits and for the proper balance between physical hedgers and speculators in the energy markets.
In the years that followed, the CFTC would quietly issue sixteen similar letters to other companies. Now speculators were free to take over the commodities market. By 2008, fully 80 percent of the activity on the commodity exchanges was speculative, according to one congressional staffer who studied the numbers—”and that’s being conservative,” he said.
The idea that anything in the world is a legitimate part of the market is ludicrous. Economic theory uses that phrase "all else being equal" because you don't have to have a PhD to know that a millionaire and a hundredaire are not equal partners in any transaction between each other.
posted by notion at 2:39 PM on March 12, 2011 [47 favorites]
I agree that gas should be priced a lot higher but if it happens all at once a whole lot of people will be forced to choose between driving to work, paying rent, and eating. Its already happening to some folks and gas is barely at $4/gal.
posted by Glibpaxman at 2:40 PM on March 12, 2011 [6 favorites]
posted by Glibpaxman at 2:40 PM on March 12, 2011 [6 favorites]
It's especially rich that Americans go on about high gas prices, when they have the lowest prices in the developed world. You know what a gallon of gas costs, in American dollars, in the UK right now? $9.65.
It is entirely an invalid argument to compare UK to US fuel prices. Remember, the current tax on petrol in the UK is 56.2 pence per liter, which works out to $3.413 in USD. That doesn't include the 20% VAT.
Please compare apples to apples.
posted by Mister Fabulous at 2:40 PM on March 12, 2011 [3 favorites]
It is entirely an invalid argument to compare UK to US fuel prices. Remember, the current tax on petrol in the UK is 56.2 pence per liter, which works out to $3.413 in USD. That doesn't include the 20% VAT.
Please compare apples to apples.
posted by Mister Fabulous at 2:40 PM on March 12, 2011 [3 favorites]
Gas prices going up is a good thing for a lot of reasons. They should go up a lot more. Hell, we should tax it until its at least $10/gal or something.
I'd be okay with more gas taxes, but not a speculator tax.
posted by furiousxgeorge at 2:41 PM on March 12, 2011 [3 favorites]
I'd be okay with more gas taxes, but not a speculator tax.
posted by furiousxgeorge at 2:41 PM on March 12, 2011 [3 favorites]
Hell, we should tax it until its at least $10/gal or something.
Transporation system says "not same as in town". The problem is rasing the price off an export to counter the higher price, say wheat. Just raise the price to off set demand price. Simple right?
posted by clavdivs at 2:42 PM on March 12, 2011
Transporation system says "not same as in town". The problem is rasing the price off an export to counter the higher price, say wheat. Just raise the price to off set demand price. Simple right?
posted by clavdivs at 2:42 PM on March 12, 2011
Remember, the current tax on petrol in the UK is 56.2 pence per liter, which works out to $3.413 in USD.
My mistake, I read 2009 petrol tax in the UK. The 2011 tax is 58.95 p/liter, or $3.58/gal, not including VAT.
posted by Mister Fabulous at 2:44 PM on March 12, 2011
My mistake, I read 2009 petrol tax in the UK. The 2011 tax is 58.95 p/liter, or $3.58/gal, not including VAT.
posted by Mister Fabulous at 2:44 PM on March 12, 2011
Gas prices going up is a good thing for a lot of reasons. They should go up a lot more. Hell, we should tax it until its at least $10/gal or something.
I don't disagree that gas prices being higher would be good for a lot of reasons but rapid and substantial increases to gas prices are going to change peoples lives. And I don't mean just in a "Time to sell the Hummer and get a Prius!" way, I mean in a poor people can't get to work sort of way.
posted by ghharr at 2:46 PM on March 12, 2011 [14 favorites]
Please compare apples to apples.
A few posts above the suggestion is made to tax gas until it's at least $10 a gallon. Which it more or less is here, so I think the comparison is relevant.
Especially given that we still have a tonne of car use. Taxing to $10 would raise prices across the board, skew in favour of diesels and better public transportation (and be political suicide in a US that has built itself to depend upon the car and truck) but wouldn't bring about the end of the car.
posted by bonaldi at 2:47 PM on March 12, 2011 [4 favorites]
A few posts above the suggestion is made to tax gas until it's at least $10 a gallon. Which it more or less is here, so I think the comparison is relevant.
Especially given that we still have a tonne of car use. Taxing to $10 would raise prices across the board, skew in favour of diesels and better public transportation (and be political suicide in a US that has built itself to depend upon the car and truck) but wouldn't bring about the end of the car.
posted by bonaldi at 2:47 PM on March 12, 2011 [4 favorites]
Speculation is demand.
No. From the article (but really from Taibbi):
Nothing in the article contradicted what I said.
posted by empath at 2:49 PM on March 12, 2011 [2 favorites]
No. From the article (but really from Taibbi):
Nothing in the article contradicted what I said.
posted by empath at 2:49 PM on March 12, 2011 [2 favorites]
Dasein: "Still, doesn't make $4/gallon gas sound so bad, does it?"
UK's expensive gas comes with decent public transit, the kind that isn't feasible in many parts of the US. It's a two hour drive from here to Kansas City. No rail, no flights. Getting from KC to St. Louis is roughly the equivalent of Manchester to anywhere in the UK.
This infrastructure density problem comes up over and over again. We don't have amazing public transit, we don't have amazing cell phones, we don't have amazing bandwidth. All these things assume a massively urbanized population. Basically, we can't just import those policies without first depopulating Jesusland. And then who would anyone import food from?
posted by pwnguin at 2:50 PM on March 12, 2011 [8 favorites]
UK's expensive gas comes with decent public transit, the kind that isn't feasible in many parts of the US. It's a two hour drive from here to Kansas City. No rail, no flights. Getting from KC to St. Louis is roughly the equivalent of Manchester to anywhere in the UK.
This infrastructure density problem comes up over and over again. We don't have amazing public transit, we don't have amazing cell phones, we don't have amazing bandwidth. All these things assume a massively urbanized population. Basically, we can't just import those policies without first depopulating Jesusland. And then who would anyone import food from?
posted by pwnguin at 2:50 PM on March 12, 2011 [8 favorites]
It's a two hour drive from here to Kansas City.
Move closer. Maybe it would also fix the problem of our decaying urban cores.
If you don't like higher gas prices, just wait, they'll get worse. Speculators are bidding up gas prices in the expectation that they will go even higher in the future. And they will, speculators or not.
I moved into a city a five minute drive from my office, live in an apartment and own a hybrid car. I didn't even notice that gas prices went up since I only fill up once a month, if that.
Speculators are doing us a service here by waking people up the realities of what their energy usage costs and forcing people to make sensible decisions.
Don't buy a big house you don't need. Don't buy an SUV, don't live in the suburbs, buy food locally. You'll suddenly find out that you don't care much about gas prices, either.
posted by empath at 2:56 PM on March 12, 2011 [22 favorites]
Move closer. Maybe it would also fix the problem of our decaying urban cores.
If you don't like higher gas prices, just wait, they'll get worse. Speculators are bidding up gas prices in the expectation that they will go even higher in the future. And they will, speculators or not.
I moved into a city a five minute drive from my office, live in an apartment and own a hybrid car. I didn't even notice that gas prices went up since I only fill up once a month, if that.
Speculators are doing us a service here by waking people up the realities of what their energy usage costs and forcing people to make sensible decisions.
Don't buy a big house you don't need. Don't buy an SUV, don't live in the suburbs, buy food locally. You'll suddenly find out that you don't care much about gas prices, either.
posted by empath at 2:56 PM on March 12, 2011 [22 favorites]
Nothing in the article contradicted what I said.
Demand is how much of a given product is wanted by buyers who actually desire to use the product, not speculators who are betting on if the price will go up or down. If they were the same thing, they wouldn't have different names.
For example: speculators of wheat do not want wheat. They want to gamble on the price of wheat. When they are a small minority of the transactions for the purposes of making commodities trading faster, it operates as a market. When they makeup a majority of the trades, you don't have a market. You have a casino.
posted by notion at 2:57 PM on March 12, 2011 [9 favorites]
Demand is how much of a given product is wanted by buyers who actually desire to use the product, not speculators who are betting on if the price will go up or down. If they were the same thing, they wouldn't have different names.
For example: speculators of wheat do not want wheat. They want to gamble on the price of wheat. When they are a small minority of the transactions for the purposes of making commodities trading faster, it operates as a market. When they makeup a majority of the trades, you don't have a market. You have a casino.
posted by notion at 2:57 PM on March 12, 2011 [9 favorites]
Demand is how much of a given product is wanted by buyers who actually desire to use the product, not speculators who are betting on if the price will go up or down.
Speculators are driving up the price because they are buyers of the commodity. What they actually do with what they buy is irrelevant. They are driving up demand, period. It doesn't matter if it's oil or comic books.
posted by empath at 2:58 PM on March 12, 2011
Speculators are driving up the price because they are buyers of the commodity. What they actually do with what they buy is irrelevant. They are driving up demand, period. It doesn't matter if it's oil or comic books.
posted by empath at 2:58 PM on March 12, 2011
The point of speculation is to meet demand with a commodity at a good price at the right time for everyone involved, not for one party to hoard and generate artificially high demand. What they are doing isn't a reflection of demand...it's barely even speculation.
Anyway, empath is making a semantic argument. There is obviously a real world difference between text book demand and the kind of demand where someone needs the product to eat or use for energy.
posted by furiousxgeorge at 3:05 PM on March 12, 2011 [4 favorites]
Anyway, empath is making a semantic argument. There is obviously a real world difference between text book demand and the kind of demand where someone needs the product to eat or use for energy.
posted by furiousxgeorge at 3:05 PM on March 12, 2011 [4 favorites]
I'm not sure why the Fed isn't doing something about this-- every time the price goes above three bucks a gallon people start strongly insinuating that Americans have a Constitutional right to cheap gas. I haven't actually read the Constitution, but I want it to be true, so it must be.
posted by Mayor Curley at 3:07 PM on March 12, 2011
posted by Mayor Curley at 3:07 PM on March 12, 2011
Don't buy a big house you don't need. Don't buy an SUV, don't live in the suburbs, buy food locally. You'll suddenly find out that you don't care much about gas prices, either.
Many people don't have the luxury of making these decisions.
posted by ghharr at 3:07 PM on March 12, 2011 [30 favorites]
Many people don't have the luxury of making these decisions.
posted by ghharr at 3:07 PM on March 12, 2011 [30 favorites]
Let me preface this: it's my opinion that your definition is insufficient, but I'm not trying to be le snark. I'm tired of le snark.
Since speculators never buy the product, I don't think they represent an honest economic signal. They contract to buy it, and then they sell the contract before it's due, because they have no use for the product. So when you say speculation is demand, I disagree, since there is zero intention to ever acquire the product.
posted by notion at 3:08 PM on March 12, 2011 [3 favorites]
Since speculators never buy the product, I don't think they represent an honest economic signal. They contract to buy it, and then they sell the contract before it's due, because they have no use for the product. So when you say speculation is demand, I disagree, since there is zero intention to ever acquire the product.
posted by notion at 3:08 PM on March 12, 2011 [3 favorites]
Lots of places in the US used to be covered in public transportation, what we'd today call light rail. Trolley systems, interurbans ... in lots of places the bones of these systems are still visible. They were constructed and prospered when there were a lot fewer people than there are today, so I don't buy that population density is necessarily the key to their existence.
It's just that taking public transportation — of virtually any type — is generally less convenient than driving a personal vehicle, and given the opportunity people generally choose cars. So when the car became widely available, those systems went (or were forced) out of business. But they could exist again.
posted by Kadin2048 at 3:12 PM on March 12, 2011 [7 favorites]
It's just that taking public transportation — of virtually any type — is generally less convenient than driving a personal vehicle, and given the opportunity people generally choose cars. So when the car became widely available, those systems went (or were forced) out of business. But they could exist again.
posted by Kadin2048 at 3:12 PM on March 12, 2011 [7 favorites]
empath, how do you respond to Taibbi's point that both sides of the political argument play down the role of speculators in forcing up prices because it suits their narrative.
The left says there is too much consumption, the right says there is not enough drilling.
Yet the bankers keep profiting.
Conflating the two issues by playing at semantics is not economics and distracts from the vampire-squid-sucking-the-life-out-of-the-planet side of things, which is really important.
posted by Trochanter at 3:13 PM on March 12, 2011 [4 favorites]
The left says there is too much consumption, the right says there is not enough drilling.
Yet the bankers keep profiting.
Conflating the two issues by playing at semantics is not economics and distracts from the vampire-squid-sucking-the-life-out-of-the-planet side of things, which is really important.
posted by Trochanter at 3:13 PM on March 12, 2011 [4 favorites]
So why doesn't Obama reinstate these speculation position limits for the next year as a test and let's watch what happens to the price of a barrel of wheat, bushel of wheat, etc.
(imagine if it worked and prices went back to $50/bbl - he'd get reelected on gas prices alone. It might hurt electric cars but that'll fix itself by 2020 when they aren't that much more expensive)
posted by SirOmega at 3:15 PM on March 12, 2011 [1 favorite]
(imagine if it worked and prices went back to $50/bbl - he'd get reelected on gas prices alone. It might hurt electric cars but that'll fix itself by 2020 when they aren't that much more expensive)
posted by SirOmega at 3:15 PM on March 12, 2011 [1 favorite]
So why doesn't Obama reinstate these speculation position limits for the next year as a test and let's watch what happens to the price of a barrel of wheat, bushel of wheat, etc.
Because he gets his economic advice from the speculators.
posted by furiousxgeorge at 3:18 PM on March 12, 2011 [14 favorites]
Because he gets his economic advice from the speculators.
posted by furiousxgeorge at 3:18 PM on March 12, 2011 [14 favorites]
Many people don't have the luxury of making these decisions.
I'm sure there are people that don't have access to local food, but I don't really understand which people don't have the luxury of not buying a big house. Even if you have a family, there is this old-school style of living where each child does not necessarily have their own bedroom and bathroom.
posted by snofoam at 3:26 PM on March 12, 2011 [4 favorites]
I'm sure there are people that don't have access to local food, but I don't really understand which people don't have the luxury of not buying a big house. Even if you have a family, there is this old-school style of living where each child does not necessarily have their own bedroom and bathroom.
posted by snofoam at 3:26 PM on March 12, 2011 [4 favorites]
So why doesn't Obama reinstate these speculation position limits for the next year as a test and let's watch what happens to the price of a barrel of wheat, bushel of wheat, etc.
Because the speculators would use their vast supplies of money to make Obama's life (and those of the congressional Democrats) a living hell for the next two years.
In other words: Everyone knows the Founding Fathers were free-marketeers and limits on speculation hurt the businesses that make jobs and all that is SOCIALISM!!!
posted by Bromius at 3:27 PM on March 12, 2011 [5 favorites]
Because the speculators would use their vast supplies of money to make Obama's life (and those of the congressional Democrats) a living hell for the next two years.
In other words: Everyone knows the Founding Fathers were free-marketeers and limits on speculation hurt the businesses that make jobs and all that is SOCIALISM!!!
posted by Bromius at 3:27 PM on March 12, 2011 [5 favorites]
So why doesn't Obama reinstate these speculation position limits for the next year as a test and let's watch what happens to the price of a barrel of wheat, bushel of wheat, etc.
Because he gets his economic advice from the speculators.
And campaign donations too.
posted by ZeusHumms at 3:27 PM on March 12, 2011 [4 favorites]
Because he gets his economic advice from the speculators.
And campaign donations too.
posted by ZeusHumms at 3:27 PM on March 12, 2011 [4 favorites]
I'm sure there are people that don't have access to local food, but I don't really understand which people don't have the luxury of not buying a big house. Even if you have a family, there is this old-school style of living where each child does not necessarily have their own bedroom and bathroom.
I think the point was that people may already be in cheap housing and such but still have troubles.
posted by furiousxgeorge at 3:28 PM on March 12, 2011 [5 favorites]
I think the point was that people may already be in cheap housing and such but still have troubles.
posted by furiousxgeorge at 3:28 PM on March 12, 2011 [5 favorites]
I confess, I haven't read the article.
However, I seem to recall that in the fall of 2010, petroleum-economy experts were predicting the US would have $4/gallon gasoline by the spring of 2011, based on demand growth in a recovering economy and the apparent inflexibility of supply. That prediction was made before the unrest in Tunisa/Egypt/Libya etc., and if there was any merit in it then obviously the unrest there has nothing to do with prices.
OK, I'm going to look at the story now.
posted by Western Infidels at 3:29 PM on March 12, 2011 [1 favorite]
However, I seem to recall that in the fall of 2010, petroleum-economy experts were predicting the US would have $4/gallon gasoline by the spring of 2011, based on demand growth in a recovering economy and the apparent inflexibility of supply. That prediction was made before the unrest in Tunisa/Egypt/Libya etc., and if there was any merit in it then obviously the unrest there has nothing to do with prices.
OK, I'm going to look at the story now.
posted by Western Infidels at 3:29 PM on March 12, 2011 [1 favorite]
Not so much size but location. At least where I live a lot of huge, boxy, exurban houses are much much cheaper than small houses closer to where the jobs are.
posted by ghharr at 3:31 PM on March 12, 2011
posted by ghharr at 3:31 PM on March 12, 2011
I'm sure there are people that don't have access to local food, but I don't really understand which people don't have the luxury of not buying a big house
Right but there are lots of places where the housing near jobs is too expensive so people have to commute 30 or more miles to work so that they can afford a place to live.
posted by octothorpe at 3:32 PM on March 12, 2011 [4 favorites]
Right but there are lots of places where the housing near jobs is too expensive so people have to commute 30 or more miles to work so that they can afford a place to live.
posted by octothorpe at 3:32 PM on March 12, 2011 [4 favorites]
re: all the talk about transit and infrastructure. Taken For A Ride. interesting, aggravating, informative.
posted by rainperimeter at 3:41 PM on March 12, 2011
posted by rainperimeter at 3:41 PM on March 12, 2011
But part of that is that people choose to live far away from work, in big houses with big lawns, in communities where you can't walk anywhere, and so they need to drive everywhere, and commute a long way to work each day. Sure, the US is huge, but that doesn't mean that people have to live such driving-intensive lifestyles. And when they do drive, they don't need to drive cars so large, and so ill-suited to highway cruising (comparing highway mileage in your average gas SUV to that in a VW Golf diesel is enough to make you weep).
I don't think a lot of people have the luxury of choosing a driving intensive lifestyle, I think it kind of comes standard when you're poor. The cheapest places to live are further away from town. The less fuel efficient cars are also less expensive. I'd personally love to sell my car and not pay for gas again, but I can't afford to live anywhere near downtown on a fulltime-just-above-minimum-wage job.
posted by grizzly at 3:55 PM on March 12, 2011 [10 favorites]
I don't think a lot of people have the luxury of choosing a driving intensive lifestyle, I think it kind of comes standard when you're poor. The cheapest places to live are further away from town. The less fuel efficient cars are also less expensive. I'd personally love to sell my car and not pay for gas again, but I can't afford to live anywhere near downtown on a fulltime-just-above-minimum-wage job.
posted by grizzly at 3:55 PM on March 12, 2011 [10 favorites]
I know that there are very poor people that live in a trailer away from town because that's all they can afford, but I'm not sympathetic towards anyone who bought a giant house in the exurbs because they only have $200k (or whatever) to spend on a house. That's a choice. No one is forced to buy a house. Not everyone can afford to buy the Prius that empath has, but if you have the money to buy a house, you have the money to make a variety of choices about how and where you live. And if you want to buy a big house, that's your choice, but quit yer whinin'.
posted by snofoam at 4:09 PM on March 12, 2011
posted by snofoam at 4:09 PM on March 12, 2011
That said, I do support a much higher tax on gas, but I also recognize that it should be offset by assistance for those who really need it.
posted by snofoam at 4:11 PM on March 12, 2011 [1 favorite]
posted by snofoam at 4:11 PM on March 12, 2011 [1 favorite]
Because the speculators would use their vast supplies of money to make Obama's life (and those of the congressional Democrats) a living hell for the next two years.
