Sunday, April 06, 2008
The Miraculous and Supernatural Power of Unregulated Free Markets
Back in 2002 and 2003, I was predicting in online forums that the price of crude oil would hit 60 dollars a barrel by 2005, 75 or 80 dollars by 2006, and would permanently rise to 100 dollars and beyond by 2007. So my prediction, based mostly on the work of Jim Kunstler, was about a year off but otherwise accurate.
At the time, people in those forums ridiculed me, and assured other readers who might be alarmed by such talk that there was plenty of oil left, that establishing energy security was just a matter of finding it, that talk of an approaching crisis was chicken littleism, and so forth. They cited the Alberta tar sands, the Colorado oil shales, the Arctic Wildlife Refuge's north slope, ethanol, and the coming hydrogen car as reasons we need not worry. Some even offered the information that the earth's core was like the center of a creamy nougat, spontaneously producing oil all the time and refilling exploited petroleum reservoirs from the bottom. The geologists just hadn't noticed that natural phenomenon yet. All of them were confident that an unregulated free market would function in a natural and orderly way to solve all our problems.
A hundred bucks a barrel would never happen.
These rationalizations, so clearly the happy chatter of addicts who want desperately to avoid any realistic appraisal of their actual condition, are now exposed for the nonsense that they were and are, and can be safely relegated to Leon Trotsky's "dust bin of history." The new reality is that these same people are suddenly beginning to realize that they are impaled on the twin horns of the automobile manufacturing industry and energy producers. Where is the salvation offered by our sacred and holy free market now?
Yesterday an article in the financial journal Barron's asked, "With Supply Up and Demand Down, Why Are Prices so High at the Pump?"
The reason that's happening is because even though supplies of crude oil are growing because of falling demand, supplies of gasoline are shrinking due to -- what's that you say? -- the natural behavior of the market. An AP article from Friday explains:
That's because gasoline supplies are falling, in part because producers are cutting back on output of the fuel due to the high cost of crude -- the more expensive crude is, the more refiners have to pay and the lower their profits are. They're also in the process of switching over from producing winter grades of gasoline to the less polluting but more expensive grade of fuel they're required to sell in the summer.
"That cuts back on some of the supply and helps to pump up the price," said Mike Pina, a spokesman for AAA.
At the same time refiners are holding us hostage at the gas pump in spite of the current abundance of $100-dollar-a-barrel crude, auto makers both here and in Japan are telling us that a hybrid vehicle we can plug in at night (essentially an electric car) is still years away.
The late Kurt Vonnegut's last book, "A Man Without a Country," tells us that "Industries should be allowed to do whatever they want to do: Bribe, wreck the environment just a little, fix prices, screw dumb customers, put a stop to competition, and raid the Treasury when they go broke.
"That's free enterprise.
"And that's correct.
"The poor have done something very wrong or they wouldn't be poor, so their children should pay the consequences.
"The United States of America cannot be expected to look after its own people.
"The free market will do that.
"The free market is an automatic system of justice.
And I'm not kidding. If we don't get a government in the fall that's willing to do something to help us, we'll have to take matters into our own hands.