primitives explain economics; take the "supply" out of "supply and demand"

[franksolich]

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3702794

Oh my.

Things I never learned in economics classes in college, and I took a lot of classes in economics.

JFN1  Donating Member  (844 posts) Wed Jul-30-08 01:36 PM
Original message

Get it Straight - It Is NOT ABOUT SUPPLY
   
High gas and oil prices are not a problem of supply and demand. I get a bit riled when I see Democrats try to explain this problem as if it were all about supply. Supply is certainly a component, since demand has increased dramatically in the last ten years. But the high prices we have been experiencing for the last four years - are not about supply.

If it is a supply problem, then explain how it is that in 2000, Exxon profited around $5 billion for the year, while the last four years or so, they've profited $35 - $40 billion a year. They made an extra $100 billion over the last four years - and there is a supply problem?

If it were a supply problem, then Exxon's profits would not have gone up 800%.

If it were a supply problem, then Exxon's profits would have stayed at or close to their 2000 level profits, for THEY would be paying out the same amount more that we consumers are paying out.

If it were a supply problem, then there would be lines at the gas station like there were in the 70's, when war caused an ACTUAL supply problem.

If it were a supply problem, then why is natural gas, of which the US has supplies in excess of 11 trillion cubic feet, gone up in price right alongside oil?

If it were a supply problem, then why does the price of oil rise $5, $10, even $15 dollars in a single day - with absolutely no interruption or limiting of gas at the pump at the same time?

The fact that ALL of the oil companies have seen outrageously huge profits adding up to HUNDRED OF BILLIONS OF DOLLARS should tell you it is NOT a supply problem - just extraordinary greed in action.

Stop believing the oil company, Republican, and White House propaganda about high gas prices, and start looking at the FACTS before you agree with THEM. For when you agree with them, you justify and legitimize their greed.

Just like the primitives justify their greed when it comes to demanding handouts, one supposes.

ribofunk  Donating Member  (1000+ posts) Wed Jul-30-08 01:41 PM
Response to Original message

1. I Agree That the Spike in Oil is Mostly a Market Bubble or rather, a gradual long-term change in supply and demand that escalated into a speculative frenzy.

Some of your other point, however, I don't understand, such as how this relates to oil producers' profits. As I understand it, the producers are the ones profiting, while companies further down the supply chain are not benefitting at all.

JFN1  Donating Member  (844 posts) Wed Jul-30-08 01:53 PM
Response to Reply #1

6. Simple
   
Who are the producers? The oil companies. Who are the suppliers? Countries like Saudi Arabia. Who has had record profits during this supposed supply crisis? The oil companies and their suppliers.

During the supply problems in the 70's, oil companies did not experience record profits - in fact, it was just the opposite. The oil suppliers like the Saudis, are getting their cut, too, don't doubt it. But if the oil suppliers were the ones taking all of the profits, then how is it the oil companies are still getting such huge profits?

Again, if the oil companies are paying more, then why are their profits so unnaturally high?

Tandalayo_Scheisskopf  Donating Member  (1000+ posts) Wed Jul-30-08 01:44 PM
Response to Original message

2. I don't believe it is a supply problem. NOW.
   
I do believe it is the result of greed, manipulation and lax governmental oversight by a corrupt administration and those in congress who would suck the shitstains from Big Oil's shorts.

On the other hand, there is no time like NOW to start the process of eviscerating and winding the intestines of Big Oil up on garden hose reels. In the bargain, we get national security gains, cleaner air and water and we create new industries and jobs.

Because the time for that is NOW. Well, 30 years ago, actually.

And in 2009, when Dems take control of Washington, that will be the time for investigations by all proper bodies and agencies of the government into the sorry spectacle of this nation being bent to the will of The Oil Field Trash, with all appropriate indictments and trials necessary.

Methinks the scheiss primitive is dreaming some pretty wild dreams.

For those who don't know German, the translation for the last name of the above primitive is "shithead."

sendero  (1000+ posts) Wed Jul-30-08 02:51 PM
Response to Reply #17

26. Your knowledge of market economics..
   
.... is seriously flawed if you think profits should necessarily corellate with demand.

When supply is inelastic, as is the production of oil, small changes in demand can and do have a huge impact on price.

There are many factors involved in the runup of oil prices. But anyone thinking we'll ever be buying a barrel of oil for less than $80 or so bullshit devalued currency-of-a-bankrupt-country dollars is delusional.

The people who have oil recognize that they are sitting on a dwindling resource, and are not giving away what's left for cheap.

Texas Explorer  Donating Member  (1000+ posts) Wed Jul-30-08 02:30 PM
Response to Original message

20. It is a supply problem. Oil is a finite resource which is now in declining production.

QuestionAll  Donating Member  (1000+ posts) Wed Jul-30-08 03:41 PM
Response to Original message

33. you're right- it's about DEMAND. there's a lot of it, and it continues to grow.
   
but the supply doesn't.

It's a pretty nonsensical bonfire.

[jtyangel]

Ok, DUmmies...the price of gas is linked to the underlying commodity and what it is traded at. Companies can BUY gas contracts ie they can commit to buy so many barrels of oil at a stated price, however PRICE to the consumer is tied to the CURRENT market price of oil ie the oil company could essentially turn a huge profit if the market is higher--they are still committed to charging the going market price even if their own costs have not gone up or they sit on cheaper oil contracts from a few years ago that are now maturing.