Delicate flowers, those Democrats.
posted by IndigoJones at 4:13 PM on March 12, 2011 [3 favorites]
Delicate flowers, those Democrats.
posted by IndigoJones at 4:13 PM on March 12, 2011 [3 favorites]
Right but there are lots of places where the housing near jobs is too expensive so people have to commute 30 or more miles to work so that they can afford a place to live.
If people are making that cost calculation (of what they can afford) based on the price of gas over the last few years, rather than the price of gas over the next few years, they're going to exacerbate their woes. And I think a lot of people have made this mistake.
posted by -harlequin- at 4:14 PM on March 12, 2011 [1 favorite]
If people are making that cost calculation (of what they can afford) based on the price of gas over the last few years, rather than the price of gas over the next few years, they're going to exacerbate their woes. And I think a lot of people have made this mistake.
posted by -harlequin- at 4:14 PM on March 12, 2011 [1 favorite]
That said, I do support a much higher tax on gas, but I also recognize that it should be offset by assistance for those who really need it.
I recommend assistence to everyone. Everyone gets 10 gallons of subsidized gas a month (or whatever), and then adopt normal developed-world taxes on the price of gas.
It pushes the market to be more energy efficient, which is a gift that keeps on giving in terms of wealth production. It buffers society against rising price of crude. It probably encourages via the market a bit more active/healthier living which in turn might offer windfalls in lower healthcare expenses.
On top of that, you'd be sitting on a pile of gas-tax money - pay off the deficit and fund the tax cuts.
It makes so much sense it's no wonder every other developed oil-importing nation does it.
posted by -harlequin- at 4:22 PM on March 12, 2011
I recommend assistence to everyone. Everyone gets 10 gallons of subsidized gas a month (or whatever), and then adopt normal developed-world taxes on the price of gas.
It pushes the market to be more energy efficient, which is a gift that keeps on giving in terms of wealth production. It buffers society against rising price of crude. It probably encourages via the market a bit more active/healthier living which in turn might offer windfalls in lower healthcare expenses.
On top of that, you'd be sitting on a pile of gas-tax money - pay off the deficit and fund the tax cuts.
It makes so much sense it's no wonder every other developed oil-importing nation does it.
posted by -harlequin- at 4:22 PM on March 12, 2011
They're more nimble and easier to stop than larger cars (making them actually safer than large vehicles because you can AVOID accidents rather than try to SURVIVE them)
I'm not sure the stats actually back you up on this.
posted by Justinian at 4:27 PM on March 12, 2011 [1 favorite]
I'm not sure the stats actually back you up on this.
posted by Justinian at 4:27 PM on March 12, 2011 [1 favorite]
creating money out of thin air
The economic principles that say this have way more to do with Oog chipping raw flint into an axe blade, and by his labour, adding value. I don't think the same thing happens when you bundle a bunch of lame-ass mortgages into a package in order to piss about with the risk levels.
posted by Trochanter at 4:27 PM on March 12, 2011
The economic principles that say this have way more to do with Oog chipping raw flint into an axe blade, and by his labour, adding value. I don't think the same thing happens when you bundle a bunch of lame-ass mortgages into a package in order to piss about with the risk levels.
posted by Trochanter at 4:27 PM on March 12, 2011
Gas prices going up is a good thing for a lot of reasons. They should go up a lot more. Hell, we should tax it until its at least $10/gal or something.
People that say this sort of thing are the kind of folks I usually agree with, but this is such an asshole position to take. Let me recycle a comment I made last time this was brought up:
Yes, cities have been dying at the expense of the suburbs for decades. And yes, I am a young city dweller who loves urban life. It's easy for me to say, "fuck those commuters, raise gas prices and get on the commuter rail line."
But espousing that view is marginalizing another group entirely: the rural folk. I grew up in rural Minnesota where a car or truck isn't a luxury but a necessity. You live miles from anything and everything. People are low middle class and money is tight. You want to go to church? That's a drive. How about driving your kid to school in the next town over? That's a thirty minute drive. You want to go to the bigger town with the shopping center? That's an hour. And God forbid you want to go to the big city and go to the museum or catch a show, well that is four hours round trip.
To raise gas to $10/gallon might bring people from the suburbs in, but it would permanently strand the rural Americans, who are on average some of the poorest. They have no public transit option and never will. This is a big country with lots of open land and we need to remember there are people there too.
posted by boubelium at 4:30 PM on March 12, 2011 [16 favorites]
People that say this sort of thing are the kind of folks I usually agree with, but this is such an asshole position to take. Let me recycle a comment I made last time this was brought up:
Yes, cities have been dying at the expense of the suburbs for decades. And yes, I am a young city dweller who loves urban life. It's easy for me to say, "fuck those commuters, raise gas prices and get on the commuter rail line."
But espousing that view is marginalizing another group entirely: the rural folk. I grew up in rural Minnesota where a car or truck isn't a luxury but a necessity. You live miles from anything and everything. People are low middle class and money is tight. You want to go to church? That's a drive. How about driving your kid to school in the next town over? That's a thirty minute drive. You want to go to the bigger town with the shopping center? That's an hour. And God forbid you want to go to the big city and go to the museum or catch a show, well that is four hours round trip.
To raise gas to $10/gallon might bring people from the suburbs in, but it would permanently strand the rural Americans, who are on average some of the poorest. They have no public transit option and never will. This is a big country with lots of open land and we need to remember there are people there too.
posted by boubelium at 4:30 PM on March 12, 2011 [16 favorites]
But espousing that view is marginalizing another group entirely: the rural folk
Purple gas/purple diesel. Don't you guys have that?
posted by Trochanter at 4:33 PM on March 12, 2011
Purple gas/purple diesel. Don't you guys have that?
posted by Trochanter at 4:33 PM on March 12, 2011
Many people don't have the luxury of making these decisions.
I'm pretty sure that the act of not buying an SUV is not a luxury.
posted by empath at 4:35 PM on March 12, 2011 [1 favorite]
I'm pretty sure that the act of not buying an SUV is not a luxury.
posted by empath at 4:35 PM on March 12, 2011 [1 favorite]
empath: I work a short distance from my office. My wife's job is 15 miles away. Where do you suggest we live?
posted by Fleebnork at 4:37 PM on March 12, 2011
posted by Fleebnork at 4:37 PM on March 12, 2011
To raise gas to $10/gallon might bring people from the suburbs in, but it would permanently strand the rural Americans, who are on average some of the poorest. They have no public transit option and never will. This is a big country with lots of open land and we need to remember there are people there too.
You're living in fantasyland. Higher prices are coming and there is absolute certainty and absolutely nothing that can be done to stop this. The only options are mitigation, such as a controlled and planned price rise, that gives time to transition these systems and incentive to do so, and raises funds to make it happen.
The price of gas in the USA is set by the market. If you allow the market to continue to be the only factor with any say in the market, the market is going to ruthlessly and utterly destroy these people that you are claiming to have compassion for.
posted by -harlequin- at 4:38 PM on March 12, 2011 [3 favorites]
You're living in fantasyland. Higher prices are coming and there is absolute certainty and absolutely nothing that can be done to stop this. The only options are mitigation, such as a controlled and planned price rise, that gives time to transition these systems and incentive to do so, and raises funds to make it happen.
The price of gas in the USA is set by the market. If you allow the market to continue to be the only factor with any say in the market, the market is going to ruthlessly and utterly destroy these people that you are claiming to have compassion for.
posted by -harlequin- at 4:38 PM on March 12, 2011 [3 favorites]
To raise gas to $10/gallon might bring people from the suburbs in, but it would permanently strand the rural Americans, who are on average some of the poorest. They have no public transit option and never will. This is a big country with lots of open land and we need to remember there are people there too.
And if gas prices go up, they'll either restructure their communities to work better when gas prices are higher, or they'll move. They managed to survive centuries without gasoline at all. They can manage with less gasoline.
Plus, we can offset the tax with other subsidies. Any energy tax would have to be structured that way to ever have a hope of passing.
posted by empath at 4:39 PM on March 12, 2011 [1 favorite]
And if gas prices go up, they'll either restructure their communities to work better when gas prices are higher, or they'll move. They managed to survive centuries without gasoline at all. They can manage with less gasoline.
Plus, we can offset the tax with other subsidies. Any energy tax would have to be structured that way to ever have a hope of passing.
posted by empath at 4:39 PM on March 12, 2011 [1 favorite]
empath: I work a short distance from my office. My wife's job is 15 miles away. Where do you suggest we live?
15 miles is practically next door compared to a lot of people's commutes. Before i moved, I was 40 miles away and spent an hour driving into work every day.
posted by empath at 4:40 PM on March 12, 2011
15 miles is practically next door compared to a lot of people's commutes. Before i moved, I was 40 miles away and spent an hour driving into work every day.
posted by empath at 4:40 PM on March 12, 2011
15 miles is practically next door compared to a lot of people's commutes. Before i moved, I was 40 miles away and spent an hour driving into work every day.
And I've been there and done that, too. My point was that even if you can move close to one partner's work, the other might still be far away. Or you can be transferred to another location (also happened to me). Or you can get laid off and the only job you can find is far away.
Your situation might be a simple one if you're single (which I'm guessing you are) and your job is actually in the city. It's not so simple for the rest of us.
posted by Fleebnork at 4:45 PM on March 12, 2011 [3 favorites]
And I've been there and done that, too. My point was that even if you can move close to one partner's work, the other might still be far away. Or you can be transferred to another location (also happened to me). Or you can get laid off and the only job you can find is far away.
Your situation might be a simple one if you're single (which I'm guessing you are) and your job is actually in the city. It's not so simple for the rest of us.
posted by Fleebnork at 4:45 PM on March 12, 2011 [3 favorites]
empath: I work a short distance from my office. My wife's job is 15 miles away. Where do you suggest we live?
There are plenty of options for you. You can be more imaginative than "What can I do?! I'm helpless!".
At the end of the day, your can start addressing lifestyle issues now, or you can suffer hardship later. There will be no shortage of people whining about how they had no choice but to screw themselves over, and that the world is cruel. You'll be happier if you're not one of them.
posted by -harlequin- at 4:45 PM on March 12, 2011 [2 favorites]
There are plenty of options for you. You can be more imaginative than "What can I do?! I'm helpless!".
At the end of the day, your can start addressing lifestyle issues now, or you can suffer hardship later. There will be no shortage of people whining about how they had no choice but to screw themselves over, and that the world is cruel. You'll be happier if you're not one of them.
posted by -harlequin- at 4:45 PM on March 12, 2011 [2 favorites]
dflemingecon - you're fucking them more if you don't.
posted by -harlequin- at 4:48 PM on March 12, 2011
posted by -harlequin- at 4:48 PM on March 12, 2011
Gas prices in the US are low in comparison to countries that don't actively subsidize fuel. Very low.
When you add in the tax placed by the governments, then sure, UK prices are high. For the UK, after you take off the $3.60/gallon tax, and the 20% VAT, you are already down to around $4-4.50/gallon. This doesn't take into effect the compounding increase in cost due to actually moving that fuel, because with fuel being $9.60/gallon that implies transport costs will be significantly inflated. The wholesale price for the petrol in the UK is somewhere around $3.50/gallon after you remove these costs and some profit for the station owner. RBOB gasoline closed at $2.98 on the New York Merc on Friday. When you take away the tax and other compounding effects due to the tax, the prices are not vastly far apart. You can try to make a subsidies argument here, but the subsidies are not for refined gasoline. The subsidies are for oil and oil exploration. Ultimately the subsidies result in gasoline being cheaper on the global market.
The whole point of the article is about speculation, which drives up the wholesale prices of commodities, not the retail. In 1998 the wholesale price was down to $0.526/gallon. 2004: $1.287/gallon. Now: $2.98/gallon, and likely to push upwards of $3.50-$4.00 this summer. There's not been enough of a difference in consumption, China included, between 1998-2011, or 2004-2011 to justify a six-fold or 2.5-fold increase in 13 and 7 years respectively.
posted by Mister Fabulous at 4:48 PM on March 12, 2011 [1 favorite]
When you add in the tax placed by the governments, then sure, UK prices are high. For the UK, after you take off the $3.60/gallon tax, and the 20% VAT, you are already down to around $4-4.50/gallon. This doesn't take into effect the compounding increase in cost due to actually moving that fuel, because with fuel being $9.60/gallon that implies transport costs will be significantly inflated. The wholesale price for the petrol in the UK is somewhere around $3.50/gallon after you remove these costs and some profit for the station owner. RBOB gasoline closed at $2.98 on the New York Merc on Friday. When you take away the tax and other compounding effects due to the tax, the prices are not vastly far apart. You can try to make a subsidies argument here, but the subsidies are not for refined gasoline. The subsidies are for oil and oil exploration. Ultimately the subsidies result in gasoline being cheaper on the global market.
The whole point of the article is about speculation, which drives up the wholesale prices of commodities, not the retail. In 1998 the wholesale price was down to $0.526/gallon. 2004: $1.287/gallon. Now: $2.98/gallon, and likely to push upwards of $3.50-$4.00 this summer. There's not been enough of a difference in consumption, China included, between 1998-2011, or 2004-2011 to justify a six-fold or 2.5-fold increase in 13 and 7 years respectively.
posted by Mister Fabulous at 4:48 PM on March 12, 2011 [1 favorite]
FWIW, I agree with living large when it's affordable to do so. My issue is with the entitlement attitude that comes with it to have that lifestyle forever. People feel entitled to live in a way that might not be affordable for them years from now, and so make the mistake of entwining that with their lives, such that a change in the luxury such as cheap gas, is a calamity that can shatter lives.
Just Don't Do That!
Live where you want, do what you want. but don't get yourself stuck in a situation where you depend absolutely on something (like cheap gas) that you're not entitled to have.
posted by -harlequin- at 4:52 PM on March 12, 2011 [1 favorite]
Just Don't Do That!
Live where you want, do what you want. but don't get yourself stuck in a situation where you depend absolutely on something (like cheap gas) that you're not entitled to have.
posted by -harlequin- at 4:52 PM on March 12, 2011 [1 favorite]
At the end of the day, your can start addressing lifestyle issues now, or you can suffer hardship later. There will be no shortage of people whining about how they had no choice but to screw themselves over, and that the world is cruel. You'll be happier if you're not one of them.
Have none of you people ever had trouble finding jobs? Or having to take a job because you NEED it... even if it's a longer commute?
posted by Fleebnork at 4:53 PM on March 12, 2011 [10 favorites]
Have none of you people ever had trouble finding jobs? Or having to take a job because you NEED it... even if it's a longer commute?
posted by Fleebnork at 4:53 PM on March 12, 2011 [10 favorites]
Have none of you people ever had trouble finding jobs? Or having to take a job because you NEED it... even if it's a longer commute?
Of course I have. But because I put considerably higher stock in planning against these possibilities before they happened, I've been able to survive hardships that others... haven't been able to deal with so well.
posted by -harlequin- at 4:56 PM on March 12, 2011
Of course I have. But because I put considerably higher stock in planning against these possibilities before they happened, I've been able to survive hardships that others... haven't been able to deal with so well.
posted by -harlequin- at 4:56 PM on March 12, 2011
And if gas prices go up, they'll either restructure their communities to work better when gas prices are higher, or they'll move. They managed to survive centuries without gasoline at all. They can manage with less gasoline.
As peasants and serfs. I hope you're not advocating for the rural folk to transition to that lifestyle again.
This—and other sentiments like it—are painful. Like someone else here, I grew up in rural Minnesota and many family members still live there. My Mom owns a cheap farmhouse seven miles from a town of a thousand people. She works at Country Kitchen about 35 miles away. She is not a grand earner. As you can imagine, gas prices affect her acutely. There may come a time when gas is $10 a gallon and she'll just have to adjust to spending an even larger percentage of her income on it, but why usher it? Why herald it as Fine and Good thing that portrays her as selfish compared to all of us eco-conscious urban dwellers who were smart enough to live in cities?
As for the car thing, many poor families would not be able to pay $13,000 for a brand new car. They get a $1000 junker that will hold up, gets bad gas mileage, and will probably be run down in a year or so. Sure, they would save for a better car for a better deal, but they need a car now. Now. They can't walk to work. They can't ride a bike to work. They can't carpool to work. They live 35 minutes from that town. A vehicle is not a luxury for them. They don't use them because they're lazy and have a mild distaste for Minnesota winters.
posted by Lord Chancellor at 4:57 PM on March 12, 2011 [7 favorites]
As peasants and serfs. I hope you're not advocating for the rural folk to transition to that lifestyle again.
This—and other sentiments like it—are painful. Like someone else here, I grew up in rural Minnesota and many family members still live there. My Mom owns a cheap farmhouse seven miles from a town of a thousand people. She works at Country Kitchen about 35 miles away. She is not a grand earner. As you can imagine, gas prices affect her acutely. There may come a time when gas is $10 a gallon and she'll just have to adjust to spending an even larger percentage of her income on it, but why usher it? Why herald it as Fine and Good thing that portrays her as selfish compared to all of us eco-conscious urban dwellers who were smart enough to live in cities?
As for the car thing, many poor families would not be able to pay $13,000 for a brand new car. They get a $1000 junker that will hold up, gets bad gas mileage, and will probably be run down in a year or so. Sure, they would save for a better car for a better deal, but they need a car now. Now. They can't walk to work. They can't ride a bike to work. They can't carpool to work. They live 35 minutes from that town. A vehicle is not a luxury for them. They don't use them because they're lazy and have a mild distaste for Minnesota winters.
posted by Lord Chancellor at 4:57 PM on March 12, 2011 [7 favorites]
I guess those poor people just didn't put high enough stock in planning against those possibilities before they happened.
posted by Fleebnork at 4:59 PM on March 12, 2011 [6 favorites]
posted by Fleebnork at 4:59 PM on March 12, 2011 [6 favorites]
Have none of you people ever had trouble finding jobs? Or having to take a job because you NEED it... even if it's a longer commute?
Yeah, I got laid off and didn't work for 5 months, and found a new job 3 hours away. I moved.
posted by empath at 5:01 PM on March 12, 2011 [1 favorite]
Yeah, I got laid off and didn't work for 5 months, and found a new job 3 hours away. I moved.
posted by empath at 5:01 PM on March 12, 2011 [1 favorite]
dflemingecon - the price can up slowly with everyone knowing far in advance when and how much, while alternatives getting extra funding to come online quicker, or it can happen unpredictably, possibly suddenly.
It's common sesne which is better for people who are struggling.
masked as some deep concern for people.
No, I'm pointing out the bullshit in your concern, not claiming to have any myself. If you care about the poor, you'd advocate something that could help them more than leaving them to the mercy of the end of cheap oil. I genuinely believe that intervention offers people on the fringes an easier transition. I'm not claiming to care about that, but you are claiming to care, and I think your don't-mess-with-the-status-quo approach is just setting up these folk for destruction.
posted by -harlequin- at 5:02 PM on March 12, 2011
It's common sesne which is better for people who are struggling.
masked as some deep concern for people.
No, I'm pointing out the bullshit in your concern, not claiming to have any myself. If you care about the poor, you'd advocate something that could help them more than leaving them to the mercy of the end of cheap oil. I genuinely believe that intervention offers people on the fringes an easier transition. I'm not claiming to care about that, but you are claiming to care, and I think your don't-mess-with-the-status-quo approach is just setting up these folk for destruction.
posted by -harlequin- at 5:02 PM on March 12, 2011
I guess those poor people just didn't put high enough stock in planning against those possibilities before they happened.
