High Oil Prices = More U.S. Manufacturing Jobs

[GreyICE]

Then why not agitate for higher taxes and retain the abilty to do something in the public interest with the money?

I've tried. It hasn't worked. So, I'm done trying that. People don't want higher gas taxes, people don't like it, it never gets passed.

Are you particularly liking the bit about this "excess" income that people have earned going into the pockets of oil-rich governments and oil companies?

Sure, because production cost is a constant IRL.

Shortsightedness allowed the demand to grow without any similar effects on the supply curve (in fact it's probably shifting left, thanks to increasing costs of production). Now that basic economics is rearing its head, why do you think that the money is going to lining the pockets of oil rich companies?

It's cost them an increasing amount to drill new oil wells, research new technologies, erect ocean rigs, explore new areas, map out new deposits, etc. Increasing cost of production, decreasing production, increasing demand, of COURSE the price goes up.

Yes, they're making a healthy profit, but I could have told you this would happen 8 years ago with the big SUV booms and increasing energy usage.

 

[Francesca R]

Sure, because production cost is a constant IRL.

Production cost (per barrel of oil) is not a constant in real life, unless you mean from one hour to the next.

Shortsightedness allowed the demand to grow without any similar effects on the supply curve (in fact it's probably shifting left, thanks to increasing costs of production).

I am missing the bit about what is "good" about this? I am mostly in agreement with you about what the supply curve looks like and how it behaves ("steep" / "inelastic")

Now that basic economics is rearing its head, why do you think that the money is going to lining the pockets of oil rich companies?

I am not sure I agree with "basic economics". The inelastic oil supply story is, in my view, mostly about the deliberate warping of capitalism. Of course, bad international governance of oil markets does not repeal supply/demand truths, but I would not describe what has happened (and continues to happen) as basic economics.

 

[Blackadder]

This is the (economic) law of comparative advantage, coupled with the ease of transportation. It has been occuring and developing for several thousand years.

I agree with this, but the economic law doesn't account for the cost of some things, like damage to the environment. Or the fact that oil runs out so that it might be wise not to waste the oil we still have. These economic factors you and drkitten are talking about only look at the short time.

It's also economic to make my clothes by 8 year old child workers from India. It is good for me and the shareholders to let them work 10 hours a day for $1.

I think you don't agree that is a good thing.

 

[Francesca R]

I agree with this, but the economic law doesn't account for the cost of some things, like damage to the environment.

It is agreed by many (including me) that external costs (not wholly borne by those that are party to the transactions) distorts the incentive for those transactions to take place. One of the generally accepted role of governments is to regulate to internalise costs in the interests of the collective third (external) parties.

Or the fact that oil runs out so that it might be wise not to waste the oil we still have.

I disagree. If the information is "out there", then the economic agents (buyers and sellers) know it at least as well as anybody else, and it becomes factored into expectations about future supply and demand, and therefore prices today.

These economic factors you and drkitten are talking about only look at the short time.

I don't agree with that (see above).

It's also economic to make my clothes by 8 year old child workers from India. It is good for me and the shareholders to let them work 10 hours a day for $1

I think you don't agree that is a good thing.

Ah, you think wrong. What would you rather have the Indian child do, and whose responsibility is it to make that happen?

 

[GreyICE]

Production cost (per barrel of oil) is not a constant in real life, unless you mean from one hour to the next.

We have a winner. Thus, rising prices do NOT necessarily reflect rising profits.

I am missing the bit about what is "good" about this? I am mostly in agreement with you about what the supply curve looks like and how it behaves ("steep" / "inelastic")

In that it's happening now rather than later? We have more time to adjust. The more time our moronic policies hold off this adjustment, the worse it would get.

I am not sure I agree with "basic economics". The inelastic oil supply story is, in my view, mostly about the deliberate warping of capitalism. Of course, bad international governance of oil markets does not repeal supply/demand truths, but I would not describe what has happened (and continues to happen) as basic economics.

Err, yes, because elasticity of the demand curve totally matters in a supply curve shift. The demand curve is heading right, the supply curve is heading left, guess where the price goes?

As basic as it gets.

 

[Francesca R]

We have a winner. Thus, rising prices do NOT necessarily reflect rising profits.

So you were being ironic. OK fine. But check the share price of XOM and others for verification that much of the fluctuation in the crude oil price affects oil company (and by implication sovereign) earnings.

In that it's happening now rather than later? We have more time to adjust. The more time our moronic policies hold off this adjustment, the worse it would get.

Which policies? I think you are only referring to policies that give rise to the demand for oil, right? What about the supply?

Err, yes, because elasticity of the demand curve totally matters in a supply curve shift. The demand curve is heading right, the supply curve is heading left, guess where the price goes?

If all you are saying is that "price is the intersection of the IS-LM chart", fine. But the reason why the demand and supply curves are the way they are is not basic economics in that sense, so much as policy outcomes. You said so yourself.

As basic as it gets.

No, it gets considerably less basic.

 

[ServiceSoon]

Thank you, OPEC.