I'm sure the DUmmies with a few ounces of gold aren't going to sell it at the going price 5 years ago just so they don't make 'too much profit'

Southwest bought cheap oil commodity contracts back in the 90's. It helped keep their prices low and keep things humming since as gas was going up, Southwest was committed to fuel at lower prices. From what I understand, those contracts are history and they've felt some of the crunch of higher fuel costs. Of course, the cheapter contracts helped their PROFIT margins. They were essentially buying jet fuel at lower costs then the going rate.

Part of this is economics, frank, coupled with very little knowledge of how the markets work in general. They see an inordinate amount of profit in their minds and don't understand the dynamics behind how things are bought, sold, hedged in those industries. I don't understand the oil game completely, but I do have enough knowledge to understand how it can happen. Commodities is a difficult market to understand, but if the DUmmies are so insistent on commenting on it and pushing for policy based on the prices in it, then they owe to their country to at least have a cursory knowledge of how it works. Books are great for this, but something tells me in the book stores and such they like to haunt, the books on finance and economics gather dust if left up to them to choose them.

[JohnnyReb]

The short and sweet of "Supply and demand"....as DUmmies understand it.

They demand and someone is supposed to supply.

[Lord Undies]

Ok, DUmmies...the price of gas is linked to the underlying commodity and what it is traded at. Companies can BUY gas contracts ie they can commit to buy so many barrels of oil at a stated price, however PRICE to the consumer is tied to the CURRENT market price of oil ie the oil company could essentially turn a huge profit if the market is higher--they are still committed to charging the going market price even if their own costs have not gone up or they sit on cheaper oil contracts from a few years ago that are now maturing.

I'm sure the DUmmies with a few ounces of gold aren't going to sell it at the going price 5 years ago just so they don't make 'too much profit'

Southwest bought cheap oil commodity contracts back in the 90's. It helped keep their prices low and keep things humming since as gas was going up, Southwest was committed to fuel at lower prices. From what I understand, those contracts are history and they've felt some of the crunch of higher fuel costs. Of course, the cheapter contracts helped their PROFIT margins. They were essentially buying jet fuel at lower costs then the going rate.

Part of this is economics, frank, coupled with very little knowledge of how the markets work in general. They see an inordinate amount of profit in their minds and don't understand the dynamics behind how things are bought, sold, hedged in those industries. I don't understand the oil game completely, but I do have enough knowledge to understand how it can happen. Commodities is a difficult market to understand, but if the DUmmies are so insistent on commenting on it and pushing for policy based on the prices in it, then they owe to their country to at least have a cursory knowledge of how it works. Books are great for this, but something tells me in the book stores and such they like to haunt, the books on finance and economics gather dust if left up to them to choose them.

The Little Goons at DU are all up in arms over "PROFIT"....that nasty word!  They think "profit" is the end of the game. Once "profit" has been achieved, that's where it ends.  Everyone in the boardroom divvies up and they all walk out the door with their pockets bulging of money that rightfully belongs to "the poor".  Then the oil company has a ZERO balance and must start raping the public all over again.  

It is amazing.  Their ignorance, or refusal to comprehend, is a stunning exercise in wishful thinking (the perpetual hope for the worst).    

[BlueStateSaint]

The short and sweet of "Supply and demand"....as DUmmies understand it.

They demand and someone is supposed to supply.

H5!

[jtyangel]

Ok, DUmmies...the price of gas is linked to the underlying commodity and what it is traded at. Companies can BUY gas contracts ie they can commit to buy so many barrels of oil at a stated price, however PRICE to the consumer is tied to the CURRENT market price of oil ie the oil company could essentially turn a huge profit if the market is higher--they are still committed to charging the going market price even if their own costs have not gone up or they sit on cheaper oil contracts from a few years ago that are now maturing.

I'm sure the DUmmies with a few ounces of gold aren't going to sell it at the going price 5 years ago just so they don't make 'too much profit'

Southwest bought cheap oil commodity contracts back in the 90's. It helped keep their prices low and keep things humming since as gas was going up, Southwest was committed to fuel at lower prices. From what I understand, those contracts are history and they've felt some of the crunch of higher fuel costs. Of course, the cheapter contracts helped their PROFIT margins. They were essentially buying jet fuel at lower costs then the going rate.

Part of this is economics, frank, coupled with very little knowledge of how the markets work in general. They see an inordinate amount of profit in their minds and don't understand the dynamics behind how things are bought, sold, hedged in those industries. I don't understand the oil game completely, but I do have enough knowledge to understand how it can happen. Commodities is a difficult market to understand, but if the DUmmies are so insistent on commenting on it and pushing for policy based on the prices in it, then they owe to their country to at least have a cursory knowledge of how it works. Books are great for this, but something tells me in the book stores and such they like to haunt, the books on finance and economics gather dust if left up to them to choose them.

The Little Goons at DU are all up in arms over "PROFIT"....that nasty word!  They think "profit" is the end of the game. Once "profit" has been achieved, that's where it ends.  Everyone in the boardroom divvies up and they all walk out the door with their pockets bulging of money that rightfully belongs to "the poor".  Then the oil company has a ZERO balance and must start raping the public all over again. 

It is amazing.  Their ignorance, or refusal to comprehend, is a stunning exercise in wishful thinking (the perpetual hope for the worst).     

LOL.Exactly, Undies! I know that's exactly what they picture. I'm sure you are with me chuckling over their idea that gross profit is the same as net income. I think they really believe gross profit is what the board and executives get to take home in their fat little pockets at the end of the day.