It's not limited to poor people. It's a LOT of people I know. And while I don't know you, from what your statements imply about what you think is reasonable and what is just too much, I'm fairly confident I could include you.
posted by -harlequin- at 5:06 PM on March 12, 2011
It's not limited to poor people. It's a LOT of people I know. And while I don't know you, from what your statements imply about what you think is reasonable and what is just too much, I'm fairly confident I could include you.
posted by -harlequin- at 5:06 PM on March 12, 2011
As for the car thing, many poor families would not be able to pay $13,000 for a brand new car. They get a $1000 junker that will hold up, gets bad gas mileage, and will probably be run down in a year or so. Sure, they would save for a better car for a better deal, but they need a car now. Now. They can't walk to work. They can't ride a bike to work. They can't carpool to work. They live 35 minutes from that town. A vehicle is not a luxury for them. They don't use them because they're lazy and have a mild distaste for Minnesota winters.
It's not my fault that gas prices are high. And it's not particularly the fault of speculators. They may be raising prices in advance of what the natural demand curve would have been, but they also might just be smoothing out what could be a huge, unexpected spike 3 or 5 or 10 years from now when we have some event that dramatically impacts supply.
You need to start using less gas. Today. This isn't a moral thing, this is a practical thing. The fact that you 'need' cheap gas should tell you to start making changes in your life, right now, today, to remedy that. You either take the pain now or take it later. If you can't survive with $10 a gallon gas, then you need to move, change jobs, whatever. Because it is coming, probably sooner than you expect. And the speculators aren't the cause of it.
posted by empath at 5:06 PM on March 12, 2011 [7 favorites]
It's not my fault that gas prices are high. And it's not particularly the fault of speculators. They may be raising prices in advance of what the natural demand curve would have been, but they also might just be smoothing out what could be a huge, unexpected spike 3 or 5 or 10 years from now when we have some event that dramatically impacts supply.
You need to start using less gas. Today. This isn't a moral thing, this is a practical thing. The fact that you 'need' cheap gas should tell you to start making changes in your life, right now, today, to remedy that. You either take the pain now or take it later. If you can't survive with $10 a gallon gas, then you need to move, change jobs, whatever. Because it is coming, probably sooner than you expect. And the speculators aren't the cause of it.
posted by empath at 5:06 PM on March 12, 2011 [7 favorites]
I know this won't matter to people who are already convinced that speculation is evil, but there is a limit to every market. If oil futures are priced far above spot market price without supply constraints or real concerns about future supply, there is only so far that trade can go before it snaps back - this happened in 2008 as well when people were predicting $200/bbl oil and $8/gal gasoline. Oil has decreased in price over the last week. The oil trade might not be done yet, but when is the price will drop rapidly, fuel prices will go back to normal and people will forget how angry they were. This will likely happen within a matter of weeks or a few months.
Personally, I think the leveraged allowed should be decreased through increased margin, but it's far past the day when anyone could really corner the commodities markets in any meaningful way, and most overbought conditions return back to the mean within a short amount of time. I don't have a problem with speculation in commodities markets as long as the leverage is kept within reasonable limits. Incidentally, the margins on wheat and some other overbought futures were increased a couple times already and were run up generally due to supply fears and increases in cost inputs such as fuel. Most of those trades will be done by this summer or fall, meaning prices should drop quickly once the fear in the market subsides.
posted by krinklyfig at 5:06 PM on March 12, 2011 [1 favorite]
Personally, I think the leveraged allowed should be decreased through increased margin, but it's far past the day when anyone could really corner the commodities markets in any meaningful way, and most overbought conditions return back to the mean within a short amount of time. I don't have a problem with speculation in commodities markets as long as the leverage is kept within reasonable limits. Incidentally, the margins on wheat and some other overbought futures were increased a couple times already and were run up generally due to supply fears and increases in cost inputs such as fuel. Most of those trades will be done by this summer or fall, meaning prices should drop quickly once the fear in the market subsides.
posted by krinklyfig at 5:06 PM on March 12, 2011 [1 favorite]
this happened in 2008 as well when people were predicting $200/bbl oil and $8/gal gasoline.
What happened to oil prices in 2008 was a global recession.
posted by -harlequin- at 5:08 PM on March 12, 2011
What happened to oil prices in 2008 was a global recession.
posted by -harlequin- at 5:08 PM on March 12, 2011
Complaining about expensive gas is like complaining about hurricanes when you live in the Gulf. It's not like we all voted, hey, let's have a big hurricane hit New Orleans, fuck those guys. It's just a fact of life. It's going to happen. And we can either prepare for it, or we can just whistle past the graveyard and blame bankers or arabs or whatever villain besides the billions of people on the planet who are far too dependent on wasting a non-renewable resource.
posted by empath at 5:09 PM on March 12, 2011 [8 favorites]
posted by empath at 5:09 PM on March 12, 2011 [8 favorites]
You could also argue that what happened to the economy in 2008 was global oil prices.
posted by ofthestrait at 5:13 PM on March 12, 2011
posted by ofthestrait at 5:13 PM on March 12, 2011
I use less gas now than I used five years ago. I'm trying to use less than that. But there are limits. If gas breaks $5/gallon in the next two years, I am going to be making decisions about which of my monthly prescriptions not to pay for. It's not all just personal responsibility, there really needs to be a push now for governmental support programs to make sure that the low-income are really capable of making it through this transition. There is only so much in my life that can be changed, can be cut.
If transit systems are not vastly improved, if urban neighborhoods are not safe enough to *use* those transit systems, if basic shopping needs require extensive commutes when you happen to live in poor urban neighborhoods--those things basically mean that the urban poor are not going to have the flexibility to adjust to this. I'm only here temporarily; my neighbors have lived here their whole lives. They cannot just decide to pick up and go somewhere better because this place where the poor can live and have jobs and not drive and where they can pay for everything they need might as well be Shangri-La.
The middle class has options as to how to deal with these things. Not everybody is middle class.
posted by gracedissolved at 5:15 PM on March 12, 2011 [4 favorites]
If transit systems are not vastly improved, if urban neighborhoods are not safe enough to *use* those transit systems, if basic shopping needs require extensive commutes when you happen to live in poor urban neighborhoods--those things basically mean that the urban poor are not going to have the flexibility to adjust to this. I'm only here temporarily; my neighbors have lived here their whole lives. They cannot just decide to pick up and go somewhere better because this place where the poor can live and have jobs and not drive and where they can pay for everything they need might as well be Shangri-La.
The middle class has options as to how to deal with these things. Not everybody is middle class.
posted by gracedissolved at 5:15 PM on March 12, 2011 [4 favorites]
So when you say speculation is demand, I disagree, since there is zero intention to ever acquire the product.
I used to work for a financial spread betting company, and one of the CEO's anecdotes was about when he was a young trader in London in the 80's. He forgot to close out a position before the contract expired, and accidentally purchased several thousand tons of bananas.
posted by kersplunk at 5:20 PM on March 12, 2011
I used to work for a financial spread betting company, and one of the CEO's anecdotes was about when he was a young trader in London in the 80's. He forgot to close out a position before the contract expired, and accidentally purchased several thousand tons of bananas.
posted by kersplunk at 5:20 PM on March 12, 2011
ok deflemingecon, that's a more substantive comment.
but in the meantime, reward and invest in innovation in alternatives and make them cheaper Poor people can't be the first adopters of technology, but if you incentivize alternatives in the short-term, those second-hand electric cars will be there..
I don't think this is working optimally because 1) there is limited motivation or urgency when everyone can just hop in a car and get a better experience. 2) There isn't much money to do this
We agree that transition pains must be smoothed, but you want to take a slower pace, and I want to accelerate the hurt and transition at a more rapid rate. So I think the difference is that I may be expecting a bigger problem arriving sooner than you are. That's a separate question. I think your position is reasonable given your expectation.
I strongly support progressive taxation, and gas tax is extremely regressive, but energy efficiency needs market incentive. Hence I suggest everyone getting cheap gas up to a point. Thus keeping the market incentive, while cushioning the regressive nature of the incentive.
posted by -harlequin- at 5:21 PM on March 12, 2011 [1 favorite]
but in the meantime, reward and invest in innovation in alternatives and make them cheaper Poor people can't be the first adopters of technology, but if you incentivize alternatives in the short-term, those second-hand electric cars will be there..
I don't think this is working optimally because 1) there is limited motivation or urgency when everyone can just hop in a car and get a better experience. 2) There isn't much money to do this
We agree that transition pains must be smoothed, but you want to take a slower pace, and I want to accelerate the hurt and transition at a more rapid rate. So I think the difference is that I may be expecting a bigger problem arriving sooner than you are. That's a separate question. I think your position is reasonable given your expectation.
I strongly support progressive taxation, and gas tax is extremely regressive, but energy efficiency needs market incentive. Hence I suggest everyone getting cheap gas up to a point. Thus keeping the market incentive, while cushioning the regressive nature of the incentive.
posted by -harlequin- at 5:21 PM on March 12, 2011 [1 favorite]
What happened to oil prices in 2008 was a global recession.
Which is precisely my point - oil soared to almost $150/bbl in the summer of 2008 and proceeded to drop to $30/bbl within eight months. We're still in a low growth phase, so much so that the demand simply doesn't exist to prop up high fuel prices at the moment, but unrest in the ME has stoked up fear of future supply constraints (which are somewhat overblown but there is still too much unknown about the near future in the region). So, when the fear from this mostly news-driven trade subsides and people turn away from oil as a fear trade, the price will drop off a cliff. Not precisely like 2008, because we're not in a teetering market with giant black holes of mortgage debt underneath, but it's pretty much the way these trades go every time.
posted by krinklyfig at 5:25 PM on March 12, 2011
Which is precisely my point - oil soared to almost $150/bbl in the summer of 2008 and proceeded to drop to $30/bbl within eight months. We're still in a low growth phase, so much so that the demand simply doesn't exist to prop up high fuel prices at the moment, but unrest in the ME has stoked up fear of future supply constraints (which are somewhat overblown but there is still too much unknown about the near future in the region). So, when the fear from this mostly news-driven trade subsides and people turn away from oil as a fear trade, the price will drop off a cliff. Not precisely like 2008, because we're not in a teetering market with giant black holes of mortgage debt underneath, but it's pretty much the way these trades go every time.
posted by krinklyfig at 5:25 PM on March 12, 2011
The middle class has options as to how to deal with these things. Not everybody is middle class.
Basically, you're saying that people without options are screwed. That may be, but no-one should assume they have no options, and no-one should just stop thinking about it because nothing obvious presents itself.
The other thing lending the mischaracterisation of elitism to this is the word "options", the word I actually mean is "sacrifices", and I've made some big ones.
It's legitimate to not sacrifice now, live as well as you can, and adapt later. It's a mistake to entwine your livelyhood in that such that you can't adapt later.
posted by -harlequin- at 5:29 PM on March 12, 2011
Basically, you're saying that people without options are screwed. That may be, but no-one should assume they have no options, and no-one should just stop thinking about it because nothing obvious presents itself.
The other thing lending the mischaracterisation of elitism to this is the word "options", the word I actually mean is "sacrifices", and I've made some big ones.
It's legitimate to not sacrifice now, live as well as you can, and adapt later. It's a mistake to entwine your livelyhood in that such that you can't adapt later.
posted by -harlequin- at 5:29 PM on March 12, 2011
Question: Will $10/gallon gas encourage or discourage people from making Molotov cocktails?
posted by The Hamms Bear at 5:31 PM on March 12, 2011 [6 favorites]
posted by The Hamms Bear at 5:31 PM on March 12, 2011 [6 favorites]
Where "live as well as you can" includes struggling paycheck-to-paycheck while your health is degenerating due to lack of access to urgently needed healthcare.
posted by -harlequin- at 5:32 PM on March 12, 2011
posted by -harlequin- at 5:32 PM on March 12, 2011
So when you say speculation is demand, I disagree, since there is zero intention to ever acquire the product.
So what are they buying the rights for? To frame?
posted by yerfatma at 5:45 PM on March 12, 2011
So what are they buying the rights for? To frame?
posted by yerfatma at 5:45 PM on March 12, 2011
I think the mistake we made was using "Supply and Demand," when we meant "Production and Consumption." Hows that work for y'all?
posted by Trochanter at 5:57 PM on March 12, 2011
posted by Trochanter at 5:57 PM on March 12, 2011
You need to start using less gas. Today. This isn't a moral thing, this is a practical thing. The fact that you 'need' cheap gas should tell you to start making changes in your life, right now, today, to remedy that. You either take the pain now or take it later. If you can't survive with $10 a gallon gas, then you need to move, change jobs, whatever. Because it is coming, probably sooner than you expect. And the speculators aren't the cause of it.
Well, the way you describe it, there needs to be a massive social upheaval—an upheaval unprecedented since the Industrial Revolution. Are we going to totally depopulate rural areas and move all of them into the city? Are we going to close down any town less than a ten thousand people as "unsustainable"? How are we going to manage farming? How are we going to manage ranching? Is the urban lifestyle soon to become the only sustainable lifestyle for a near majority on earth? If problems are as bad as you say, how will society safely transition (and to what will they transition to) without a loss of life/livelihood such as the Great Depression and Dust Bowl? The catastrophe of the magnitude that you express will require more than individual choices mitigating it. There's a lot of people in the gears, and we can't just "Tough Shit, they should have lived downtown" them.
posted by Lord Chancellor at 6:05 PM on March 12, 2011 [3 favorites]
Well, the way you describe it, there needs to be a massive social upheaval—an upheaval unprecedented since the Industrial Revolution. Are we going to totally depopulate rural areas and move all of them into the city? Are we going to close down any town less than a ten thousand people as "unsustainable"? How are we going to manage farming? How are we going to manage ranching? Is the urban lifestyle soon to become the only sustainable lifestyle for a near majority on earth? If problems are as bad as you say, how will society safely transition (and to what will they transition to) without a loss of life/livelihood such as the Great Depression and Dust Bowl? The catastrophe of the magnitude that you express will require more than individual choices mitigating it. There's a lot of people in the gears, and we can't just "Tough Shit, they should have lived downtown" them.
posted by Lord Chancellor at 6:05 PM on March 12, 2011 [3 favorites]
It's not limited to poor people. It's a LOT of people I know. And while I don't know you, from what your statements imply about what you think is reasonable and what is just too much, I'm fairly confident I could include you.
I am not endorsing or emulating the McMansion lifestyle.
My wife and I drive two paid-for four-cylinder Hondas and live in a modest house we were able to afford while I was various shades of unemployed and underemployed over the last few years. Since I've recently found what seems to be a good full-time job, we are considering moving to a smaller place in the city, but it would still require me to commute out to the 'burbs where my new job is. That's a sacrifice I would be willing to make, since I would be traveling opposite the bulk of traffic.
I've been trying to suggest that perhaps there's a middle ground between urban walk-to-work smugster and Hummer-driving McMansionite, and that it's not necessarily the easiest thing to just uproot, move to the city and find yourself a lovely job within walking distance of your living space, especially when the equation might include two working spouses and children in schools, and inner city living is often much more expensive than living outside the city.
posted by Fleebnork at 6:10 PM on March 12, 2011 [3 favorites]
I am not endorsing or emulating the McMansion lifestyle.
My wife and I drive two paid-for four-cylinder Hondas and live in a modest house we were able to afford while I was various shades of unemployed and underemployed over the last few years. Since I've recently found what seems to be a good full-time job, we are considering moving to a smaller place in the city, but it would still require me to commute out to the 'burbs where my new job is. That's a sacrifice I would be willing to make, since I would be traveling opposite the bulk of traffic.
I've been trying to suggest that perhaps there's a middle ground between urban walk-to-work smugster and Hummer-driving McMansionite, and that it's not necessarily the easiest thing to just uproot, move to the city and find yourself a lovely job within walking distance of your living space, especially when the equation might include two working spouses and children in schools, and inner city living is often much more expensive than living outside the city.
posted by Fleebnork at 6:10 PM on March 12, 2011 [3 favorites]
Cheap petrol is not a right. If the problem is the way that poor people are hurt by high gas prices, then we need government to ensure they can cope with this change. The problem isn't the price of petrol, per se, it's the lack of support for poor and disenfranchised. This is what governments in a (neo) liberal world basically exist for - to provide services and support in areas the free market is unwilling or unable to. You might not like it, but it's certainly a well-established set-up.
Keeping the price artificially low is both short-sighted for reasons already spoken of (it's going up anyway; it's effectively already massively subsidised because the environmental cost is completely ignored in the price to market), but also is really no better than speculation in that it distorts the market and leads to incredibly - economically speaking - unhealthy consumption (and investment) - patterns. That will lead to far greater costs - be it boom/bust or environmental destruction etc - in the long run. Communist Russia was doing this kind of thing under Brezhnev for example, and the correction is still being felt, and at great privation to its people.
Public policy should not be some madcap, reactionary race to keep as many plates spinning as possible. Gas should be more expensive because the current price does not reflect its true value. If that is going to cause problems to citizens, the government needs to correct its policies to ease that pain, not wade into economically illiterate market manipulation - and I say this as an extremely left wing person who is huge on government intervention.
Everybody is happy to talk about the price we pay for high-cost oil; no one wants to talk about the price for low-value oil - and in terms of world population, cheap oil has already cost - and will continue to cost - far more lives, livelihoods and freedoms than expensive oil.
What some people in-thread are arguing for is the same kind of policies that have American farmers growing crops that subsequently rot in fields or generate income primarily from the subsidies they receive. It's a mind-boggingly short-sighted and foolish way to govern.
posted by smoke at 6:12 PM on March 12, 2011 [6 favorites]
Keeping the price artificially low is both short-sighted for reasons already spoken of (it's going up anyway; it's effectively already massively subsidised because the environmental cost is completely ignored in the price to market), but also is really no better than speculation in that it distorts the market and leads to incredibly - economically speaking - unhealthy consumption (and investment) - patterns. That will lead to far greater costs - be it boom/bust or environmental destruction etc - in the long run. Communist Russia was doing this kind of thing under Brezhnev for example, and the correction is still being felt, and at great privation to its people.
Public policy should not be some madcap, reactionary race to keep as many plates spinning as possible. Gas should be more expensive because the current price does not reflect its true value. If that is going to cause problems to citizens, the government needs to correct its policies to ease that pain, not wade into economically illiterate market manipulation - and I say this as an extremely left wing person who is huge on government intervention.
Everybody is happy to talk about the price we pay for high-cost oil; no one wants to talk about the price for low-value oil - and in terms of world population, cheap oil has already cost - and will continue to cost - far more lives, livelihoods and freedoms than expensive oil.
What some people in-thread are arguing for is the same kind of policies that have American farmers growing crops that subsequently rot in fields or generate income primarily from the subsidies they receive. It's a mind-boggingly short-sighted and foolish way to govern.
posted by smoke at 6:12 PM on March 12, 2011 [6 favorites]
By the way, can we also drop the Fox News-esque "Well, I did it, so everyone can" mentality when referring to finding work, getting a good cheap car, moving, or adjusting to a new life? Not everyone is you. What you find difficult be bearable others may not. Do not assume that everyone can do the same thing as you.
posted by Lord Chancellor at 6:13 PM on March 12, 2011 [13 favorites]
posted by Lord Chancellor at 6:13 PM on March 12, 2011 [13 favorites]
Yes, of course. It's a shame that small cars haven't been made for a couple of decades or longer already and there isn't already a supply of them in varying worn conditions for sale for $1000 or less.
Oh wait, they have been, and there are. My first Metro cost me $300 and lasted me 50,000 miles (despite it being well used by the time I got it).
Enough of them for everyone who needs one?
posted by furiousxgeorge at 6:14 PM on March 12, 2011 [1 favorite]
Oh wait, they have been, and there are. My first Metro cost me $300 and lasted me 50,000 miles (despite it being well used by the time I got it).