Soaring energy costs, the falling dollar and inflation are cutting into what U.S. manufacturers call the "China price"-- the 40 to 50 percent cost advantage once offered by Chinese producers.

Energy (oil) has fallen back in-line with the trend or expected value and strangly the US dollar is rising...

 

[drkitten]

I agree with this, but the economic law doesn't account for the cost of some things, like damage to the environment. Or the fact that oil runs out so that it might be wise not to waste the oil we still have. These economic factors you and drkitten are talking about only look at the short time.

Er, no. Running out of oil more or less automatically causes prices to rise, which in turn reduces wastage. The real question is whether it is worth it to stockpile oil NOW instead of putting it to use NOW --- which in turn is a question of which is more "profitable."

Now, you're certainly right that economic agents have an incentive to "externalize" costs, but that's part of what intelligent government policy is supposed to address.

It's also economic to make my clothes by 8 year old child workers from India. It is good for me and the shareholders to let them work 10 hours a day for $1.

I think you don't agree that is a good thing.

Well, I'm certainly sympathetic to the child worker's plight, and would vastly prefer to see her in school learning her times tables. But that's (unfortunately) not a viable option. She's not in school because I and the shareholders have kidnapped her, but because she needs to work to put food on the table for herself and her family. They usually can't afford to have her learning something useless like literacy and multiplication.

What else would she (realistically) be doing? Frankly, I'd rather see her sewing T-shirts for $1 instead of working in the fields for $0.50 or simply starving in a corner.

 

[bobrayner]

You could argue the economic of it, but there are more Americans who pay high gas and fuel oil prices than there are unemployed Americans. Follow the votes.

And yet... there are far more Americans in steel-consuming jobs than there are Americans in steel-producing jobs, but Dubya still tried to win votes by forcing up steel prices.

 

[Francesca R]

And yet... there are far more Americans in steel-consuming jobs than there are Americans in steel-producing jobs, but Dubya still tried to win votes by forcing up steel prices.

That is because one side in that contest may more visible to a rationally ignorant public (steel workers), and/or it may have a more powerful political lobby (producers), than the other (steel consumers). You don't go to the steel station on a regular basis to buy a dozen or so kilograms of it. Neither is its cost itemised in the price of goods that use it.

 

[GreyICE]

So you were being ironic. OK fine. But check the share price of XOM and others for verification that much of the fluctuation in the crude oil price affects oil company (and by implication sovereign) earnings.

Of course it does. Increased demand always increases profits.

Which policies? I think you are only referring to policies that give rise to the demand for oil, right? What about the supply?

The supply is finite. No policies will ever change that fact. No policies will never create any more crude oil.

Policies are only going to really change the demand. Any supply changes are short term, and demand driven.

If all you are saying is that "price is the intersection of the IS-LM chart", fine. But the reason why the demand and supply curves are the way they are is not basic economics in that sense, so much as policy outcomes. You said so yourself.
No, it gets considerably less basic.

Of course it does, real world. I'm just surprised anyone thinks this is due to profiteering or something.

 

[Francesca R]

The supply is finite. No policies will ever change that fact. No policies will never create any more crude oil.

You are treating oil in the ground, oil under the sea, oil in Alberta's sands, oil not yet discovered, and so on, as equivalent to a barrel of crude in a storage facility. This indicates you do not have the correct conception of what is meant by "supply" in an economic sense.

Policies are only going to really change the demand.

Incorrect, for the reason you reveal by your flawed thinking above.

I'm just surprised anyone thinks this is due to profiteering or something.

What is "profiteering" and who said that?

 

[GreyICE]

You are treating oil in the ground, oil under the sea, oil in Alberta's sands, oil not yet discovered, and so on, as equivalent to a barrel of crude in a storage facility. This indicates you do not have the correct conception of what is meant by "supply" in an economic sense.

Yes I do. What I am saying is that the market is demand-driven, not supply driven.

Incorrect, for the reason you reveal by your flawed thinking above.

Nonsense. What policies can do is TEMPORARILY change the supply. However no change can change the supply in the long term. This is obvious. Because the supply is finite, any change in policy will effect a short term change only.

What is "profiteering" and who said that?

Are you particularly liking the bit about this "excess" income that people have earned going into the pockets of oil-rich governments and oil companies?

Sounds similar to me. We can quibble about word choice if you like, but frankly, that's how I read it.

 

[Blackadder]

Er, no. Running out of oil more or less automatically causes prices to rise, which in turn reduces wastage. The real question is whether it is worth it to stockpile oil NOW instead of putting it to use NOW --- which in turn is a question of which is more "profitable."

If I look at the oil prices of the past 30 years, I see little correlation between price and 'running out of oil.' What I do see is prices being hugely influenced by politics. You could argue that just recently we finally see some signs of the 'oops it's running out, let's charge more!' factor.

Well, I'm certainly sympathetic to the child worker's plight, and would vastly prefer to see her in school learning her times tables. But that's (unfortunately) not a viable option. She's not in school because I and the shareholders have kidnapped her, but because she needs to work to put food on the table for herself and her family. They usually can't afford to have her learning something useless like literacy and multiplication.

