Ravenwood - 03/18/05 06:00 AM
Anyone who talks about the price of anything being at an all time high without adjusting the numbers for inflation is a complete moron. Speaking of morons, enter Reuters, who gleefully declares that oil prices are at an all time high. I wonder why there are no gas lines like we saw in the 1970s? I wonder why there is no big push by consumers to buy more fuel efficient cars?
Maybe that's because when you adjust prices for inflation, gas prices are NO WHERE NEAR ALL TIME HIGHS!
By this logic, movie prices are at all time highs. The cost of newspapers are at all time highs. The cost of Big Macs are at all time highs.
Speaking of Big Macs, there is what economists call the Big Mac Index. That is the theory the value of a currency can be judged by the price of a Big Mac. The premise is that the value of the Big Mac remains relatively constant throughout history. It is made in more than 100 countries and represents a commodity with relatively constant value consumers, regardless of the actual price and the nation that you are in. So when Big Macs are cheaper, the value of a currency must be stronger, whereas when Big Macs are more expensive, the value of a currencey is likely to be weaker.
Category: Blaming the Media
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High prices have no relation to lines. Lines are caused by price controls. High prices in fact get rid of lines, if they're not controlled high prices.
You can alway buy all the gas you want. You just want less.
The moron effect to attack is that windfall profits to oil companies are a _public problem_. They're not a problem of any kind. They solve a problem, in fact, namely how to ration the gas so that everybody gets all they want, something the government and the NYT could never do.
The mechanism is : the guy at the oil tank farm notices that the inventory level is dropping - incoming is less than outgoing. He can't get more incoming. So he raises the price to slow down the outgoing. Since the price of gasoline is (short-term) _inelastic_ this only means that the price has to change a lot, not that demand doesn't indeed fall. Inelasticity in fact could be measured in decibels, the shouting and screaming that accompanies it, but it does what it's supposed to.
The inventory stops falling. Supply equals demand. No lines. You get all you want.
Part of the decibel effect is the news story that prices are at an all-time high, is all.
Posted by: Ron Hardin at March 18, 2005 8:03 AM(c) Ravenwood and Associates, 1990 - 2014