Enough of them for everyone who needs one?
posted by furiousxgeorge at 6:14 PM on March 12, 2011 [1 favorite]
Oh wait, they have been, and there are. My first Metro cost me $300 and lasted me 50,000 miles (despite it being well used by the time I got it).
Enough of them for everyone who needs one?
posted by furiousxgeorge at 9:14 PM on March 12 [+] [!] Other [7/7]: «≡·
Yep. Every been to the auto auction? craigslist? ebay? Buy from private party sellers instead of dealers and you're way less likely to overpay or get ripped off, but you gotta have cash.
posted by toodleydoodley at 6:28 PM on March 12, 2011
Enough of them for everyone who needs one?
posted by furiousxgeorge at 9:14 PM on March 12 [+] [!] Other [7/7]: «≡·
Yep. Every been to the auto auction? craigslist? ebay? Buy from private party sellers instead of dealers and you're way less likely to overpay or get ripped off, but you gotta have cash.
posted by toodleydoodley at 6:28 PM on March 12, 2011
I mean literally everyone.
posted by furiousxgeorge at 6:30 PM on March 12, 2011
posted by furiousxgeorge at 6:30 PM on March 12, 2011
Well, the way you describe it, there needs to be a massive social upheaval—an upheaval unprecedented since the Industrial Revolution.
Another way of looking at this is that people have always evolved to new conditions. Widespread use of oil, the car, the highway system and the invention of suburbia all happened well after the industrial revolution. Personally, I think there will be big changes, but it won't be the first time, nor the last.
Is the urban lifestyle soon to become the only sustainable lifestyle for a near majority on earth?
Maybe. That certainly is the global trend. Look at the rise of cities around the world in places like China, Nigeria, or basically anywhere. I believe the global urban population may have recently surpassed the global rural population. With modern agriculture only a small percentage of people are needed to raise food, and cities are much more efficient. If you aren't farming, then spreading out is a luxury that is probably unsustainable.
These things are a big deal, no doubt, but our species has been upheaving shit since we first showed up on this planet. The only reasonable course of action is to adapt to the changes we've brought upon ourselves, because there is no other choice.
posted by snofoam at 6:31 PM on March 12, 2011
Another way of looking at this is that people have always evolved to new conditions. Widespread use of oil, the car, the highway system and the invention of suburbia all happened well after the industrial revolution. Personally, I think there will be big changes, but it won't be the first time, nor the last.
Is the urban lifestyle soon to become the only sustainable lifestyle for a near majority on earth?
Maybe. That certainly is the global trend. Look at the rise of cities around the world in places like China, Nigeria, or basically anywhere. I believe the global urban population may have recently surpassed the global rural population. With modern agriculture only a small percentage of people are needed to raise food, and cities are much more efficient. If you aren't farming, then spreading out is a luxury that is probably unsustainable.
These things are a big deal, no doubt, but our species has been upheaving shit since we first showed up on this planet. The only reasonable course of action is to adapt to the changes we've brought upon ourselves, because there is no other choice.
posted by snofoam at 6:31 PM on March 12, 2011
By the way, can we also drop the Fox News-esque "Well, I did it, so everyone can" mentality when referring to finding work, getting a good cheap car, moving, or adjusting to a new life? Not everyone is you. What you find difficult be bearable others may not. Do not assume that everyone can do the same thing as you.
They aren't going to have a choice. They'll either do it or starve.
posted by empath at 6:33 PM on March 12, 2011
They aren't going to have a choice. They'll either do it or starve.
posted by empath at 6:33 PM on March 12, 2011
Don't do the threadstalking thing, please. I don't do it to you.
posted by empath at 6:34 PM on March 12, 2011
posted by empath at 6:34 PM on March 12, 2011
I mean literally everyone.
posted by furiousxgeorge at 9:30 PM on March 12 [+] [!]
well, given that every car seats 4 people, and 99 percent of the cars I currently see on the road only contain one each, yes.
posted by toodleydoodley at 6:35 PM on March 12, 2011 [2 favorites]
posted by furiousxgeorge at 9:30 PM on March 12 [+] [!]
well, given that every car seats 4 people, and 99 percent of the cars I currently see on the road only contain one each, yes.
posted by toodleydoodley at 6:35 PM on March 12, 2011 [2 favorites]
So, what it comes down to is, there are people in this country who are living on the edge to such an extent that raising the price of gas by a couple dollars means they can't feed their kids. Or buy their prescription. Or pay their gas bill. Or whatever. People who work for a living and drive their beater car to the town a half hour away because they need that job to survive, and it's the only job they can find. People who have to choose between "getting to work" and "buying dinner." Because that's the reality, right?
This in a country where there are people who make $480,000 AN HOUR for betting with numbers.
And the question is what should we do about gas prices, how much should we raise them, and when?
Fuck it.
This is why we're losing.
posted by crackingdes at 6:36 PM on March 12, 2011 [14 favorites]
This in a country where there are people who make $480,000 AN HOUR for betting with numbers.
And the question is what should we do about gas prices, how much should we raise them, and when?
Fuck it.
This is why we're losing.
posted by crackingdes at 6:36 PM on March 12, 2011 [14 favorites]
any guesses how the democratic party would fare if they proposed a tax on gasoline to bring it to 10 bucks a gallon?
posted by pyramid termite at 6:37 PM on March 12, 2011
posted by pyramid termite at 6:37 PM on March 12, 2011
well, given that every car seats 4 people, and 99 percent of the cars I currently see on the road only contain one each, yes.
So who decides which of the four people gets one?
posted by furiousxgeorge at 6:38 PM on March 12, 2011
So who decides which of the four people gets one?
posted by furiousxgeorge at 6:38 PM on March 12, 2011
They aren't going to have a choice. They'll either do it or starve.
Well, we better be working on some sort of plan for them not to starve or many will. Snofoam says that "people have always evolved to new conditions", but that means the human race in general, not individuals who often times die in the process. Are these people "acceptable losses"? As much as people said that there were buses and warnings to get out of pre-Katrina New Orleans, many just simply couldn't on their own.
posted by Lord Chancellor at 6:39 PM on March 12, 2011 [5 favorites]
Well, we better be working on some sort of plan for them not to starve or many will. Snofoam says that "people have always evolved to new conditions", but that means the human race in general, not individuals who often times die in the process. Are these people "acceptable losses"? As much as people said that there were buses and warnings to get out of pre-Katrina New Orleans, many just simply couldn't on their own.
posted by Lord Chancellor at 6:39 PM on March 12, 2011 [5 favorites]
This is why we're losing.
A society that can't take care of its poorest, its sickest, its most trampled on and derided isn't much of a society, no argument from me.
posted by Lord Chancellor at 6:41 PM on March 12, 2011 [6 favorites]
A society that can't take care of its poorest, its sickest, its most trampled on and derided isn't much of a society, no argument from me.
posted by Lord Chancellor at 6:41 PM on March 12, 2011 [6 favorites]
Well, we better be working on some sort of plan for them not to starve or many will. Snofoam says that "people have always evolved to new conditions", but that means the human race in general, not individuals who often times die in the process. Are these people "acceptable losses"? As much as people said that there were buses and warnings to get out of pre-Katrina New Orleans, many just simply couldn't on their own.
Yeah, I'd love for people to vote for sensible economic and energy policies, but instead they vote for cheap gas and wars.
posted by empath at 6:43 PM on March 12, 2011 [1 favorite]
Yeah, I'd love for people to vote for sensible economic and energy policies, but instead they vote for cheap gas and wars.
posted by empath at 6:43 PM on March 12, 2011 [1 favorite]
I think the point is that if our economy is so tied to the spot market price of a fuel that is not only expensive and environmentally damaging to produce but also to consume, and where that fuel is largely extracted from regions which are historically politically volatile (and somewhat antagonistic towards US interests), maybe the price of the fuel is not the problem we should be trying to tackle.
posted by krinklyfig at 6:45 PM on March 12, 2011
posted by krinklyfig at 6:45 PM on March 12, 2011
Yep. Every been to the auto auction? craigslist? ebay? Buy from private party sellers instead of dealers and you're way less likely to overpay or get ripped off, but you gotta have cash.
posted by toodleydoodley
I call BS on that. I've been searching for over two years. If I found a car like that in any sort of running condition, locally, for $300, I'd buy it right now.
posted by Malice at 6:49 PM on March 12, 2011 [1 favorite]
posted by toodleydoodley
I call BS on that. I've been searching for over two years. If I found a car like that in any sort of running condition, locally, for $300, I'd buy it right now.
posted by Malice at 6:49 PM on March 12, 2011 [1 favorite]
regarding the differences between buyers and speculators: previously
posted by luvcraft at 6:49 PM on March 12, 2011
posted by luvcraft at 6:49 PM on March 12, 2011
Please, let's reassess what we're all talking about. Since we're all individuals, it makes sense for us to think about the choices we can make as individuals, but the shifts we're talking about are institutional. The adjustments that need to be made are outside the power of individuals acting alone.
People, in general, are rational agents and make the choices with the highest marginal utility. The reason living space is so expensive in city centers is that most people already value factors like "walkability." An individual (like empath) or a family can make the choice to give up luxuries to move to more expensive housing in the city. But as more people move, that choice becomes more and more expensive. The existing city centers can't accommodate everybody.
In other words, current suburbs and exurbs will need to become self-reliant communities. That's a systemic change. It happens on a timescale of decades. Individuals have little ability to cause this change directly. One might say that people need to "demand" access to goods and services closer to where they live, but that demand is already there. You don't get supermarkets to open by writing letters to the CEO of the chain. You get them to open by living in a place and being the kind of person who eats food. Then the chain makes a calculation to see whether it's worth the cost to open a location near you.
The situation is similar with public transit. I moved to a suburb of DC several years ago in anticipation of a new Metro line. The new line has been in planning since the early years of the previous decade, and the ground hasn't been broken yet.
Once again, people do look for options. When the price of gas goes up, public transit becomes an acceptable substitute for more people. But the reach and accessibility of public transit is not increasing. In fact, our public transit system may be reducing service because of budget cuts. Again, individuals can't influence access to public transport on the scale we need. I myself might bite the bullet, pay 1.5 times the rent, and live on an existing Metro line, but living space near the Metro is also a scarce resource. It's so expensive because it's already in high demand.
When gas costs $10 per gallon, the US will not reach some kind of magical tipping point when new kinds of demand will be created. The demand already exists, these people already exist, and they demand all the vital goods and services they will ever demand. Living space, food, and personal transportation are not luxuries. So if the choices you want people to make impose unacceptable costs now, those costs will only skyrocket later. City living will not become cheaper when more people want access to it.
The only thing that can be influenced is supply. We need more public transport, but big public works projects are becoming less feasible. If city downtowns are in short supply, we need more of them, but that's not what's getting built. It's easier for a developer to build a bunch of suburban homes and sell them to families than build up an entire city from scratch. That's too big a job for any single developer to tackle.
Yes, gas prices will reach $10 and the world will go on, but it might be at the expense of many livelihoods. People aren't endlessly elastic. Not every change can be adapted to. People around the world die all the time because of starvation, or lack of access to healthcare or clean water. Why aren't they "making the choices" that would allow them to survive? What's preventing a similar (albeit less catastrophic) problem arising as a result of $10 gas in the US?
posted by Nomyte at 6:51 PM on March 12, 2011 [11 favorites]
People, in general, are rational agents and make the choices with the highest marginal utility. The reason living space is so expensive in city centers is that most people already value factors like "walkability." An individual (like empath) or a family can make the choice to give up luxuries to move to more expensive housing in the city. But as more people move, that choice becomes more and more expensive. The existing city centers can't accommodate everybody.
In other words, current suburbs and exurbs will need to become self-reliant communities. That's a systemic change. It happens on a timescale of decades. Individuals have little ability to cause this change directly. One might say that people need to "demand" access to goods and services closer to where they live, but that demand is already there. You don't get supermarkets to open by writing letters to the CEO of the chain. You get them to open by living in a place and being the kind of person who eats food. Then the chain makes a calculation to see whether it's worth the cost to open a location near you.
The situation is similar with public transit. I moved to a suburb of DC several years ago in anticipation of a new Metro line. The new line has been in planning since the early years of the previous decade, and the ground hasn't been broken yet.
Once again, people do look for options. When the price of gas goes up, public transit becomes an acceptable substitute for more people. But the reach and accessibility of public transit is not increasing. In fact, our public transit system may be reducing service because of budget cuts. Again, individuals can't influence access to public transport on the scale we need. I myself might bite the bullet, pay 1.5 times the rent, and live on an existing Metro line, but living space near the Metro is also a scarce resource. It's so expensive because it's already in high demand.
When gas costs $10 per gallon, the US will not reach some kind of magical tipping point when new kinds of demand will be created. The demand already exists, these people already exist, and they demand all the vital goods and services they will ever demand. Living space, food, and personal transportation are not luxuries. So if the choices you want people to make impose unacceptable costs now, those costs will only skyrocket later. City living will not become cheaper when more people want access to it.
The only thing that can be influenced is supply. We need more public transport, but big public works projects are becoming less feasible. If city downtowns are in short supply, we need more of them, but that's not what's getting built. It's easier for a developer to build a bunch of suburban homes and sell them to families than build up an entire city from scratch. That's too big a job for any single developer to tackle.
Yes, gas prices will reach $10 and the world will go on, but it might be at the expense of many livelihoods. People aren't endlessly elastic. Not every change can be adapted to. People around the world die all the time because of starvation, or lack of access to healthcare or clean water. Why aren't they "making the choices" that would allow them to survive? What's preventing a similar (albeit less catastrophic) problem arising as a result of $10 gas in the US?
posted by Nomyte at 6:51 PM on March 12, 2011 [11 favorites]
What's preventing a similar (albeit less catastrophic) problem arising as a result of $10 gas in the US?
Nothing. But blaming speculation for the price of gas is very short-sighted thinking. Making the speculators go away will not solve the underlying problem.
posted by krinklyfig at 6:54 PM on March 12, 2011 [1 favorite]
Nothing. But blaming speculation for the price of gas is very short-sighted thinking. Making the speculators go away will not solve the underlying problem.
posted by krinklyfig at 6:54 PM on March 12, 2011 [1 favorite]
But blaming speculation for the price of gas is very short-sighted thinking. Making the speculators go away will not solve the underlying problem.
Smooth, predictable growth in the price of gas makes the kind of long-term planning we need so badly possible. Wild, unpredictable fluctuation in the price of gas make this kind of planning less attractive in the immediate future.
posted by Nomyte at 7:02 PM on March 12, 2011 [1 favorite]
Smooth, predictable growth in the price of gas makes the kind of long-term planning we need so badly possible. Wild, unpredictable fluctuation in the price of gas make this kind of planning less attractive in the immediate future.
posted by Nomyte at 7:02 PM on March 12, 2011 [1 favorite]
Speculators sell, too.
posted by anotherpanacea at 7:03 PM on March 12, 2011 [1 favorite]
posted by anotherpanacea at 7:03 PM on March 12, 2011 [1 favorite]
Smooth, predictable growth in the price of gas makes the kind of long-term planning we need so badly possible. Wild, unpredictable fluctuation in the price of gas make this kind of planning less attractive in the immediate future.
Expecting stable pricing in an unstable economy with the kind of geopolitical events we've experienced lately is not realistic. The fuel of our economy is completely tied up in a region which may experience complete social upheaval in the very near term, and has already partly gone down that road. What do you expect?
In other words, current suburbs and exurbs will need to become self-reliant communities. That's a systemic change. It happens on a timescale of decades.
This is not a very good excuse for the rate of change. These suburbs often sprouted up much quicker than you believe change should happen.
I don't think the suburban lifestyle fueled by gasoline is sustainable, even if we get some relief in short term pricing. And we will, sooner than most people think, unless the ME continues to blow up. And if it does, there's nothing the futures market could do to stop oil prices from skyrocketing, whether it existed or not.
posted by krinklyfig at 7:07 PM on March 12, 2011
Expecting stable pricing in an unstable economy with the kind of geopolitical events we've experienced lately is not realistic. The fuel of our economy is completely tied up in a region which may experience complete social upheaval in the very near term, and has already partly gone down that road. What do you expect?
In other words, current suburbs and exurbs will need to become self-reliant communities. That's a systemic change. It happens on a timescale of decades.
This is not a very good excuse for the rate of change. These suburbs often sprouted up much quicker than you believe change should happen.
I don't think the suburban lifestyle fueled by gasoline is sustainable, even if we get some relief in short term pricing. And we will, sooner than most people think, unless the ME continues to blow up. And if it does, there's nothing the futures market could do to stop oil prices from skyrocketing, whether it existed or not.
posted by krinklyfig at 7:07 PM on March 12, 2011
They fuck with the world that all the rest of us have to live in, they don't provide any real worth to anyone other than their cronies, and they're starting to seem like a cancer in our midst.
I couldn't agree more ... though I still prefer the less-understated poetry of a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. You know you're right: why equivocate?
Using houses as gambling chips has cost Americans a half-generation of relative squalor. It's destroyed savings people have slaved away decades to accumulate. I can't think of a clearer demonstration of man's inhumanity to man.
posted by Twang at 7:14 PM on March 12, 2011 [1 favorite]
I couldn't agree more ... though I still prefer the less-understated poetry of a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. You know you're right: why equivocate?
Using houses as gambling chips has cost Americans a half-generation of relative squalor. It's destroyed savings people have slaved away decades to accumulate. I can't think of a clearer demonstration of man's inhumanity to man.
posted by Twang at 7:14 PM on March 12, 2011 [1 favorite]
Look, speculation is the nature of markets. I think there is a real misunderstanding when it comes to this area by most people, but particularly people who are not educated on the mechanics of markets. Hearing most people's opinions of trading and speculation is like hearing most traders talk about the broader economy (particularly concerning matters like the Fed) - in other words, not completely educated about the subject matter.
Speculators are market participants but cannot themselves drive markets. There is necessity in limiting the leverage speculators are allowed, because otherwise speculation tends to lead pricing too much and the snaps back are too violent. But the reversion to mean is how these trades work out in the end, and prices which are too outside market conditions revert back to reflect those conditions in a matter of time. This happens typically much faster than irrational pricing in equities markets when the whole economy gets overextended. But without speculation, there is no financial market. This may or may not be a good thing, but for the moment let's assume we will continue to finance business through open markets.
posted by krinklyfig at 7:23 PM on March 12, 2011 [1 favorite]
Speculators are market participants but cannot themselves drive markets. There is necessity in limiting the leverage speculators are allowed, because otherwise speculation tends to lead pricing too much and the snaps back are too violent. But the reversion to mean is how these trades work out in the end, and prices which are too outside market conditions revert back to reflect those conditions in a matter of time. This happens typically much faster than irrational pricing in equities markets when the whole economy gets overextended. But without speculation, there is no financial market. This may or may not be a good thing, but for the moment let's assume we will continue to finance business through open markets.
posted by krinklyfig at 7:23 PM on March 12, 2011 [1 favorite]
Using houses as gambling chips has cost Americans a half-generation of relative squalor
That was not speculation but fraud on the part of many participants, from the mortgage broker who allowed the dodgy loan to go through their hands to the ratings agencies which gave AAA ratings to securitized NINJA loans. That is a different matter than speculation but rather a breach of fiduciary duty by many people.
posted by krinklyfig at 7:28 PM on March 12, 2011
That was not speculation but fraud on the part of many participants, from the mortgage broker who allowed the dodgy loan to go through their hands to the ratings agencies which gave AAA ratings to securitized NINJA loans. That is a different matter than speculation but rather a breach of fiduciary duty by many people.
posted by krinklyfig at 7:28 PM on March 12, 2011
This is not a very good excuse for the rate of change. These suburbs often sprouted up much quicker than you believe change should happen.
