Friday, November 11, 2005

In Favor of the Free Market

The juxtaposition of headlines on the front page of yesterday's Baltimore Sun made me chuckle:

Oil Company Execs Defend Profits to Senate

Then:

Tax income falls as gas prices rise
Maryland gets less road revenue than expected as drivers cut back


Duh?

Allow me to summarize:

- Big, bad storms and overdue refinery maintenance shut down a large portion of domestic oil production capacity. Hence (I love to throw in a "hence" here and there - makes me sound all smart and stuff), supply is constrained.

- China (India, too) is growing like a crazy mutha-effer, gobbling up a whole pile of oil. Hence (there I go again), demand is increased.

- Result: Prices go UP.

I'll repeat myself: duh.

Fast forward several weeks. People start driving less, due to higher prices. Demand falls. Pipelines and refineries come back on line. Supply catches up. Prices fall.

(For all you braniacs out there, Charlie Krauthammer pursues this in a little more detail today.)

One more time: duh.

Let's say I own the only plant in the world that makes Fluffernutter. I decide to go on a 2 week kayaking vacation to Outer Mongolia, and because I'm a generous tycoon, I take my entire staff with me. So I shut down my plant.

Sadly, we had mistakenly scheduled our trip over National Fluffernutter Day. While we were gone, demand surged, the black market went nuts, and jars of Fluffernutter were selling for $20 a pop on EBay.

When I return from my adventure, sore shoulders and all, I am greeted by a huge backlog of orders, angry customer emails, and a mob of crazed fluffernutter addicts. We restart the plant, and some shifts, work overtime, and fill our warehouses to capacity.

Of course, we overcompensate and make too much. So, we need to mark down some of the product in order to sell through our excess: 2-for-1 Fluffernutter deal!

Through all this, do I expect to be called before the Senate? Of course not. This is what markets do. Supply falls. Demand rises. Prices go up. Supply catches up. Demand may fall. Prices go down.

Anyone who doesn't understand this is either ignorant of basic economics, a lunatic ideologue, or a vacuous, headline hogging politician.

1 Comments:

Blogger r10b said...

And while you were there before Congress with your 10 billion dollar quarterly profit you could thank them for the tax cuts they just gave you so you could go rape the land for more fluffernuts using my money.

12:13 PM  

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