A Facebook group, “Amazing new way to lower gas prices”, came to my attention last week, when a hometown friend invited me to join. After viewing this group, I found that it has been a source of false and misleading information for more than 458,000 Facebook users. What follows is the exchange of wall posts between my friend and I:
Parsons: Thanks for the invite to "Amazing new way to lower gas prices", yet economically speaking, it will not change prices, only cause higher unemployment, as ExxonMobil lays-off hundreds, if not thousands, of individuals from its 84,000-plus workforce.
Also, less than 1% of ExxonMobil is owned by Executives, 49% is owned through the stock market by the average person making money for buying food, clothes, home repairs, etc.; the other 50% is owned by pension funds and mutual funds, things that take care of our grandparents and help us through college. One more thing, trying to hurt ExxonMobil is trying to hurt ourselves;--ExxonMobil is an American company. Why on earth would we, as Americans, be against an American company making money, which turns around and provides for us, in ways I pointed out above?
Friend: So, what do you propose we do?
Parsons: Most will not like this, but let the markets work it out. Mother Earth loves every dime the price of oil or gas rises. The incentive to move into cleaner fuels never appeared so strong. America needs to take the reins in this case and show the world that we are the Captain of the Global movement towards of a better tomorrow. Change is the American way. We must display our compassion for all of our biological cousins, i.e. birds, fish, reptiles, mammals, trees, plants, etc. The high prices make us rethink transportation and the resources we use to fuel it.
Supply and demand factors need to be recognized, as India and China develop, as well as other countries and economies. More demand with the same supply output shifts the demand curve to the right and thus the equilibrium finds itself at a new higher price.
Many environmentalists and economists still see the price at the pump too low. According to some oil experts, the global oil supply will peak in 2010. This is not saying drilling in Alaska and/or off the coast and/or any other place and we can delay the peak in this natural resource market. This 2010 peak takes into account all the crude the planet has to offer. Yet, we have heard these estimates and forecasts afore; however, to what degree can we count on the trajectory of technology to keep pace with demand? So, then, we must draw into this equation all information, and this is a piece.
Also, here is why journalists need to register for a few basic economic courses before spouting out asinine and misleading statements. Before adventuring forward, it needs to be stated that it is not incorrect to call the record energy prices inflation. However, I find a misconception in the word usage which many people may mentally embrace. The prices, presently, are not what is known as core inflation--that is, the general idea of inflation as it relates to other commodities, such as guitars, comic books, and knives. They are the examples of a very elastic market. This is, also, why food, not only energy, is not calculated into the core inflation rate. These markets’ volatility exhibits poorly the inflation rate according to real income over a great time period. After the last oil crisis, prices drop to $11 or so a barrel;--that is textbook deflation. Though conversely, America has not experienced deflation in the core inflation rate--on the macro-scale--since the Great Depression. If deflation had occurred, the economy would have reacted like a combustion engine without motor oil.
Another thing that makes the price at the pump appear so high compared to the late 90’s and early 2000’s is that today's weak dollar buys less globally. This weak dollar occurs from the FED trying to lessen the severity of the Recession (pending or real;--more so real). To lower interest rates, the FED prints more money; thusly, to raise interest rates the FED prints less.
Also, another factor in the weak dollar is the current account deficit. We need to balance the budget for a few years (at the bare least) along with an economic boom, which will allow the FED to raise the interest rates. So, the weak dollar is cured for that times’ being. The ecological nature of the economy presents our system (still the most efficient, there is) with a thing called the “Business Cycle”;--that is, the ups and downs, less downs than ups, of course.
Friend: So, basically, we, as consumers, can only limit the amount we buy and show interest in alternative fuels and the rest is up to the government and the economy, as it ebbs and flows?
Parsons: Firstly, the manner in which you phrased your question leads me to gather you view us as somewhat victims or at least as a less powerful entity than the government or the economy. All I can reply with is that we are the government and we are the economy. We cast ballets for our representatives and we do the same each time we purchase a commodity or service. This is a similarity that cannot be overlooked in the intentions of our Founding Fathers;--a Republic through Democratic Representation and a Free Market Economic Enterprise. Each of these complements the other in such a Classical Liberal modus operandi.
Secondly, we can demand of our representatives to subsidize alternative fuel sources, yet this will limit government spending on some programs, raise taxes, or restrict tax cuts. Some Democrats proffer an idea of windfall profit taxes and/or cutting tax breaks to oil companies, like ExxonMobil; however, it is not mentioned by the advocates of such plans that they will raise oil prices in the short run and promise such perpetuation into the long run. Think of it in this light: if a company does not need to pay its light bill, then it will use that money in Research and Development, as well as being able to thusly expand, creating jobs and higher wages for its employees.