What else would she (realistically) be doing? Frankly, I'd rather see her sewing T-shirts for $1 instead of working in the fields for $0.50 or simply starving in a corner.

I would rather see that we paid more for the T-shirt so that A. She could get education and B. Those people would stop making 5.8 children, and stop at 1-2 children. I know it is not realistic, but that doesn't mean I cannot prefer that it would be like that.

The only reason why she has to work , either in a T shirt mill or on the fields is because people here think (for all kinds of logical reasons) that it's ok. In the past everybody has their children working on the farm (USA, Europe) Yes indeed, children HAD to work to put food on the table. But that was because we DIDN'T have the resources we do now. Now 1 machine does the work of 100 (forgive me if it is 1000) people. That's the main reason we got so rich. We invented the machines, and the productivity made us colonize the whole world. So we can have more wealth and better lives. Because we (again the reasons are logical) prefer to keep that for ourselves, the children in other parts of the world still have to work.

 

[drkitten]

If I look at the oil prices of the past 30 years, I see little correlation between price and 'running out of oil.'

Yeah, and when I look at the price changes of IBM stock over the past ten minutes, I see little correlation with anything useful, either. That's because nothing useful changes over ten minutes.

The reason you haven't seen correlation between price and "running out of oil" is because we haven't been running out of oil (except for short-term shortages created by politics or natural disasters --- but that ends up proving my point). There has always been a comfortable reserve of oil in the ground that geologists have been able to tap as needed. That will end someday,..... but not today and not tomorrow, either.

The only reason why she has to work , either in a T shirt mill or on the fields is because people here think (for all kinds of logical reasons) that it's ok.

No, the only reason she has to work is because she has this unhelpful habit of eating regularly.

In the past everybody has their children working on the farm (USA, Europe) Yes indeed, children HAD to work to put food on the table.

Bingo. And, indeed, in India, children still have to work to put food on the table.

But that was because we DIDN'T have the resources we do now.

What mean "we," kemo sabe? The reason that children in India still need to work is because they don't HAVE the resources. While it may be possible for a machine to do the work of 100 people, the Indian peasants can't afford the machines. Even if the local government permits them the machines, and if they were given the machines outright (as they often are), they can't afford to run them.

 

[Francesca R]

Yes I do. What I am saying is that the market is demand-driven, not supply driven.

No, you said this:

The supply is finite.

. . . and it is borne of an incorrect understanding of the economic term "supply" which means a run rate (such as mb/d) that will be *produced* at varying price levels. It is a continuous schedule. It is not a discrete number. And the comment that "the market is not supply driven" is also wrong and nonsensical. For a market to be "not supply driven" (price is not affected by the rate of supply) the supply curve itself needs to be flat--any and every amount will be produced at the same price all the time. That is practically the *opposite* of the situation for oil.

Nonsense. What policies can do is TEMPORARILY change the supply. However no change can change the supply in the long term. This is obvious. Because the supply is finite, any change in policy will effect a short term change only.

Same flawed thinking. Oil supply (production) has steadily increased. Check the IEA data. Your statements appear to be more oriented to an idea of "the total amount of oil on earth". That is also not a fixed number, and it keeps getting revised up, and it is large.

We can quibble about word choice if you like, but frankly, that's how I read it.

Nope. What's profiteering? My comment there was in response to your one that there was excess income that people apparently deserved to have taken away, and I wondered how indifferent you were to the mechanism/route by which it was. Apparently not. Therefore, I conclude that you think that real disposable income is/was "too high" and that any means by which it is reduced is OK. Correct this if it is wrong please.

 

[Francesca R]

I would rather see that [ . . . ] Those people would stop making 5.8 children, and stop at 1-2 children. I know it is not realistic, but that doesn't mean I cannot prefer that it would be like that.

How liberal of you. And please inform yourself of India's fertility rate before professing to such ignorance apparently masquerading as concern.

http://en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate

 

[Blackadder]

How liberal of you. And please inform yourself of India's fertility rate before professing to such ignorance apparently masquerading as concern.

http://en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate

I made up that 5.8 because figures like that were actual when I was in school, so they somewhat kept in my mind. That doesn't mean I am ignorant. As I see from your linked list (thank you) still many countries that are a lot poorer than India seem to be above that 5.8. Also if we are talking about the people in India that ACTUALLY have their children working in factories you will see that they do get more than 2.7 child. Fortunately a growing number of people in India move up to higher education and better paying jobs and adopt a 2 children life style. You can already see that from the fact that in only 8 years it drops from 3.1 to 2.76.

 

[Puppycow]

As things get more and more automated, I expect that there will be fewer and fewer manufacturing jobs anyway. You are more likely to be displaced by a robot than by a foreigner. I once read that the US steel industry produces more tons of steel today than it did in the 80's, but employs only about a third as many people as it did then. So even if business is good for US steel makers, that may not necessarily mean more jobs.