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The Oil Curse Comes to Washington

April 27, 2018

The Oil Curse Comes to Washington

Prices rise and prices fall.  So, too, they fall and rise.  This is how the supply and demand sweet spot is continually discovered – and rediscovered.

When supply exceeds demand for a good or service, prices fall.  Conversely, when demand exceeds supply, prices rise.  Producers use the information communicated by changing prices to make business decisions.  High demand and rising prices inform them to increase output.  Excess supply and falling prices inform them to taper back production.

This, in basic terms, is how markets work to efficiently bring products and services to market.  Five year plans, command and control pricing systems, and government price edicts cannot hold a candle to open market pricing.  But not all markets are created equal.  The market for gumballs or garbage bags, for instance, is much simpler than the market for solar panels or jet engines.

What we mean is some markets are subject to more government intervention than others; especially, if there’s a large money stream that can be extracted by government coercion.  Sometimes governments nationalize an entire market – for the good of the people, of course.

Strange and peculiar price movements can indicate there’s something else besides natural supply and demand mechanics going on.  On April 6, a barrel of West Texas Intermediate (WTI) grade crude oil cost about $62.  Ten months ago, that same barrel of WTI oil cost about $43.  About 24 months ago, it was only about $30 a barrel.

Yesterday, April 26, WTI oil was about $68 a barrel.  What’s going on?

Price Fixing Accidents

Indeed, the oil market is subject to mass government interventions the world over.  The push and pull of these hindrances to regular market determined price discovery can prompt wild price distortions.  We don’t pretend to understand the many variables at play that influence the price of oil.  Still, today, we scratch for clarity and edification, nonetheless.

…click on the above link to read the rest of the article…

Government Price Fixing Has a 100% Failure Rate; This Includes Central Banks

March 23, 2016

GOVERNMENT PRICE FIXING HAS A 100% FAILURE RATE; THIS INCLUDES CENTRAL BANKS

Over the previous half century, economic central planning and price fixing have been intellectually discredited in almost every sector of the economy. In the 1970s many developed countries, including Britain and the United States, had governments which used widespread price fixing, extending to petrol and other goods used every day by the public. Both academic institutions and pragmatic government officials realised over time that such interventionism by government agencies does not work. At best it prolongs the malaise, but more often than not it seriously distorts the structure of the economy both in conspicuous ways, such as product shortages, but also in ways that are more insidious.

Having deracinated almost all theoretical support for price fixing from economic theory, we in the developed world now only have one domain of our economy wherein this ghost has still not been exorcised –  central banking. Economists understand that prices coordinate economic activity, that when there is too much of a good prices must fall in order to accommodate this, and that when a good falls into shortage prices must rise, which both reduces demand and entices people to enter the market to supply more of the good. These mechanisms of free market capitalism are the reason why in developed countries we can go to the supermarket and buy exotic food from all over the world rather than seeing the bare shelves that are all too familiar in Venezuela and other countries that engage in economic central planning.

Interest rates perform a similarly crucial role in the economy. They must be allowed to move with the demand and supply of credit rather than being set by bureaucrats.

…click on the above link to read the rest of the article…

Garbage In Garbage Out Economics

November 3, 2015

Garbage In Garbage Out Economics

“On two occasions I have been asked, “Pray, Mr. Babbage, if you put into the machine the wrong figures, will the right answers come out? …I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question.” – Charles Babbage, Passages from the Life of a Philosopher.”

Charles_Babbage_1860The late Mr. Charles Babbage (1791-1871), an English polymath credited with inventing the first mechanical computer
Image via The Illustrated London News

 Crunching Data to Fix Prices

The fundamental problem facing today’s economy is the flagrant contempt by governments the world over for the free exchange of goods and services and private stewardship of property.  Perhaps it is power and control governments are after.  Maybe they believe they are improving the economy and making the world a better place for all.

No one really knows for sure.  But what is lucidly clear is the muddled disorder modern day economic policies have wrought upon us.  You can hardly enter into a transaction without a cluster of intervention mucking with the price of payment.

Taxes, tariffs, wage laws, and subsidies.  These all impact prices.  But the main culprit affecting prices and trade are central bank interventions into money and credit markets.  Relentless actions to control the economy by manipulating money and credit stand the price of everything else on end.

Certainly, government intervention into the U.S. economy is much looser than a Soviet style command and control system.  But it does share a common refrain.  Price fixing is central to its operation.

The Soviets, armed with their Five-Year Plans and the Theory of Productive Forces, deliberately directed how much wheat should be planted and how much a potato should cost.  Conversely, the U.S. approach is mostly hidden from the short sighted view of the average lay person.  The Federal Reserve allows the government to bypass the nuisance of tinkering with individual prices…though they still do it through subsidies and appropriations.

 

5 year plan

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No Wrongdoing Here, Just 6,300 Corporate Fines and Settlements

May 6, 2015

No Wrongdoing Here, Just 6,300 Corporate Fines and Settlements

Despite the PR about how corporate profits benefit widows and orphans, this vast wealth is concentrated in the top 1% and the top 5%.

I am honored to share a remarkable data base of Corporate Fines and Settlementsfrom the early 1990s to the present compiled by Jon Morse. Here is Jon’s description of his project to assemble a comprehensive list of all corporate fines and settlements that can be verified by media reports:

 

What struck me was the sheer number of corporate violations of laws and regulations–thousands upon thousands, the vast majority of which occurred since corporate profits began their incredible ascent in the early 2000s–and the list of those paying hundreds of millions of dollars in fines and settlements, which reads like a who’s who of Corporate America and Top 100 Global Corporations.“This spreadsheet is all the corporate fines/settlements I’ve been able to find sourced articles about, mostly in the period from the 1990’s up to today (with a few 80’s and 70’s). This is by far the most comprehensive list of such things online. At least that I could find, because the lack of any decent list is what made me start compiling this list in the first place.”

I encourage you to open one of the three alphabetical tabs at the bottom of the spreadsheet on Google Docs and scroll down to find your favorite super-profitable corporation.

Many have a long list of fines and settlements, and many of the fines are in excess of $100 million. Many are for blatant cartel price-fixing, not disclosing the dangers of the company’s heavily promoted medications, destroying documents to thwart an investigation of wrong-doing, etc.

In other words, these were not wrist-slaps for minor oversights of complex regulations— these are blatant violations of core laws of the land.

…click on the above link to read the rest of the article…

 

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