If we can recall, or if not, then research the last energy crisis of this sort, we implemented windfall profit taxes, had rationing and price controls, and it is viewed by many economists in retrospect that these steps only disrupted the markets and prolonged the crisis. This is the reactionary mentality that leads to the same asinine measures we find before us this day.
Yet, for the cut in spending, I would rather eliminate some out-of-date programs. Like last year, we, as taxpayers, funded a dozen programs that no longer existed. The large scale of our present day government, due to its bureaucratic fashion, runs behind an even faster moving world and economy.
However, I will not be a one-armed economist--that is, subsidizing one type or a group of energy alternatives will simultaneous sanction the others not subsidized and out of which may be the fuel we run on tomorrow. Furthermore, when could people predict the future of their own lives, let alone the market, in such a manner?
Thirdly, if we, as citizens, desire a balanced budget, we have to accept that we must choose whether certain projects and programs remain more vital than a squared budget. Possessing a large Balance of International Indebtedness compares with a wrong turn on the highway; whereas the Current Account Deficit represents the miles per hours on the automobile, as we head in that not-so-fortunate direction. Wherein we slow the MPH’s or even reverse the direction, we find our global friends more trusting of our driving and decision capabilities and, ergo, more willing to ride shotgun.
Additionally, when America comprises only 4% of the global population and possesses 29% of the world’s wealth, it stands only to reason that America will be the world’s largest debtor. Yet, a good rule of thumb endures: debt for investment is fine and will pay itself back in time, yet debt accumulated for consumption leaves one no payoff. Think of college: going into debt to attend classes and purchase books can only add to one’s future earnings; taking on debt to get plastered or stoned each weekend leaves one with only a hangover or morning buzz and no method unto which to amortize the said debt easily. Thusly, from the hard won earnings, it must be reimbursed.
Fourthly, within our economic system, we can embolden our goals and visions for a particular market or cause by becoming an entrepreneur and entering the system as a leader for the change for which we pine, ergo, finding our niche market and maximizing benefits, along with minimizing costs. If we find it too risky or untimely, we can then invest in someone else’s entrepreneurial spirit.
Fifthly, an individual on the floor of the New York Stock Exchange stated that he believed oil prices may lower to the $80 range within the next three months. Oil prices--that is, coupled with all the other reasons I stated so far within our discourse--also rose to unprecedented heights, due to a slowing economy, where individuals found it safer to invest in the energy markets (and in some cases, actually buying oil and storing it, as one would precious commodities, such as gold and sliver) and in return oil gained in price, which made other markets slow, ergo, more individuals ran to the safe bet, Energy Stocks, because they remained rising.
So, besides the few individuals hoarding barrels of oil, oil skyrocketed by a somewhat false demand. A group of traders--not in an arrange manner, of course--moved the value of the stocks upwards, by believing that the stocks were going in that direction and so invested. This happens, for example, in the currency exchange markets as well;--the overvaluing or undervaluing of a specified currency. One could argue that our dollar has been treated in that way, of late.
It needs noting that the threefold increase in trading on the future markets, as most of the trades are, have little to do with the price in the present. The metal, nickel, for the same period of time as the rise in oil, has been traded on the future markets just about as much; however, the price of the nickel lowered in said time.
Finally, the reason for the price of oil, in addition with other goods, is one comprised of a myriad of factors. No one action will change the pain at the pumps, or in words, the salvation of the planet, herself. It will take several such key actions in a very sensitive equation of variables to redirect the prices downwards. However, if many experts are correct when oil prices do lower, we will no longer be craving the resource (simple supply and demand), as we are presently; we will have moved beyond such a high quantity demanded.
The “Amazing new way to lower gas prices” has nothing new or amazing about it; it belies a simplistic step to solve numerous factors with detailed complexities. I will add, that these complexities of factors safeguard us from one individual or a small group of individuals controlling our lives, as a possible puppetry.
Finding the Economic I.Q. of the average American to be abysmal, I outline several pressing factors to demonstrate that the proposal set out by this group remains strongly misunderstood, as well as highly damaging to the state of our current affairs. I left another dozen or so factors off the list, due to the reader's time and more importantly to my time in breaking down the complexities of this situation into layman's terms.
