Friday, June 20, 2008

The Free Market rules again!

Summer session I is almost over.

Maybe I can get out and exercise some in this splendid heat during my business law classes.


Meanwhile, a little commentary on the world I live in…


Ironic that it takes China to teach the US a lesson in free market economics.

A story in the Wall Street Journal today talks about China raising the price of their fuel (centrally controlled by the government) and the price of oil taking a resulting dive.

No, the government controlling the price of fuel is NOT free market economics (unless you’re a democrat), but the INCREASE in price for a commodity yielding a DECREASE in demand is first year economics stuff—probably even high school economics stuff.  Meanwhile, McCain is talking about a gas-tax holiday (LOWERING the price of fuel) which will result only in an INCREASE in demand and, duh, an increase in price.

Sure, there’s no good reason not to pursue economically viable resources here in our own backyard—as long as it can be done in a responsible manner in the communities most immediately affected.  But if the total sum solution is increase in supply, that’s not going to solve the problem.  If SUPPLY increases, PRICE will surely decrease in the short term.  However, with a DECREASE in price, inevitably an INCREASE in demand will follow unless there is some alternative (fuel) to soak up that demand.  And no, purely electric cars will NOT solve the problem, because electricity has to come from SOMEWHERE…  where, you ask?  Well, today it’s largely fossil fuels because new plants that use fissile fuels have been regulated damn near to death.

So, while China is teaching us that reducing demand will ease up pressures on supply, our politicians are preaching increasing demand, increasing supply, and continuing to limit any alternative that will ease pressure on the supply.  It’s sad, really.  I wish there was one party to blame—then it’d be easy to choose between one or the other.  But both are at fault.  The republicans are hell bent on cheap gas, cheap oil, and unlimited supply (of oil), while the democrats are hell bent on no more oil, but no more proven, efficient, high-yeild power sources, either.  Sure, line the hills with windmills, but what happens when the wind dies down?  (Don’t chortle, according to the CEO of Dynegy there was nearly a brownout here in Texas a few months back because windmills in west Texas stopped spinning for a few minutes.  The bo was averted because the South Texas Nuclear facility had enough capacity to ramp up generation to cover the shortfall.)

So, all in all, it’ll require a little bit of new thinking that we haven’t seen from an executive in awhile.  The million dollar question is, which one, if either at all, will offer that.


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