As I wrote above, building thousands of single-family homes and selling them to individuals is much easier and more certain than creating densely developed areas with the hope that the municipal frameworks catch up. Developers can't build city governments, fire departments, police cruisers, or ambulances. They can't be certain that if they built mixed commercial and residential real estate in some kind of innovative combination, the right kinds of buyers will show up fast enough.
posted by Nomyte at 7:31 PM on March 12, 2011
As I wrote above, building thousands of single-family homes and selling them to individuals is much easier and more certain than creating densely developed areas with the hope that the municipal frameworks catch up. Developers can't build city governments, fire departments, police cruisers, or ambulances. They can't be certain that if they built mixed commercial and residential real estate in some kind of innovative combination, the right kinds of buyers will show up fast enough.
posted by Nomyte at 7:31 PM on March 12, 2011
They can't be certain that if they built mixed commercial and residential real estate in some kind of innovative combination, the right kinds of buyers will show up fast enough.
I have sympathy, but the harsh reality is these communities experiencing problems now were largely built without much foresight. That is a problem in itself. I'm not sure we can use that to justify making gasoline cheaper for Americans, who have had cheap gasoline and its attendant problems for decades, regardless of the numerous times we've been here before. Cheap gas is a geopolitical matter, incidentally. The price is reflective of the military reach of the US as well as numerous deals we've struck with OPEC participants. OPEC wants stable prices and has far more influence than the futures markets, but not even they can prevent revolution if their people want it bad enough.
posted by krinklyfig at 7:38 PM on March 12, 2011
I have sympathy, but the harsh reality is these communities experiencing problems now were largely built without much foresight. That is a problem in itself. I'm not sure we can use that to justify making gasoline cheaper for Americans, who have had cheap gasoline and its attendant problems for decades, regardless of the numerous times we've been here before. Cheap gas is a geopolitical matter, incidentally. The price is reflective of the military reach of the US as well as numerous deals we've struck with OPEC participants. OPEC wants stable prices and has far more influence than the futures markets, but not even they can prevent revolution if their people want it bad enough.
posted by krinklyfig at 7:38 PM on March 12, 2011
The suburbs are going to die, that much is certain. The question is whether the middle class dies with them.
posted by mek at 7:40 PM on March 12, 2011 [1 favorite]
posted by mek at 7:40 PM on March 12, 2011 [1 favorite]
I hope not, mek, and I mean that honestly, but I don't think we should continue to prop up the suburbs to our own detriment.
posted by krinklyfig at 7:42 PM on March 12, 2011
posted by krinklyfig at 7:42 PM on March 12, 2011
Everyone I know who is very poor (on welfare or minimum wage) cannot afford a car to start with.
posted by jb at 7:46 PM on March 12, 2011 [2 favorites]
posted by jb at 7:46 PM on March 12, 2011 [2 favorites]
I have sympathy, but the harsh reality is these communities experiencing problems now were largely built without much foresight. That is a problem in itself. I'm not sure we can use that to justify making gasoline cheaper for Americans, who have had cheap gasoline and its attendant problems for decades, regardless of the numerous times we've been here before.
Right, yes, the idea is for the price of gas to reflect the reality of the market. On the other hand, the US can probably do without the sort of "shock treatment" that Russia went through in the late 90s. The economy that resulted is anything but healthy. What seems like a good scenario is to regulate speculation more strictly, thereby making it more appealing for policymakers and developers to pursue long-term planning. That way US infrastructure can change in ways that make us less reliant on gas and individual means of transportation.
I am obviously not arguing that doing away with speculation will make gas cheaper forever.
posted by Nomyte at 7:49 PM on March 12, 2011
Right, yes, the idea is for the price of gas to reflect the reality of the market. On the other hand, the US can probably do without the sort of "shock treatment" that Russia went through in the late 90s. The economy that resulted is anything but healthy. What seems like a good scenario is to regulate speculation more strictly, thereby making it more appealing for policymakers and developers to pursue long-term planning. That way US infrastructure can change in ways that make us less reliant on gas and individual means of transportation.
I am obviously not arguing that doing away with speculation will make gas cheaper forever.
posted by Nomyte at 7:49 PM on March 12, 2011
Well, the US economy is far more stable than Russia, for one thing, but I get your point. I have said that I believe leverage in the commodities markets should be limited, even more than it is currently. That would make most of this a non-issue, as the price would probably be a bit lower on every overbought issue. The conditions of many commodities are overbought, but irrational conditions can exist for a long time- less so if more money must be invested in every trade. This would also serve better the participants who need futures for hedging purposes, such as farmers, who produce but also consume commodities.
posted by krinklyfig at 7:57 PM on March 12, 2011
posted by krinklyfig at 7:57 PM on March 12, 2011
Speculators are parasites on the market whom we reluctantly allow to exist because they can have a dampening effect on price volatility. Until a few years ago there were strict limits on speculators because their ability to fuck markets up was well known. But, because speculators now have a hugely out sized ability to influence the government and its regulatory agencies, the restraints are off, and we see rather an amplification of boom/bust. The exact opposite state of events to the one hoped for when speculators were tolerated in the first place.
/paraphrasing Taibbi
posted by Trochanter at 8:03 PM on March 12, 2011 [4 favorites]
/paraphrasing Taibbi
posted by Trochanter at 8:03 PM on March 12, 2011 [4 favorites]
I saw the signs of the death of suburbia years ago and based my life around a no car lifestyle. But I am concerned about people older than me who have invested years or decades of their lives around being able to drive cheaply to the grocery store, school, work, play, home, and back again. People own houses and cars already and their social structures are based around being able to drive around between different sites.
This speculation is exactly the kind of thing that causes economic crises. Prices for necessary things like food and gas rise too quickly for the population to keep up so people stop buying and then there's tons of money invested that will never be recovered. Why the government doesn't stop this ridicules behavior is a complete mystery to me since everyone stands to lose in the boom and bust cycles.
Of course, when the gamblers are the only source of income for the casino they're gambling in things get a little bit... weird.
posted by Glibpaxman at 8:12 PM on March 12, 2011 [1 favorite]
This speculation is exactly the kind of thing that causes economic crises. Prices for necessary things like food and gas rise too quickly for the population to keep up so people stop buying and then there's tons of money invested that will never be recovered. Why the government doesn't stop this ridicules behavior is a complete mystery to me since everyone stands to lose in the boom and bust cycles.
Of course, when the gamblers are the only source of income for the casino they're gambling in things get a little bit... weird.
posted by Glibpaxman at 8:12 PM on March 12, 2011 [1 favorite]
I was going to say something but Nomyte said it better than I could have. Suburbs and Exurbs will adapt and change. Maybe fewer bedroom communities, maybe Better public transportation, maybe some savvy individuals will harness the power of the Internet to set up ride shares. But to say suburbs are going to die is nuts, there have been isolated communities existing independently throughtout human history. It's not like the car appeared and everyone thought "shit , now we can finally live outside the city!"
posted by Ad hominem at 9:34 PM on March 12, 2011
posted by Ad hominem at 9:34 PM on March 12, 2011
But to say suburbs are going to die is nuts, there have been isolated communities existing independently throughtout human history. It's not like the car appeared and everyone thought "shit , now we can finally live outside the city!"
I think you are quite radically redefining "suburb" here. It does not just mean "not the city." Suburbs are a very specific 20th century development type which are dependent on the ubiquity of the automobile.
posted by mek at 10:14 PM on March 12, 2011
I think you are quite radically redefining "suburb" here. It does not just mean "not the city." Suburbs are a very specific 20th century development type which are dependent on the ubiquity of the automobile.
posted by mek at 10:14 PM on March 12, 2011
Sorry, but this is bullshit. Gas is expensive because we are running out of oil. Paranoia about speculators is just a form of denial so that people can avoid thinking about the consequences of their choices.
Buying an oil future of option doesn't drive up the price of oil, because someone needs to take the other side of that trade. It can only happen if you actually buy physical oil and store it. That does happen from time to time but there are only so many oil storage facilities out there.
posted by delmoi at 10:26 PM on March 12, 2011 [3 favorites]
Buying an oil future of option doesn't drive up the price of oil, because someone needs to take the other side of that trade. It can only happen if you actually buy physical oil and store it. That does happen from time to time but there are only so many oil storage facilities out there.
posted by delmoi at 10:26 PM on March 12, 2011 [3 favorites]
Demand is how much of a given product is wanted by buyers who actually desire to use the product, not speculators who are betting on if the price will go up or down. If they were the same thing, they wouldn't have different names.Speculators are a subset of buyers. Just like how humans are a subset of animals. They are paying money for the stuff, or an option to buy the stuff in the future, or whatever.
Anyway Paul Krugman had an interesting post the other day: Oil process are up, but copper prices are not. Which means the markets think that Oil should be expensive because supply is at risk (Libya), not because of increased demand due to economic growth (which would drive up copper prices). Essentially we're all fucked. Oh well.
Where I live, a small house in the city, the type you're describing, is double the price of the two-storey, split-entry cookie cutters that are being built up in the sprawl areas. If you've 200k to spend on a house, you can't afford the city or a custom small build (as the land is all owned by developers, unless you sprawl waaaaay out) so you end up in a house that you know is too big for you and you end up commuting, rather than walk like you'd prefer.And why is it that inner-city houses are so much more expensive then sprawlsville? It's because the economic benefits of living in town make inner-city housing that much more valuable. The price differential is likely to increase along with gas prices.
You're not sure because you haven't looked. It's always been the case that SUVs and Trucks are more dangerous then smaller cars, because they're more likely to tip over and crush you.They're more nimble and easier to stop than larger cars (making them actually safer than large vehicles because you can AVOID accidents rather than try to SURVIVE them)I'm not sure the stats actually back you up on this.
---
Anyway, it sucks for poor people, and I'm fine with giving poor people gas vouchers, especially transferable ones they can trade for cash if they don't need. But the idea that we should keep gas prices uniformly low in order to benefit a handful of poor people is completely absurd.
People in rural areas are already receiving a huge amount of money in the form of farm subsidies. Now people want us to sacrifice even more for rural poor? If there's no reason for people to live in a certain place, why should the vast majority of people pay so that they can continue to live there, even to the point of subsidizing gasoline for them?
Also they can make their own biodesel, it's actually a pretty straightforward process
posted by delmoi at 10:58 PM on March 12, 2011
Aaack. This thread is hard to read. Look, I'm as anti-car as the best of you, but really, this story has nothing to do with whether you should sell your SUV or move out of the suburbs. That's a gigantic derail.
Here's what's happening: The US Fed announced a few months ago that they will be printing money to fix the American economy. Investors around the world are worried that this will cause inflation and ruin their (enormous) holdings of treasury bonds so everyone and their advisor are buying gold and commodities futures right now. The current price of food and oil have nothing to do with our global inventories, and everything to do with Wall Street's herding instincts. One of these days they're going to crash the economy with behavior like this ....Oh right.
no citations for any of this of course. I'm just speculating.
posted by Popular Ethics at 11:24 PM on March 12, 2011 [3 favorites]
Here's what's happening: The US Fed announced a few months ago that they will be printing money to fix the American economy. Investors around the world are worried that this will cause inflation and ruin their (enormous) holdings of treasury bonds so everyone and their advisor are buying gold and commodities futures right now. The current price of food and oil have nothing to do with our global inventories, and everything to do with Wall Street's herding instincts. One of these days they're going to crash the economy with behavior like this ....Oh right.
no citations for any of this of course. I'm just speculating.
posted by Popular Ethics at 11:24 PM on March 12, 2011 [3 favorites]
People in rural areas are already receiving a huge amount of money in the form of farm subsidies. Now people want us to sacrifice even more for rural poor? If there's no reason for people to live in a certain place, why should the vast majority of people pay so that they can continue to live there, even to the point of subsidizing gasoline for them?
I don't think everyone always understands who lives in a town of a thousand people (and in the 20 mile radius). Yes, there's farmers, true, but there's also mill, ranch, farm, and small factory workers that get hired. There's people that manage feed stores. Heck, there's people that manage general and grocery stores for that matter as people like farmers still go shopping. Hell, farmers also eat out every so often too, so maybe a smattering of restaurants. There's of course a doctor or so that services that area. And since we have all these kids around, we might as well have some sort of school that will take in the kids for the entire area. I suppose we'll need teachers for those schools. And since we have all these people all together, it never hurts to have some sort of town government, and perhaps one or two part-time policemen and lawyers just to keep things happy until the big guns could get there from 45 miles away.
As you can see, even in a rural area, there's plenty of people that aren't farmers and that certainly don't benefit directly from farm subsidies. So, unlike some sort of Antarctic waystation, we can't just give a farmer a satellite phone and a X-Box and imagine they'll be good as long as we drop off food supplies every couple months. People live in the country. People spend their whole lives in the country even. They're not hermits and the have varying degrees of income. Some are poor as Country Kitchen and Kum and Go (it's a gas station/convenience store . . . for serious) don't pay much.
I'm not saying that we must stave off the high gas prices by artificially lowering gas for everyone. I'm saying that rural communities have a lot to lose if don't try to solve our problems with them in mind as opposed to thinking of them as some aberration that has outlived its usefulness.
posted by Lord Chancellor at 11:32 PM on March 12, 2011 [2 favorites]
I don't think everyone always understands who lives in a town of a thousand people (and in the 20 mile radius). Yes, there's farmers, true, but there's also mill, ranch, farm, and small factory workers that get hired. There's people that manage feed stores. Heck, there's people that manage general and grocery stores for that matter as people like farmers still go shopping. Hell, farmers also eat out every so often too, so maybe a smattering of restaurants. There's of course a doctor or so that services that area. And since we have all these kids around, we might as well have some sort of school that will take in the kids for the entire area. I suppose we'll need teachers for those schools. And since we have all these people all together, it never hurts to have some sort of town government, and perhaps one or two part-time policemen and lawyers just to keep things happy until the big guns could get there from 45 miles away.
As you can see, even in a rural area, there's plenty of people that aren't farmers and that certainly don't benefit directly from farm subsidies. So, unlike some sort of Antarctic waystation, we can't just give a farmer a satellite phone and a X-Box and imagine they'll be good as long as we drop off food supplies every couple months. People live in the country. People spend their whole lives in the country even. They're not hermits and the have varying degrees of income. Some are poor as Country Kitchen and Kum and Go (it's a gas station/convenience store . . . for serious) don't pay much.
I'm not saying that we must stave off the high gas prices by artificially lowering gas for everyone. I'm saying that rural communities have a lot to lose if don't try to solve our problems with them in mind as opposed to thinking of them as some aberration that has outlived its usefulness.
posted by Lord Chancellor at 11:32 PM on March 12, 2011 [2 favorites]
delmoi: Buying an oil future of option doesn't drive up the price of oil, because someone needs to take the other side of that trade. It can only happen if you actually buy physical oil and store it. That does happen from time to time but there are only so many oil storage facilities out there.
The US Senate and I disagree with you. And I quote:
-"Speculation has contributed to rising U.S. energy prices"
-"the influx of speculative dollars appears to have altered
the historical relationship between price and inventory, leading the
current oil market to be characterized by both large inventories
and high prices."
In a few months, when the speculators are after some other bling, they'll have to sell off all their oil commitments, and the price will fall back close to what it was last year, just like it did the last time Gas was this expensive. In the long run, gas prices will continue their steady rise of course, but right now we should be worried about how fucking unstable the world's financial markets have become, what that's doing to people who need the commodities (especially the poor), and when this behaviour is going to cause the next crash.
posted by Popular Ethics at 11:57 PM on March 12, 2011 [3 favorites]
The US Senate and I disagree with you. And I quote:
-"Speculation has contributed to rising U.S. energy prices"
-"the influx of speculative dollars appears to have altered
the historical relationship between price and inventory, leading the
current oil market to be characterized by both large inventories
and high prices."
In a few months, when the speculators are after some other bling, they'll have to sell off all their oil commitments, and the price will fall back close to what it was last year, just like it did the last time Gas was this expensive. In the long run, gas prices will continue their steady rise of course, but right now we should be worried about how fucking unstable the world's financial markets have become, what that's doing to people who need the commodities (especially the poor), and when this behaviour is going to cause the next crash.
posted by Popular Ethics at 11:57 PM on March 12, 2011 [3 favorites]
"Don't buy a big house you don't need. Don't buy an SUV, don't live in the suburbs, buy food locally. You'll suddenly find out that you don't care much about gas prices, either."
What. The. Fuck.
Most people I know can barely make rent (I'm in a rural community). They have cheap Japanese cars they bought used off of Craigslist.
You're essentially telling struggling people to pick options they don't fucking have.
I am speechless from what seems to be your stunning amount of ignorance about how people live outside of wherever you are. Speechless.
posted by The ____ of Justice at 12:05 AM on March 13, 2011 [10 favorites]
What. The. Fuck.
Most people I know can barely make rent (I'm in a rural community). They have cheap Japanese cars they bought used off of Craigslist.
You're essentially telling struggling people to pick options they don't fucking have.
I am speechless from what seems to be your stunning amount of ignorance about how people live outside of wherever you are. Speechless.
posted by The ____ of Justice at 12:05 AM on March 13, 2011 [10 favorites]
I'm just paraphrasing from memory here, and I cannot remember where I read this, but it was a big "AHAH!" for me when I did:
Markets don't balance themselves out for things like stocks or real estate: things which are bought potentially to be sold on the same market, and whose value to the purchaser is therefore partly a function of their cost. The "law" of supply and demand breaks down.
This is not the case with iPads and jelly beans, where the good's overall benefit to the consumer falls in inverse proportion to its cost to purchase. As a result, when the price goes up, the consumer is less willing to purchase the good, until that unwillingness to buy pulls the price downward again, and a balance is found.
However, aside from the benefit one derives from owning a stock (dividends) or piece of real estate (a place to live), some of the item's value comes from the amount of money potentially to be made by selling it. So, paradoxically, the more expensive the item becomes, the MORE VALUABLE it is to the purchaser! Instead of reigning in changes in price and balancing supply with demand, a market in these goods has the opposite effect--exaggerating perturbations in price caused by changes in supply and demand.
Speculation may be demand, but it's of a very queer sort, one whose utility derived from a certain good INCREASES with its cost (i.e. the price at which it can be sold, either to the speculator or by the speculator). When speculators are not acting mainly as middlemen between producers and consumers, but as middlemen between other speculators, the market volatility increases, and you get bubbles.
posted by theDTs at 12:25 AM on March 13, 2011 [2 favorites]
Markets don't balance themselves out for things like stocks or real estate: things which are bought potentially to be sold on the same market, and whose value to the purchaser is therefore partly a function of their cost. The "law" of supply and demand breaks down.
This is not the case with iPads and jelly beans, where the good's overall benefit to the consumer falls in inverse proportion to its cost to purchase. As a result, when the price goes up, the consumer is less willing to purchase the good, until that unwillingness to buy pulls the price downward again, and a balance is found.
However, aside from the benefit one derives from owning a stock (dividends) or piece of real estate (a place to live), some of the item's value comes from the amount of money potentially to be made by selling it. So, paradoxically, the more expensive the item becomes, the MORE VALUABLE it is to the purchaser! Instead of reigning in changes in price and balancing supply with demand, a market in these goods has the opposite effect--exaggerating perturbations in price caused by changes in supply and demand.
