Econ 101

I try not to go national very often, but every twice in a while someone writes something of significance and importance. In this case, it is a brief column written by Renaissance man, and all-round nice guy, Ben Stein. It is entitled “Oil is Well”, and can be read in it’s entirety at the following url:

http://www.spectator.org/dsp_article.asp?art_id=9350

The beauty of Stein’s column is not only the timeliness, but also the simple way – in layman’s terms – that he describes free markets using the Oil Industry (that would be the “awl bidness” for those of you in Texas) as an example.

If you have any thinking children, this might be a good time to sit down with them, over a cup of hot cocoa, and explain the economic facts of life using this column as a tool.

If you know some young person who has yet to be poisoned by Leftists, a printed copy of Steins piece might inoculate him.

When I finished reading it, I let out a long sigh and thought, “Thanks Ben!”

5 thoughts on “Econ 101

  1. “Ben Stein is a writer, actor, economist, and lawyer living in Beverly Hills and Malibu. ”

    Our vision of ‘what really happened’ is very often a product of our personal circumstances. I guess if I lived in Beverly Hills I might be inclined to believe this illusion: “That rise came about because oil and gasoline traders at desks in investment banks went into hysteria mode when Katrina struck and bid up the price of oil and gasoline to hysterical levels.” What Mr. Stein seems to ignore is that the oil companies management make a few calls to traders to let them know with a wink and smile that ‘better watch out for a possible shortage next week but don’t say you heard it from me’.

  2. Dear Nevyn,

    Assuming that what you say is true, how does that change the fact that prices result from supply and demand? I’m sure that oil brokers have contacts in the production side of the industry, as well as distribution, etc. From those, and other sources, they attempt to divine the sate of affairs. That’s their job. If there was some massive collusion to fix prices, why did they come back down? I sincerely doubt that an oil company executive called up his favorite broker and said, “Hey, you know, there were refineries and some off-shore platforms down where that hurricane hit. If they were damaged, it might affect supply – but you didn’t hear this from me.”

    I don’t know anybody who lives in Beverly Hills, so I take your word that they tend to believe in illusions. Personally, I’m more impressed that he taught economics at Pepperdine regarding this issue. Fortunately for Mr. Stein, he has only lived in Beverly Hills a few years.

    Sammy

  3. “If there was some massive collusion to fix prices, why did they come back down? ”

    Oil begins as a fixed priced commodity by virtue of the fact that OPEC (another word for corporate America) sets the pace for supply. And would OPEC want the price to drop at certain intervals? In order to insure that Joe Six Pack continues to consume you set prices that do not kill off the host. However, a price rise has to be introduced that does not force Joe Six Pack into looking for alternatives. Simple: raise the price from 2 dollars to 3 dollars a gallon, Joe screams until his voice is cracked, then lower the price to 2.50 a gallon and now Joe stops screaming and actually believes that he is getting a great deal because the price just dropped by .50 cents: so he continues to consume. It is a psychological game and has little to do with supply and demand. Supply is hardly random and demand is carefully coaxed.

    Note: Joe Six Pack is not living in Malibu: if this needs to be explained then I am definitely wasting my time by responding.

  4. Dear Nevyn,

    O.K., Let’s stipulate that Ben Stein has a privileged background and leads a privileged life…jeez!

    I stand corrected. OPEC (Oil Producing and Exporting Countries) is a “massive collusion” that has successfully influences oil prices by limiting production – thus proving supply and demand. OPEC, as I recall, consists of a number of Arab states and Venezuela. OPEC has an interest in optimizing revenue for the member states. They control the supply of a portion of the world market to get the highest price without reducing demand to a point where the revenue drops.

    This is a far cry from determining U.S. retail gas prices from week to week. Stein was right about the post Katrina price spike being a result of fear among speculators.

    If, as you suggest, these price fluctuations were the result of fiendish anti-consumer psy-ops mission to fool “Joe Six-Pack” into allowing prices to continuously rise over time, then they should find another team of operatives – gasoline prices have increased at a rate below that of other consumer goods on average over the last forty years.

    Yeah, and that thing about OPEC = Corporate America, that was a joke…right?

    Sammy

  5. Sorry it took so long to respond. Hard to believe but I wound up with a full blown case of pneumonia. Actually I am still in the middle of it, but have gained enough strength to fire up the pc.

    We could continue the dicussion, but I am not sure of the value. Believe me when I say we come from two very different worlds and would just go around in endless circles. I will make one last comment and you get the last word.

    Last Comment:

    Corporate America: Yes, they run behind the scenes. But I am not talking about the store front corporations we see selling products on tv, I am talking about such groups that make up the trilateral commission ( http://afgen.com/trilateral.html ) etc. The individuals making up the group sit on major corporate boards…blah….blah…blah….You get the idea. In other words, what Joe Six Pack sees about Corporate America is designed to keep him distracted from seeing the truth. And what is that truth? Well, start your own search and you will decide.

    OK Sammny: Your turn…and by the way: I like your Blog! Maybe when I recover we can chat some about having you as a guest on What A World Radio….just for fun….nothing serious.

    Nevyn

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