Speculation may be demand, but it's of a very queer sort, one whose utility derived from a certain good INCREASES with its cost (i.e. the price at which it can be sold, either to the speculator or by the speculator). When speculators are not acting mainly as middlemen between producers and consumers, but as middlemen between other speculators, the market volatility increases, and you get bubbles.
posted by theDTs at 12:25 AM on March 13, 2011 [2 favorites]
Upon further reflection after my last comment; empath and furiousxgeorge, how's this:
Speculation is supply combined with demand (and therein lies the potential for trouble).
posted by theDTs at 1:03 AM on March 13, 2011
Speculation is supply combined with demand (and therein lies the potential for trouble).
posted by theDTs at 1:03 AM on March 13, 2011
I mean literally everyone.
posted by furiousxgeorge at 9:30 PM on March 12 [+] [!]
i'm gonna pass on mine. i don't need it and won't use it.
posted by rainperimeter at 1:08 AM on March 13, 2011
posted by furiousxgeorge at 9:30 PM on March 12 [+] [!]
i'm gonna pass on mine. i don't need it and won't use it.
posted by rainperimeter at 1:08 AM on March 13, 2011
Sure, speculation is a reason for price changes but speculators are speculating on something and with rising prices, they speculate on either:
1) constrained supply (Libya)
2) expanding demand (Japan)
or both.
I've never bought that speculation alone fuels market prices, especially of gasoline. Rather, it's a constrained commodity so that as you approach 100% demand use of supply, the price becomes exponentially higher.
As we get close to using 100% of supply, price skyrockets due to hedging. If you're an airline and see the potential of $150 a barrel, you'll lock in long term contracts at $95. So will your competitors. Because you would rather overpay for a barrel tomorrow by a known quantity than face the prospect of an unlimited cost potential.
That's speculation but it's hedging. And everyone you know and love hedges. Grocery stores, shipping companies, the post office, the military.
Thus is it speculation? Sure. But it's speculation with a very good reason and it's speculation that makes the market work by evening out supply chain cost shocks yo.
posted by nickrussell at 1:16 AM on March 13, 2011 [1 favorite]
1) constrained supply (Libya)
2) expanding demand (Japan)
or both.
I've never bought that speculation alone fuels market prices, especially of gasoline. Rather, it's a constrained commodity so that as you approach 100% demand use of supply, the price becomes exponentially higher.
As we get close to using 100% of supply, price skyrockets due to hedging. If you're an airline and see the potential of $150 a barrel, you'll lock in long term contracts at $95. So will your competitors. Because you would rather overpay for a barrel tomorrow by a known quantity than face the prospect of an unlimited cost potential.
That's speculation but it's hedging. And everyone you know and love hedges. Grocery stores, shipping companies, the post office, the military.
Thus is it speculation? Sure. But it's speculation with a very good reason and it's speculation that makes the market work by evening out supply chain cost shocks yo.
posted by nickrussell at 1:16 AM on March 13, 2011 [1 favorite]
The point made by the author of the link is that there is an apparent decouple between the actual supply and demand, and the prices that are supposed to reflect them. The airlines hedging their $95 contracts are the actual consumers of the commodity--the "speculators" generally being referred to here are the middlemen between them and the producers. There's no single group of them claimed by the author to be cornering the market and raising prices; rather that it's the positive feedback-loop of the market itself which is exacerbating the (real and perceived) effects of supply chain cost shocks or whatnot.
posted by theDTs at 1:36 AM on March 13, 2011
posted by theDTs at 1:36 AM on March 13, 2011
The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.
posted by Blazecock Pileon at 1:37 AM on March 13, 2011 [1 favorite]
posted by Blazecock Pileon at 1:37 AM on March 13, 2011 [1 favorite]
I didn't read the whole of the blog post linked to, but this bit at the end is funny: Two great graphs sent by a reader illustrate the over-simplicity of saying “this is just an issue of supply and demand.”
Yeah, great argument there. Best of the web, for sure. You might notice "demand" is about twice as high as "supply" there. Oh noes, we really are running out of oil!
Come on, America. You've had a good five years now to prepare for higher gasoline prices since it became obvious that "peak oil" is for real and will start to bite within the lifetime of the average gasoline-powered car.
posted by sfenders at 3:24 AM on March 13, 2011 [2 favorites]
Yeah, great argument there. Best of the web, for sure. You might notice "demand" is about twice as high as "supply" there. Oh noes, we really are running out of oil!
Come on, America. You've had a good five years now to prepare for higher gasoline prices since it became obvious that "peak oil" is for real and will start to bite within the lifetime of the average gasoline-powered car.
posted by sfenders at 3:24 AM on March 13, 2011 [2 favorites]
Don't buy a big house you don't need. Don't buy an SUV, don't live in the suburbs, buy food locally. You'll suddenly find out that you don't care much about gas prices, either.
"Try this cake, it's delicious!"
posted by EarBucket at 4:12 AM on March 13, 2011 [4 favorites]
"Try this cake, it's delicious!"
posted by EarBucket at 4:12 AM on March 13, 2011 [4 favorites]
We need to reacquaint ourselves with the power of pitchforks and torches and *forgive me for quoting Nancy Reagan* "Just say 'NO!'" to Exxon-Mobil and their comrades.
Oh yeah, most every effort to find a viable alternative has been knee-capped by people making too much money off the existing system.
On a slightly related note--in Mexico they've started scrapping agave crops to grow more corn to feed the American demand for ethanol, now tequila & mezcal prices are increasing. Growers of two-row barley (for us beer snobs) scrapped a lot of their fields to get government incentives to grow corn for ethanol driving up prices of craft beer. So all this ethanol is going into the gas (that hasn't decreased demand or price) which ironically makes gas burn faster. There has to be a conspiracy in there somewhere...
posted by ironbob at 7:45 AM on March 13, 2011
Oh yeah, most every effort to find a viable alternative has been knee-capped by people making too much money off the existing system.
On a slightly related note--in Mexico they've started scrapping agave crops to grow more corn to feed the American demand for ethanol, now tequila & mezcal prices are increasing. Growers of two-row barley (for us beer snobs) scrapped a lot of their fields to get government incentives to grow corn for ethanol driving up prices of craft beer. So all this ethanol is going into the gas (that hasn't decreased demand or price) which ironically makes gas burn faster. There has to be a conspiracy in there somewhere...
posted by ironbob at 7:45 AM on March 13, 2011
One reason to buy an index of commodities like oil is to insure against coming inflation. So if you're saving for retirement, you partly need to hedge against the likelihood that the oil you will need to heat your home or drive your car to the doctor will also be much more expensive just as your capacity to receive income from labor disappears. The same thing goes for food commodities.
This is largely why pension funds include pharmaceutical companies and health insurers. They're selling things we will likely need in the future, and the pension wants to help us hedge against the possibility that they will be much more expensive. And even hedge funds are getting loans and capital from people who want to secure against such risks. Speculation and arbitrage can always be explained as risk-management and hedging: that's why, in my opinion, it's better to tax winners heavily than to try to eliminate them entirely by restricting the market.
posted by anotherpanacea at 9:23 AM on March 13, 2011 [1 favorite]
This is largely why pension funds include pharmaceutical companies and health insurers. They're selling things we will likely need in the future, and the pension wants to help us hedge against the possibility that they will be much more expensive. And even hedge funds are getting loans and capital from people who want to secure against such risks. Speculation and arbitrage can always be explained as risk-management and hedging: that's why, in my opinion, it's better to tax winners heavily than to try to eliminate them entirely by restricting the market.
posted by anotherpanacea at 9:23 AM on March 13, 2011 [1 favorite]
Here's what's happening: The US Fed announced a few months ago that they will be printing money to fix the American economy. Investors around the world are worried that this will cause inflation and ruin their (enormous) holdings of treasury bonds so everyone and their advisor are buying gold and commodities futures right now.Oh god. People have been saying that every single fucking day since the crash. The fed is printing money, it's going to destroy the economy, bla bla bla. It never stops. No mater what happens in the world, everything that happens is the result of the fed printing money. I am so sick of it. As per Krugmans article, commodity prices are not rising at the same rate as Oil. Just oil is going up. And if you haven't noticed, there's a huge fucking civil war going on in one of the major oil producing nations! And on top of that, the world is running out of oil more generally.
The idea that all our problems are caused by some dude with a printing press is something that dumb people feel like they can understand while at the same time feeling smarter then other people.
GAH.
As you can see, even in a rural area, there's plenty of people that aren't farmers and that certainly don't benefit directly from farm subsidiesNot directly. But farm subsidies pump tens of billions of dollars into those economies, and then of course those people run out and vote for 'anti-government' types who rail about welfare for people in cities. And now you're saying we should give them more free money!? How much is enough?
Honestly I'm somewhat sympathetic to poor people and as I said I would be fine with gas vouchers for the poor. Since there are few people in these rural areas they don't contribute as much to global warming anyway. But that probably won't happen, and I don't really understand the argument that instead of that, we should somehow, keep gas really cheap -- despite the fact that it is completely impossible.
People are arguing that somehow the price spikes in gasoline are driven by speculators, that there is some conspiracy making gas expensive and that by changing a few regulations somehow gas will just burst forth and flow like water. It's just total denial of reality.
posted by delmoi at 9:32 AM on March 13, 2011 [4 favorites]
Speculation is demand.
No. From the article (but really from Taibbi):
This is why professional economics should be left to economists, not Matt Taibbi, a journalist.
Please read Paul Krugman on this---you know the raging liberal columnist and, uh Nobel-Prize winning economist:
posted by Ironmouth at 9:32 AM on March 13, 2011
No. From the article (but really from Taibbi):
This is why professional economics should be left to economists, not Matt Taibbi, a journalist.
Please read Paul Krugman on this---you know the raging liberal columnist and, uh Nobel-Prize winning economist:
Just a note in the debate over speculators versus fundamentals: oil is a commodity with highly inelastic short-run demand; this means that any shortfall in supply leads to a large rise in the price. Supply from most sources is also highly inelastic; the exception used to be Saudi Arabia.Just because a journalist says something, does not make it true.
So Jim Hamilton makes the needed point: there’s a real possibility that Libyan supply, which is a significant chunk, will be taken off the market — and there are real questions about whether the Saudis can or will fill the gap.
As I see it, the surprising thing is that prices aren’t even higher.
posted by Ironmouth at 9:32 AM on March 13, 2011
But farm subsidies pump tens of billions of dollars into those economies, and then of course those people run out and vote for 'anti-government' types who rail about welfare for people in cities.
Evidently, you haven't heard of the Democratic Farmer-Labor Party of Minnesota. Plenty of rural dwellers (including my family) support liberal policies. And this just doesn't mean farm subsidies (which have a problematic history); many of these "anti-government" types are the ones most acutely aware of what services are required by a community (and the high population cities that they visit regularly). Even in Oklahoma and South Dakota, I met quite a few liberal rural folk that understood how their community fit into a greater whole. Anyway, even if they belonged to the wrong political party, we as a nation can't take actions to maintain them both as a group and as individuals.
Listen, I'm not a fan of gas vouchers or even farm subsidies; my point was that any solution to rising gas prices has to take the rural communities that sustain the cities into account. There's a lot of people out there, and cities aren't the only organization that has a right to survive.
posted by Lord Chancellor at 9:43 AM on March 13, 2011 [1 favorite]
Evidently, you haven't heard of the Democratic Farmer-Labor Party of Minnesota. Plenty of rural dwellers (including my family) support liberal policies. And this just doesn't mean farm subsidies (which have a problematic history); many of these "anti-government" types are the ones most acutely aware of what services are required by a community (and the high population cities that they visit regularly). Even in Oklahoma and South Dakota, I met quite a few liberal rural folk that understood how their community fit into a greater whole. Anyway, even if they belonged to the wrong political party, we as a nation can't take actions to maintain them both as a group and as individuals.
Listen, I'm not a fan of gas vouchers or even farm subsidies; my point was that any solution to rising gas prices has to take the rural communities that sustain the cities into account. There's a lot of people out there, and cities aren't the only organization that has a right to survive.
posted by Lord Chancellor at 9:43 AM on March 13, 2011 [1 favorite]
Evidently, you haven't heard of the Democratic Farmer-Labor Party of Minnesota. Plenty of rural dwellers (including my family) support liberal policies.There are certainly people who are both rural and liberal, but the are the minority.
posted by delmoi at 9:45 AM on March 13, 2011
There's a lot of people out there, and cities aren't the only organization that has a right to survive.Well, that's just it though, if a lifestyle requires subsidies from other people, does it really have a 'right' to exist? If these people require oil to be pumped in in order to live, the question is why should we pay for it? If oil stopped flowing, the might be able to make enough bio-diesel to drive themselves around, but for now there isn't even an incentive to do that.
posted by delmoi at 9:47 AM on March 13, 2011 [1 favorite]
delmoi: No mater what happens in the world, everything that happens is the result of the fed printing money. I am so sick of it.
I don't personally believe that quantitative easing will lead to runaway inflation, but lots of investors do. That's all it takes. The derivatives market does not smooth out price shocks, it creates them. It's an underdamped system.
As per Krugmans article, commodity prices are not rising at the same rate as Oil. Just oil is going up.
Really? wheat is on track to double in price this year over last
posted by Popular Ethics at 10:37 AM on March 13, 2011
I don't personally believe that quantitative easing will lead to runaway inflation, but lots of investors do. That's all it takes. The derivatives market does not smooth out price shocks, it creates them. It's an underdamped system.
As per Krugmans article, commodity prices are not rising at the same rate as Oil. Just oil is going up.
Really? wheat is on track to double in price this year over last
posted by Popular Ethics at 10:37 AM on March 13, 2011
1) If commodity index funds really give investors such poor return, why do people keep buying them? If, as the futures near their expiry date, no actual oil consumers want to buy them at speculation-inflated prices, then the price will fall, losing the fund money. But this does not happen, or at least it happens rarely enough that investors keep investing in commodity index funds. The fact that at as each expiry date nears, index funds flatten their positions without losing hella money suggests that they are correctly assessing demand, and that the futures prices are about as high as they should be. What am I missing?
2) Basic economic theory holds that if the price of something is too high, surpluses should accumulate. Is this happening with gas/oil? If not, in what sense are the prices "too high?"
3) Has anyone created, say, a short-only commodities index fund? If not, why not? Would the CFTC permit such a thing? If not, why not?
4) Comparing graphs of US oil consumption to those US oil production seems sort of beside the point: shouldn't we be comparing *global* consumption to *global* production? I found the following graphs on wikipedia, which paint a very different picture: http://tinyurl.com/2a67qrp , http://tinyurl.com/2ao5tsq .
I am by no means an expert on this topic, but my intuition is that oil prices are high because there rapidly growing demand and finite, dwindling supply, with few immediately viable alternatives in sight. Based on that information alone, I would predict that oil prices continue to go up until one of those things changes.
posted by andrewpcone at 10:45 AM on March 13, 2011
2) Basic economic theory holds that if the price of something is too high, surpluses should accumulate. Is this happening with gas/oil? If not, in what sense are the prices "too high?"
3) Has anyone created, say, a short-only commodities index fund? If not, why not? Would the CFTC permit such a thing? If not, why not?
4) Comparing graphs of US oil consumption to those US oil production seems sort of beside the point: shouldn't we be comparing *global* consumption to *global* production? I found the following graphs on wikipedia, which paint a very different picture: http://tinyurl.com/2a67qrp , http://tinyurl.com/2ao5tsq .
I am by no means an expert on this topic, but my intuition is that oil prices are high because there rapidly growing demand and finite, dwindling supply, with few immediately viable alternatives in sight. Based on that information alone, I would predict that oil prices continue to go up until one of those things changes.
posted by andrewpcone at 10:45 AM on March 13, 2011
Couple things. If this blogger is quoting Griftopia, then everything Matt Taibbi is saying is in relation to the oil price spike of 2008, not this one. And the Harper's columnist is talking about wheat. It looks like the blogger is the one applying these arguments to the current rise in oil prices.
This is why professional economics should be left to economists, not Matt Taibbi, a journalist.
That statement is ridiculous. Krugman's got a bloody ten part piece asking why the ENTIRE COMMUNITY OF ECONOMISTS were completely out to lunch on the 2008 crash. Maybe some of them should read themselves some Taibbi.
The question isn't whether this current spike is caused by speculation, but whether the influx of financial operators, newly allowed into the commodities markets thanks to slackening of the regulations, and with their pockets bursting with chump money, is making this and future fluctuations more extreme.
posted by Trochanter at 11:51 AM on March 13, 2011 [2 favorites]
This is why professional economics should be left to economists, not Matt Taibbi, a journalist.
That statement is ridiculous. Krugman's got a bloody ten part piece asking why the ENTIRE COMMUNITY OF ECONOMISTS were completely out to lunch on the 2008 crash. Maybe some of them should read themselves some Taibbi.
The question isn't whether this current spike is caused by speculation, but whether the influx of financial operators, newly allowed into the commodities markets thanks to slackening of the regulations, and with their pockets bursting with chump money, is making this and future fluctuations more extreme.
posted by Trochanter at 11:51 AM on March 13, 2011 [2 favorites]
There are certainly people who are both rural and liberal, but the are the minority.
In Minnesota alone, there are four DFL (Democratic-Farmer-Labor) US Reps and four Republican ones. And no, not all the DFLers are from the city nor is Michelle Bachmann's district expressibly rural. Both the house and senate of Minnesota see-saw between DFL and Republican, and once again not just urban-rural divide. Rural-dwellers are not some sort of hicks that don't know what's good for them; neither are city-dwellers lords on high who protect the peasants from their own destructive decisions (if they knew better, they'd live in the cities, right?).
The country is big, and a lot of people live in all sorts of places.
posted by Lord Chancellor at 12:27 PM on March 13, 2011
In Minnesota alone, there are four DFL (Democratic-Farmer-Labor) US Reps and four Republican ones. And no, not all the DFLers are from the city nor is Michelle Bachmann's district expressibly rural. Both the house and senate of Minnesota see-saw between DFL and Republican, and once again not just urban-rural divide. Rural-dwellers are not some sort of hicks that don't know what's good for them; neither are city-dwellers lords on high who protect the peasants from their own destructive decisions (if they knew better, they'd live in the cities, right?).
The country is big, and a lot of people live in all sorts of places.
posted by Lord Chancellor at 12:27 PM on March 13, 2011
I don't think Minnesota is a typical case, I think the statement that liberals are in the minority in rural areas holds pretty well in general.
posted by furiousxgeorge at 12:34 PM on March 13, 2011 [3 favorites]
posted by furiousxgeorge at 12:34 PM on March 13, 2011 [3 favorites]
The question isn't whether this current spike is caused by speculation, but whether the influx of financial operators, newly allowed into the commodities markets thanks to slackening of the regulations, and with their pockets bursting with chump money, is making this and future fluctuations more extreme.
What regulations have been slackened? Like, exactly.
posted by Ironmouth at 1:40 PM on March 13, 2011
What regulations have been slackened? Like, exactly.
posted by Ironmouth at 1:40 PM on March 13, 2011
Until 1991 speculators were limited in the percentage of the commodities market they could control, because it was recognized that they were a different critter than physical hedgers.
Goldman Sachs entered commodities in 1981 when they bought J. Arons. They immediately started lobbying to be exempt from that limitation.
Now, from Griftopia:
posted by Trochanter at 2:24 PM on March 13, 2011
Goldman Sachs entered commodities in 1981 when they bought J. Arons. They immediately started lobbying to be exempt from that limitation.
Now, from Griftopia:
On October 18, 1991, the CFTC-in the person of Laurie Ferber, an appointee of the first President Bush—agreed with J. Aron's letter. Ferber wrote that she understood that Aron was asking that its speculative activity be recognized as "bona fide hedging"—and, after a lot of jargon and legalese, she accepted that argument. This was the beginning of the end for position limits and for the proper balance between physical hedgers and speculators in the energy markets.I'm going to assume, Ironmouth, that you asked this question in good faith. As you can see, the answer I've provided comes from Griftopia. I copied the excerpt I used from my copy, but the same excerpt is in the fpp linked article.
In the years that followed, the CFTC would quietly issue sixteen similar letters to other companies. Now speculators were free to take over the commodities market. By 2008, fully 80 percent of the activity on the commodity exchanges was speculative, according to one congressional staffer who studied the numbers—"and that's being conservative," he said.
posted by Trochanter at 2:24 PM on March 13, 2011
Since speculators never buy the product, I don't think they represent an honest economic signal. They contract to buy it, and then they sell the contract before it's due, because they have no use for the product. So when you say speculation is demand, I disagree, since there is zero intention to ever acquire the product.
It sure is an honest economic signal. It just isn't being reported honestly.
We are talking about a futures market, not the spot market. If speculators suddenly bid up the price to $140 a barrel, the market knows that something weird is going on. That's a signal.
It is a futures market, not a delivery market. I don't know the exact dates, so bear with me. But the price we are hearing about now is actually the price for a contract for delivery some months from now. It is BY DEFINITION not "the price of oil". It is just today's price of a contract for future oil. Those $90 a barrel contracts from a week ago are still valid.
But futures contracts aren't just the price of oil in the future, either. They contain settlement clauses and price offsets. And they are always between two counter-parties. There isn't just some God of Oil behind a counter auctioning off contracts he is printing off the Lexmark in back.
(Again, I don't know the specifics, and it IS more complicated than this.) But it basically works like this: "You give me $10 now, and for that $10, you get the right to buy a barrel of oil from me for $140. If you don't buy it, I keep the $10. And if I can't sell it to you, I'll give you the $10 back, plus another $5 for your trouble."
Alright, so now delivery day comes and oil is delivering on the spot market for $90. The guy I sold the contract to doesn't buy my oil. I keep his $10. And then I sell the oil to someone on the spot market for $90.
Or delivery day comes and the price of oil is $200/bbl. So I say "fuck you clown, here is your $15," and sell the oil to someone else for $200.
End result: we both win and we both lose. Whether we were speculators or producers and consumers, we didn't have to buy and sell futures if we didn't want to. We could feel free to just drive up to the spot market and pay the going rate.
The money that we win or lose doesn't change the price of the oil coming out the side of the tanker. It still only costs what someone there on the dock will actually pay for it. The only way for speculators to influence the price is for them to somehow manipulate the ACTUAL supply of oil. Hold it back when it is cheap, sell it when it is high.
But we rarely hear the spot/settlement price of oil, only the really high number that scares everyone.
And you for damn well sure know the gas stations are using whatever the highest price there is to justify their retail prices. This isn't the fault of speculators, but of greed and an imbalance of knowledge.
(Speculation distorts market prices, but only temporarily. It almost by definition makes prices more volatile in both directions equally. If the speculators run the price up too high, producers will overreact by producing more and end up with an oversupply. And oil gets cheap they produce less and people consume more and the price rises. Again, the only people who can profit off of this are the ones who can control production or consumption. IE, OPEC and the oil companies.
posted by gjc at 2:46 PM on March 13, 2011 [3 favorites]
It sure is an honest economic signal. It just isn't being reported honestly.
We are talking about a futures market, not the spot market. If speculators suddenly bid up the price to $140 a barrel, the market knows that something weird is going on. That's a signal.
It is a futures market, not a delivery market. I don't know the exact dates, so bear with me. But the price we are hearing about now is actually the price for a contract for delivery some months from now. It is BY DEFINITION not "the price of oil". It is just today's price of a contract for future oil. Those $90 a barrel contracts from a week ago are still valid.
But futures contracts aren't just the price of oil in the future, either. They contain settlement clauses and price offsets. And they are always between two counter-parties. There isn't just some God of Oil behind a counter auctioning off contracts he is printing off the Lexmark in back.
(Again, I don't know the specifics, and it IS more complicated than this.) But it basically works like this: "You give me $10 now, and for that $10, you get the right to buy a barrel of oil from me for $140. If you don't buy it, I keep the $10. And if I can't sell it to you, I'll give you the $10 back, plus another $5 for your trouble."
Alright, so now delivery day comes and oil is delivering on the spot market for $90. The guy I sold the contract to doesn't buy my oil. I keep his $10. And then I sell the oil to someone on the spot market for $90.
Or delivery day comes and the price of oil is $200/bbl. So I say "fuck you clown, here is your $15," and sell the oil to someone else for $200.
End result: we both win and we both lose. Whether we were speculators or producers and consumers, we didn't have to buy and sell futures if we didn't want to. We could feel free to just drive up to the spot market and pay the going rate.
The money that we win or lose doesn't change the price of the oil coming out the side of the tanker. It still only costs what someone there on the dock will actually pay for it. The only way for speculators to influence the price is for them to somehow manipulate the ACTUAL supply of oil. Hold it back when it is cheap, sell it when it is high.
But we rarely hear the spot/settlement price of oil, only the really high number that scares everyone.
And you for damn well sure know the gas stations are using whatever the highest price there is to justify their retail prices. This isn't the fault of speculators, but of greed and an imbalance of knowledge.
(Speculation distorts market prices, but only temporarily. It almost by definition makes prices more volatile in both directions equally. If the speculators run the price up too high, producers will overreact by producing more and end up with an oversupply. And oil gets cheap they produce less and people consume more and the price rises. Again, the only people who can profit off of this are the ones who can control production or consumption. IE, OPEC and the oil companies.
posted by gjc at 2:46 PM on March 13, 2011 [3 favorites]
Ah. Perfect analogy time: Futures contracts are sort of like spread betting. The score will be what it will be- no amount of betting will change it. You can't point-shave if you aren't on the field. Only the players can manipulate the score, and only people with oil can sell it to people who are going to use it.
posted by gjc at 2:52 PM on March 13, 2011
posted by gjc at 2:52 PM on March 13, 2011
I think it is important to recognize that there is no "city" or "country" systems anymore. The fate of the cities is tied to the fate of the country by it's stomach. If the folks in the country are unable to afford to continue to live there they will just have to raise the price of their main export, food. That will result in significant impact on those city living folks who ride their bikes to work.
This effect will be even more pronounced when you take into account the diversion of grains to fuel.
Also
I am a Minnesota rural DFL'r
posted by The Violet Cypher at 3:09 PM on March 13, 2011 [1 favorite]
This effect will be even more pronounced when you take into account the diversion of grains to fuel.
Also
I am a Minnesota rural DFL'r
posted by The Violet Cypher at 3:09 PM on March 13, 2011 [1 favorite]
Since speculators never buy the product, I don't think they represent an honest economic signal. They contract to buy it, and then they sell the contract before it's due, because they have no use for the product.
Another way to look at it is to ask "who are they selling those unwanted contracts to, and for how much?" As delivery time nears, the going price for an oil contract has to approach the actual "real" price based purely on supply and demand. Nobody is going to buy a contract if they don't want the oil.
Further, you have to understand that for every speculative buyer of a contract, there is a speculative seller of a contract. In the end, the speculators pay each other to go away, and whatever is left is the real price based on who can actually deliver and take delivery of the oil.
posted by gjc at 3:11 PM on March 13, 2011
Another way to look at it is to ask "who are they selling those unwanted contracts to, and for how much?" As delivery time nears, the going price for an oil contract has to approach the actual "real" price based purely on supply and demand. Nobody is going to buy a contract if they don't want the oil.
Further, you have to understand that for every speculative buyer of a contract, there is a speculative seller of a contract. In the end, the speculators pay each other to go away, and whatever is left is the real price based on who can actually deliver and take delivery of the oil.
posted by gjc at 3:11 PM on March 13, 2011
I think it is important to recognize that there is no "city" or "country" systems anymore. The fate of the cities is tied to the fate of the country by it's stomach. If the folks in the country are unable to afford to continue to live there they will just have to raise the price of their main export, food. That will result in significant impact on those city living folks who ride their bikes to work.
They can't raise the price beyond what us city-folk are willing to pay. Otherwise they will lose their investment.
This effect will be even more pronounced when you take into account the diversion of grains to fuel.
We don't eat that kind of corn. If the price for grain starts to go up, people will plant more.
posted by gjc at 3:24 PM on March 13, 2011
They can't raise the price beyond what us city-folk are willing to pay. Otherwise they will lose their investment.
This effect will be even more pronounced when you take into account the diversion of grains to fuel.
We don't eat that kind of corn. If the price for grain starts to go up, people will plant more.
posted by gjc at 3:24 PM on March 13, 2011
They can't raise the price beyond what us city-folk are willing to pay. Otherwise they will lose their investment.
I totally agree with this statement, I just think it is the "willing to pay" part that will change first.
As for not eating field corn that is also correct technically, but a huge amount of it is eaten by the chickens, pigs and even cows we all eat. So in effect we do eat it.
As for planting more grain. The price of most grains are way up since last year so farmers are already planting as much as they can to take advantage of it. The ability of the farms to produce more food is limited by real physical constraints that can be bent but not broken.
posted by The Violet Cypher at 3:53 PM on March 13, 2011
I totally agree with this statement, I just think it is the "willing to pay" part that will change first.
As for not eating field corn that is also correct technically, but a huge amount of it is eaten by the chickens, pigs and even cows we all eat. So in effect we do eat it.
As for planting more grain. The price of most grains are way up since last year so farmers are already planting as much as they can to take advantage of it. The ability of the farms to produce more food is limited by real physical constraints that can be bent but not broken.
posted by The Violet Cypher at 3:53 PM on March 13, 2011
I think it is important to recognize that there is no "city" or "country" systems anymore. The fate of the cities is tied to the fate of the country by it's stomach.
I have this theory that the end game will be Wall Street seceding and living off food bought from China.
posted by furiousxgeorge at 5:13 PM on March 13, 2011
I have this theory that the end game will be Wall Street seceding and living off food bought from China.
posted by furiousxgeorge at 5:13 PM on March 13, 2011
Due to bad weather. Krugman also had a post on that. Basically bad weather (caused by global warming) has resulted in a lower supply of wheat.
Really? wheat is on track to double in price this year over last
You can't just look at one or two commodities and say there's huge inflation. And no, a few moron investors scared of inflation can't cause inflation. They might create a bubble in one commodity, like glen beck listeners buying gold.
posted by delmoi at 6:36 PM on March 13, 2011
Actually the U.S. is a net exporter of food, in particular to China. (There was a mild round of news coverage a while back when China surpassed Europe as a destination for US food exports.)
Based on what has happened historically in other food-exporting states when the supply of food decreases or increases in cost, I suspect that exports would decrease — all the way to zero if necessary — before domestic food prices are allowed to increase significantly. So yes, city-dwellers may well starve if the cost of producing food in rural areas increase, but those city-dwellers probably won't be US voters so there's not much of a feedback loop.
posted by Kadin2048 at 6:45 PM on March 13, 2011 [2 favorites]
Based on what has happened historically in other food-exporting states when the supply of food decreases or increases in cost, I suspect that exports would decrease — all the way to zero if necessary — before domestic food prices are allowed to increase significantly. So yes, city-dwellers may well starve if the cost of producing food in rural areas increase, but those city-dwellers probably won't be US voters so there's not much of a feedback loop.
posted by Kadin2048 at 6:45 PM on March 13, 2011 [2 favorites]
Based on what has happened historically in other food-exporting states when the supply of food decreases or increases in cost, I suspect that exports would decrease — all the way to zero if necessary — before domestic food prices are allowed to increase significantly.
This should give you some pause when you consider the very high growth in oil consumption in most OPEC countries. The political situation regarding energy in oil exporting countries is precisely the same as in the USA for food - exports will be cut back before the home consumers suffer. That's an incredibly frightening piece of news if you are one of the poor people with limited choices debated about up thread.
posted by bystander at 1:48 AM on March 14, 2011
This should give you some pause when you consider the very high growth in oil consumption in most OPEC countries. The political situation regarding energy in oil exporting countries is precisely the same as in the USA for food - exports will be cut back before the home consumers suffer. That's an incredibly frightening piece of news if you are one of the poor people with limited choices debated about up thread.
posted by bystander at 1:48 AM on March 14, 2011
I feel like we've seen half a dozen of these "speculators make commodities expensive" posts over the last few years. Each time, Mefites show up and correct the mistaken assumptions. But this meme is out there and studying steam largely because of a fundamental attribution bias: if Goldman Sachs does it, it must be evil.
Given the really important role that speculators play in getting producers and consumers to recognize the real risks and changes in their markets, I think this is potentially a very bad trend. Without central planning, speculative markets are the only way to force "real" buyers and sellers to face facts. And there's no oagenxy authorized to perform central planning for the global market! I wish the Taibbi-wannabes would be a bit more careful: their righteous anger may do more to hurt the poor they claim to represent than to help them.
posted by anotherpanacea at 5:46 AM on March 14, 2011
Given the really important role that speculators play in getting producers and consumers to recognize the real risks and changes in their markets, I think this is potentially a very bad trend. Without central planning, speculative markets are the only way to force "real" buyers and sellers to face facts. And there's no oagenxy authorized to perform central planning for the global market! I wish the Taibbi-wannabes would be a bit more careful: their righteous anger may do more to hurt the poor they claim to represent than to help them.
posted by anotherpanacea at 5:46 AM on March 14, 2011
Damn you autocorrect!
..."gathering" steam...
...no "institution" authorized....
posted by anotherpanacea at 5:48 AM on March 14, 2011
..."gathering" steam...
...no "institution" authorized....
posted by anotherpanacea at 5:48 AM on March 14, 2011
BTW, how did the UK get such crazy high taxes on petrol anyways? Is there general public support for raising the prices? The only other thing taxed at levels like that are cigarettes.
posted by smackfu at 7:16 AM on March 14, 2011
posted by smackfu at 7:16 AM on March 14, 2011
Let's forget about Taibbi for a moment. This is an article from Energy and Capital April 2008:
In the price rise we are now experiencing, there is no doubt that there are outrageously obvious fundamental reasons for the spike. But, you'll notice we aren't really even close to the prices we got to in 2008.
If "Mefites show up and correct the mistaken assumptions," I haven't seen it. What I've seen is Mefites showing up and saying oil should be ten dollars a barrel anyway. I don't argue with them over that, but they haven't defended the ludicrous proposition that speculators can't affect commodities prices. They repeatedly *make* the proposition, though. You're right about that.
posted by Trochanter at 7:29 AM on March 14, 2011
Up until about mid-2007, oil prices were mostly about fundamentals: the ever-tightening supply situation that we have chronicled on these pages week after week, terrorist attacks and sabotage of oil facilities and pipelines, geopolitical tensions, and the skyrocketing demand for energy from the world's developing economies.This is an investment advisor, not a Taibbi wannabe. He's talking about the 2008 spike, as was Taibbi in Griftopia and The Great American Bubble Machine.
But in September, the market dynamics changed. The first Fed rate cut in four years on September 18 set off a flight of capital to commodities seeking a relatively liquid safe haven from the devaluation of the dollar. And oil prices began increasing at a far faster rate.
Most pundits were slow to recognize this key factor, and continued to point to Nigeria, OPEC, and so on. Only in recent weeks have I noticed the dollar cited as a primary reason for oil prices. Apparently, setting new record lows session after session got their attention.
In the price rise we are now experiencing, there is no doubt that there are outrageously obvious fundamental reasons for the spike. But, you'll notice we aren't really even close to the prices we got to in 2008.
If "Mefites show up and correct the mistaken assumptions," I haven't seen it. What I've seen is Mefites showing up and saying oil should be ten dollars a barrel anyway. I don't argue with them over that, but they haven't defended the ludicrous proposition that speculators can't affect commodities prices. They repeatedly *make* the proposition, though. You're right about that.
posted by Trochanter at 7:29 AM on March 14, 2011
That article is by Chris Nelder:
Chris Nelder is a self-taught energy expert who has intensively studied peak oil for five years, and written hundreds of articles on politics, peak oil and ...
This is a weird appeal to authority, especially since Nelder, a self-described "peak freak" and "self-taught energy expert" himself believes that the fundamentals point to much higher oil prices in the future.
posted by anotherpanacea at 7:39 AM on March 14, 2011
Chris Nelder is a self-taught energy expert who has intensively studied peak oil for five years, and written hundreds of articles on politics, peak oil and ...
This is a weird appeal to authority, especially since Nelder, a self-described "peak freak" and "self-taught energy expert" himself believes that the fundamentals point to much higher oil prices in the future.
posted by anotherpanacea at 7:39 AM on March 14, 2011
If "Mefites show up and correct the mistaken assumptions," I haven't seen it.
Take a look at krinklygig and gjc's comments.
they haven't defended the ludicrous proposition that speculators can't affect commodities prices. They repeatedly *make* the proposition, though.
No one says that speculators can't affect commodities prices. That's absurd. They'd be useless to the market if they had no effect! The claim defenders are making is that speculators and hedgers are better than the alternative.
The key issues you're ignoring are that high prices encourage more supply and less demand, and that speculators don't just make prices go up, they also make them go down. Speculators aren't constitutionally required to go long every commodity: quite often, they short things when the price seems unjustifiably high. They only go long if they think the price is lower than the facts on the ground warrant. Then, too, speculators make mistakes, and lose lots of money themselves. (This is definitely a problem when they privative profits but publicize losses.)
A lot of big investment banks (not just Goldman Sachs) have done some really pernicious and underhanded things. I have no trouble with Taibbi's own claims about the need for criminal investigations by the hundreds! I'd even agree with Tyler Cowen that finance currently occupies too large a proportion of our economy, something I'd like to fix with increased taxes on capital gains (especially by enforcing a 5 year buy-and-hold rate) and much more regulation.
The problem is the reverse halo effect this produces. It's true: many bankers do dumb and destructive things out of greed and avarice. This does not mean that all bankers do evil things and it certainly doesn't mean that all things that bankers do are evil. We're at the point now where you can tell a story about how bad puppies are by mentioning that many bankers are buying puppies.
But, you'll notice we aren't really even close to the prices we got to in 2008.
I'm not sure what this is an argument for. We're still in the middle of a global unemployment crunch and the attendant loss of consumer confidence, increased savings rates, etc. In 2008 we were a lot poorer than we thought, and one of the signals was the price of commodities. Today, I'd argue that we're a little richer than we think we are, and hopefully one of the signals will be increasing aggregate demand and decreases in unemployment. But I could be wrong, in which case prices may well rise back to 2008 levels in the near term. The point is, we won't work that out arguing it on a message board. It'll be decided by a large market of buyers, sellers, speculators, and hedgers. Which means it'll be more accurate than anything the two of us can agree to.
posted by anotherpanacea at 8:19 AM on March 14, 2011 [2 favorites]
Take a look at krinklygig and gjc's comments.
they haven't defended the ludicrous proposition that speculators can't affect commodities prices. They repeatedly *make* the proposition, though.
No one says that speculators can't affect commodities prices. That's absurd. They'd be useless to the market if they had no effect! The claim defenders are making is that speculators and hedgers are better than the alternative.
The key issues you're ignoring are that high prices encourage more supply and less demand, and that speculators don't just make prices go up, they also make them go down. Speculators aren't constitutionally required to go long every commodity: quite often, they short things when the price seems unjustifiably high. They only go long if they think the price is lower than the facts on the ground warrant. Then, too, speculators make mistakes, and lose lots of money themselves. (This is definitely a problem when they privative profits but publicize losses.)
A lot of big investment banks (not just Goldman Sachs) have done some really pernicious and underhanded things. I have no trouble with Taibbi's own claims about the need for criminal investigations by the hundreds! I'd even agree with Tyler Cowen that finance currently occupies too large a proportion of our economy, something I'd like to fix with increased taxes on capital gains (especially by enforcing a 5 year buy-and-hold rate) and much more regulation.
The problem is the reverse halo effect this produces. It's true: many bankers do dumb and destructive things out of greed and avarice. This does not mean that all bankers do evil things and it certainly doesn't mean that all things that bankers do are evil. We're at the point now where you can tell a story about how bad puppies are by mentioning that many bankers are buying puppies.
But, you'll notice we aren't really even close to the prices we got to in 2008.
I'm not sure what this is an argument for. We're still in the middle of a global unemployment crunch and the attendant loss of consumer confidence, increased savings rates, etc. In 2008 we were a lot poorer than we thought, and one of the signals was the price of commodities. Today, I'd argue that we're a little richer than we think we are, and hopefully one of the signals will be increasing aggregate demand and decreases in unemployment. But I could be wrong, in which case prices may well rise back to 2008 levels in the near term. The point is, we won't work that out arguing it on a message board. It'll be decided by a large market of buyers, sellers, speculators, and hedgers. Which means it'll be more accurate than anything the two of us can agree to.
posted by anotherpanacea at 8:19 AM on March 14, 2011 [2 favorites]
they haven't defended the ludicrous proposition that speculators can't affect commodities prices.
Everyone who buys a product affects the price. Every time you pay for gas you affect the price of gas.
posted by empath at 8:29 AM on March 14, 2011
Everyone who buys a product affects the price. Every time you pay for gas you affect the price of gas.
posted by empath at 8:29 AM on March 14, 2011
and that speculators don't just make prices go up, they also make them go down.
The key issue you're ignoring is that Taibbi is arguing that, because of the slackening of regulations in measures such as the Commodity Futures Modernization Act there is a new kind of investor in the commodities field, like pension funds and such, that by their nature always *do* go long and exert constant upward pressure on the market.
Why I keep making the distinction between the 2008 spike and this one is that people like the blogger in the fpp are bringing Taibbi's arguments about the mechanics of that go round to this current rise in prices where they don't apply.
posted by Trochanter at 9:01 AM on March 14, 2011
The key issue you're ignoring is that Taibbi is arguing that, because of the slackening of regulations in measures such as the Commodity Futures Modernization Act there is a new kind of investor in the commodities field, like pension funds and such, that by their nature always *do* go long and exert constant upward pressure on the market.
Why I keep making the distinction between the 2008 spike and this one is that people like the blogger in the fpp are bringing Taibbi's arguments about the mechanics of that go round to this current rise in prices where they don't apply.
posted by Trochanter at 9:01 AM on March 14, 2011
I have no trouble with Taibbi's own claims about the need for criminal investigations by the hundreds!
But if these are not happening, and the markets are being manipulated to a criminal extent, is it sound to expect that the normal econ 101 defences of how things are supposed to work are valid?
posted by Trochanter at 9:07 AM on March 14, 2011 [1 favorite]
But if these are not happening, and the markets are being manipulated to a criminal extent, is it sound to expect that the normal econ 101 defences of how things are supposed to work are valid?
posted by Trochanter at 9:07 AM on March 14, 2011 [1 favorite]
The key issue you're ignoring is that Taibbi is arguing that, because of the slackening of regulations in measures such as the Commodity Futures Modernization Act there is a new kind of investor in the commodities field, like pension funds and such, that by their nature always *do* go long and exert constant upward pressure on the market.
No, they don't. This is just silly. There's no constitutional requirement to go long "by their nature." Pensions invest in all sorts of short positions.
bringing Taibbi's arguments about the mechanics of that go round to this current rise in prices where they don't apply
I'm fine with anyone who's willing to admit that Taibbi's account doesn't apply to this current situation. My problem is that large parts of it don't even apply to the 2008 situation. It's possible for one part of a derivatives desk that specialized in synthetic CDOs to be acting in bad faith while a different trading desk for commodities markets has plenty of people acting in good faith. Frankly, this is why so many banks were in trouble: if they had realized the positions their malfactors were taking, they wouldn't have taken other correlative positions that were subsequently ruinously expensive.
But if these are not happening, and the markets are being manipulated to a criminal extent, is it sound to expect that the normal econ 101 defences of how things are supposed to work are valid?
There's a difference between the claim that markets had criminal actors in them and the claim that they were successfully manipulated. Frankly, the second claim looks false, right now, since the criminals generally lost massive amounts of money, which you wouldn't expect if they were successfully manipulating markets. Profit did not tend to correlate with criminal activity, it tended to correlate with political influence. That's certainly a problem!
Right now there are crimes happening all over the world. A good deal of labor is still being performed by slaves. There is very little reason to believe that the human race is worth saving. Still, that doesn't mean that markets work better when they disallow speculation. In my opinion, it means we need more oversight and regulation, and it means we need to tax winners and redistribute to the least advantaged. And, you know, free the slaves.
posted by anotherpanacea at 9:19 AM on March 14, 2011
No, they don't. This is just silly. There's no constitutional requirement to go long "by their nature." Pensions invest in all sorts of short positions.
bringing Taibbi's arguments about the mechanics of that go round to this current rise in prices where they don't apply
I'm fine with anyone who's willing to admit that Taibbi's account doesn't apply to this current situation. My problem is that large parts of it don't even apply to the 2008 situation. It's possible for one part of a derivatives desk that specialized in synthetic CDOs to be acting in bad faith while a different trading desk for commodities markets has plenty of people acting in good faith. Frankly, this is why so many banks were in trouble: if they had realized the positions their malfactors were taking, they wouldn't have taken other correlative positions that were subsequently ruinously expensive.
But if these are not happening, and the markets are being manipulated to a criminal extent, is it sound to expect that the normal econ 101 defences of how things are supposed to work are valid?
There's a difference between the claim that markets had criminal actors in them and the claim that they were successfully manipulated. Frankly, the second claim looks false, right now, since the criminals generally lost massive amounts of money, which you wouldn't expect if they were successfully manipulating markets. Profit did not tend to correlate with criminal activity, it tended to correlate with political influence. That's certainly a problem!
Right now there are crimes happening all over the world. A good deal of labor is still being performed by slaves. There is very little reason to believe that the human race is worth saving. Still, that doesn't mean that markets work better when they disallow speculation. In my opinion, it means we need more oversight and regulation, and it means we need to tax winners and redistribute to the least advantaged. And, you know, free the slaves.
posted by anotherpanacea at 9:19 AM on March 14, 2011
No, they don't. This is just silly. There's no constitutional requirement to go long "by their nature." Pensions invest in all sorts of short positions.
From Frederick Kaufman in the Harper's piece quoted in the fpp:
Frankly, the second claim looks false, right now, since the criminals generally lost massive amounts of money, which you wouldn't expect if they were successfully manipulating markets.
That's the thing about criminals. They're not necessarily smart, just criminal. Plus, I see corporations and their chump clients losing money, not the sharps. I see the sharps making out like ..... bandits.
Anyway, looks like we disagree. I'm probably going to bow out. Totally with you on your last paragraph, though. (Only I don't claim there is no place for speculation in these markets. Just that the speculators have forgotten their place.)
posted by Trochanter at 9:48 AM on March 14, 2011
From Frederick Kaufman in the Harper's piece quoted in the fpp:
The managers of this new product would acquire and hold long positions, and nothing but long positions, on a range of commodities futures. They would not hedge their futures with the actual sale or purchase of real wheat (like a bona-fide hedger), nor would they cover their positions by buying low and selling high (in the grand old fashion of commodities speculators). In fact, the structure of commodity index funds ran counter to our normal understanding of economic theory, requiring that index-fund managers not buy low and sell high but buy at any price and keep buying at any price.From Taibbi:
The other problem with index investing is that it’s “long only.” In the stock market, there are people betting both for and against stocks. But in commodities, nobody invests in prices going down. “Index speculators lean only in one direction-long—and they lean with all their might,” says Masters. Meaning they push prices only in one direction: up.Argue with them.
Frankly, the second claim looks false, right now, since the criminals generally lost massive amounts of money, which you wouldn't expect if they were successfully manipulating markets.
That's the thing about criminals. They're not necessarily smart, just criminal. Plus, I see corporations and their chump clients losing money, not the sharps. I see the sharps making out like ..... bandits.
Anyway, looks like we disagree. I'm probably going to bow out. Totally with you on your last paragraph, though. (Only I don't claim there is no place for speculation in these markets. Just that the speculators have forgotten their place.)
posted by Trochanter at 9:48 AM on March 14, 2011
Frankly, the fact that you keep on appealing to the authority of the folks whose expertise is in question here is weird.
If all pensions did was buy an index, then yes, they'd be long commodities. But pensions never invest all their capital in one index. They'd be invested in dozens of market neutral funds, arbitrage funds, and hedge funds that were simultaneously taking short positions. The goal for institutional investors is to avoid major correlations between their investments. So owning one long position doesn't commit them to not owning other short positions. I don't care whether it's printed in Harpers or Rolling Stone: saying it doesn't make it true.
Plus, I see corporations and their chump clients losing money, not the sharps. I see the sharps making out like ..... bandits.
People used to think that Lehman Brothers was smart and at the center of various global conspiracies, too. The basic problem with an economy like ours is that we figure the winners must be smart and the losers dumb, instead of the winners lucky and the losers unlucky. (And precisely that luck is why we should appreciate the price-discovery service speculators supply while simultaneously taxing the hell out of their windfalls.)
posted by anotherpanacea at 10:03 AM on March 14, 2011
If all pensions did was buy an index, then yes, they'd be long commodities. But pensions never invest all their capital in one index. They'd be invested in dozens of market neutral funds, arbitrage funds, and hedge funds that were simultaneously taking short positions. The goal for institutional investors is to avoid major correlations between their investments. So owning one long position doesn't commit them to not owning other short positions. I don't care whether it's printed in Harpers or Rolling Stone: saying it doesn't make it true.
Plus, I see corporations and their chump clients losing money, not the sharps. I see the sharps making out like ..... bandits.
People used to think that Lehman Brothers was smart and at the center of various global conspiracies, too. The basic problem with an economy like ours is that we figure the winners must be smart and the losers dumb, instead of the winners lucky and the losers unlucky. (And precisely that luck is why we should appreciate the price-discovery service speculators supply while simultaneously taxing the hell out of their windfalls.)
posted by anotherpanacea at 10:03 AM on March 14, 2011
First, stop calling me Frankly.
Second, I honestly didn't realize that Taibbi and Kaufman were being questioned. (other than by Ironmouth) I thought people weren't reading the fpp link, or that they were questioning extrapolations from the quoted articles the author of the blog post was making.
I would very much like to see, say, Krugman and Taibbi discuss this issue.
posted by Trochanter at 10:49 AM on March 14, 2011
Second, I honestly didn't realize that Taibbi and Kaufman were being questioned. (other than by Ironmouth) I thought people weren't reading the fpp link, or that they were questioning extrapolations from the quoted articles the author of the blog post was making.
I would very much like to see, say, Krugman and Taibbi discuss this issue.
posted by Trochanter at 10:49 AM on March 14, 2011
And further, if you know of any articles or anything where Taibbi or Kaufman are extensively refuted, I'd like to read them.
posted by Trochanter at 10:51 AM on March 14, 2011
posted by Trochanter at 10:51 AM on March 14, 2011
Still working through the article and this thread, but wanted to point out that $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better might be relevant to this discussion.
posted by Rykey at 11:02 AM on March 14, 2011
posted by Rykey at 11:02 AM on March 14, 2011
I don't really know, hippybear.
Taibbi claims that no one ever bets on commodities going down:
In fact, pensions and other institutional investors need to be able to preserve their assets regardless of whether the market goes up or down, so they have to avoid a simplistic strategy like "always buy and never short." Most do this by investing in speculators, like hedge funds. This will be a special hedge fund that tries to put together a strategy that will make money when, for instance, the market goes down, but stays relatively stable or rises only slightly when markets go up. (Hence, market neutral.) There are literally thousands of funds with strategies like that, and every year, there's a new crop. They're primarily funded by institutional investors: the minimum investment will be much too large and the strategy too specialized for all but the very richest individual investors, but even a medium-sized pension fund might want to include such a fund as a part of its alternative strategies portfolio.
In light of this, it's just not clear why anybody would believe the initial claim by Taibbi or Trochanter's addendum.
posted by anotherpanacea at 12:28 PM on March 14, 2011
Taibbi claims that no one ever bets on commodities going down:
In the stock market, there are people betting both for and against stocks. But in commodities, nobody invests in prices going down. “Index speculators lean only in one direction-long—and they lean with all their might,” says Masters.Notice that he's here conflating "index investors" with "everybody," i.e. "nobody invests in [commodity] prices going down." Since that's clearly a mistake, Trochanter claimed that this could be understood by reference to the new kinds of investors, "pension funds and such" who are constitutionally committed to long positions. I guessed that he was thinking that pension funds and other institutional investors like sovereign wealth funds have very long time horizons, so they'd only want prices to go up, or something.
In fact, pensions and other institutional investors need to be able to preserve their assets regardless of whether the market goes up or down, so they have to avoid a simplistic strategy like "always buy and never short." Most do this by investing in speculators, like hedge funds. This will be a special hedge fund that tries to put together a strategy that will make money when, for instance, the market goes down, but stays relatively stable or rises only slightly when markets go up. (Hence, market neutral.) There are literally thousands of funds with strategies like that, and every year, there's a new crop. They're primarily funded by institutional investors: the minimum investment will be much too large and the strategy too specialized for all but the very richest individual investors, but even a medium-sized pension fund might want to include such a fund as a part of its alternative strategies portfolio.
In light of this, it's just not clear why anybody would believe the initial claim by Taibbi or Trochanter's addendum.
posted by anotherpanacea at 12:28 PM on March 14, 2011
The reason it comes up is that the money from pension funds and other traditionally conservative investment funds is money that was only recently made available to operators in commodity futures markets.
The sorts of Banks that handled pensions used to be legally of a different sort than those that undertook more risky sorts of investments. That legal distinction has been lobbied away. So now the Banks that operate those pension funds are free to use the money that's in them to finance riskier investments.
Who's going short?
As far as I see it, this could easily lead to an irrational market that would fluctuate wildly and fail as often as it succeeds in its ostensible service toward price discovery.
posted by Trochanter at 1:23 PM on March 14, 2011
The sorts of Banks that handled pensions used to be legally of a different sort than those that undertook more risky sorts of investments. That legal distinction has been lobbied away. So now the Banks that operate those pension funds are free to use the money that's in them to finance riskier investments.
Who's going short?
But Goldman had its own way to offset the risks of commodities trading—if not for their clients, then at least for themselves. The strategy, standard practice for most index funds, relied on “replication,” which meant that for every dollar a client invested in the index fund, Goldman would buy a dollar’s worth of the underlying commodities futures (minus management fees). Of course, in order to purchase commodities futures, the bankers had only to make a “good-faith deposit” of something like 5 percent. Which meant that they could stash the other 95 percent of their investors’ money in a pool of Treasury bills, or some other equally innocuous financial cranny, which they could subsequently leverage into ever greater amounts of capital to utilize to their own ends, whatever they might be. If the price of wheat went up, Goldman made money. And if the price of wheat fell, Goldman still made money—not only from management fees, but from the profits the bank pulled down by investing 95 percent of its clients’ money in less risky ventures. Goldman even made money from the roll into each new long contract, every instance of which required clients to pay a new set of transaction costs.As the operator of the fund what's your incentive to be cautious on the part of your client? Your client goes bust? Who cares! You dump J. Aron and you're off to your next scam.
The bankers had figured out how to extract profit from the commodities market without taking on any of the risks they themselves had introduced by flooding that same market with long orders.
As far as I see it, this could easily lead to an irrational market that would fluctuate wildly and fail as often as it succeeds in its ostensible service toward price discovery.
posted by Trochanter at 1:23 PM on March 14, 2011
As the operator of the fund what's your incentive to be cautious on the part of your client?
You think the managers at CALPERS treat the money they invest like this? Trustees have a fiduciary duty to the fund. Goldman is out to make money, which is why the trustees who make the decisions take their financial advisors' advice with caution.
Who's going short?
Goldman's commodity index doesn't invest every dollar that CalPERS or any other pension fund holds. So even if the Goldman Sachs Commodity Index is long, the pension itself is likely to have invested with other funds that can and do take short positions when opportunities present themselves. The hedge funds take all that absurd leverage we're worried about and invest it on the short end, bringing prices back down.
this could easily lead to an irrational market that would fluctuate wildly and fail as often as it succeeds in its ostensible service toward price discovery.
Or that could be the result of uncertain and volatile supply combined with inelastic demand, government price support and export restrictions.
posted by anotherpanacea at 2:07 PM on March 14, 2011
You think the managers at CALPERS treat the money they invest like this? Trustees have a fiduciary duty to the fund. Goldman is out to make money, which is why the trustees who make the decisions take their financial advisors' advice with caution.
Who's going short?
Goldman's commodity index doesn't invest every dollar that CalPERS or any other pension fund holds. So even if the Goldman Sachs Commodity Index is long, the pension itself is likely to have invested with other funds that can and do take short positions when opportunities present themselves. The hedge funds take all that absurd leverage we're worried about and invest it on the short end, bringing prices back down.
this could easily lead to an irrational market that would fluctuate wildly and fail as often as it succeeds in its ostensible service toward price discovery.
Or that could be the result of uncertain and volatile supply combined with inelastic demand, government price support and export restrictions.
posted by anotherpanacea at 2:07 PM on March 14, 2011
So I guess given all this caution and all this sagacity, the crash of 2008 never happened. Some kind of fucking mirage or something.
posted by Trochanter at 2:10 PM on March 14, 2011
posted by Trochanter at 2:10 PM on March 14, 2011
People make mistakes, especially en mass. The question is whether there is manipulation, not whether markets are perfecty rational. The funny thing is that there was plenty of shorting in 2008, much of it institutionally funded.
posted by anotherpanacea at 2:15 PM on March 14, 2011
posted by anotherpanacea at 2:15 PM on March 14, 2011
My simple take on why speculators can't influence the long term price of oil (with the very small exception of those taking physical delivery and storing it) is that they must sell the same number of contracts they have bought each month.
If there is not an underlying supply/demand force pushing the price higher, the sale of 10,000 contracts will cause the commodity price to fall exactly as much as its original purchase caused it to rise.
Indeed, because expiry date is imminent, it is likely the sale must be for a lower price, as the initial purchase had a lower risk, because there was a longer period to reverse the trade and profit.
In fact, the monthly roll over of ETF funds like US Oil costs investors serious money, so the underlying commodity must be rising significantly for investors to make any money, quite apart from the influence of their buying and selling.
See here:
http://seekingalpha.com/article/123577-is-the-uso-etf-a-piece-of-junk
posted by bystander at 11:53 PM on March 14, 2011
If there is not an underlying supply/demand force pushing the price higher, the sale of 10,000 contracts will cause the commodity price to fall exactly as much as its original purchase caused it to rise.
Indeed, because expiry date is imminent, it is likely the sale must be for a lower price, as the initial purchase had a lower risk, because there was a longer period to reverse the trade and profit.
In fact, the monthly roll over of ETF funds like US Oil costs investors serious money, so the underlying commodity must be rising significantly for investors to make any money, quite apart from the influence of their buying and selling.
See here:
http://seekingalpha.com/article/123577-is-the-uso-etf-a-piece-of-junk
posted by bystander at 11:53 PM on March 14, 2011
You all seem to think that just because gas prices are rising and oil is running out that we are all going to get stuck with no car-like transportation. That's silly. Oil will be replaced, it's just a matter of time, and desperation.
posted by Malice at 9:36 AM on March 15, 2011
posted by Malice at 9:36 AM on March 15, 2011
That's silly. Oil will be replaced, it's just a matter of time, and desperation.
Of course, although it may take several million years, I guess.
posted by bystander at 3:19 AM on March 16, 2011 [2 favorites]
Of course, although it may take several million years, I guess.
posted by bystander at 3:19 AM on March 16, 2011 [2 favorites]
You think the managers at CALPERS treat the money they invest like this? Trustees have a fiduciary duty to the fund.Lol. Because obviously no one ever makes mistakes or acts in a corrupt or naive way when they have a fiduciary duty.
posted by delmoi at 3:26 AM on March 18, 2011
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posted by furiousxgeorge at 2:18 PM on March 12, 2011