Thursday, February 23, 2006

Big Oil companies are not the problem.

Nor are they the solution.

It gets brought to my attention every time I talk about oil prices that "the big oil companies are making billions of dollars." That's absolutely true. I never argue.

So what?

Why does a company making a profit matter? Why, in this present state of wealth animosity and class warfare, do we care so much about other people becoming rich? No one complains about how much freaking money the pope and the queen of England have. And they're not even providing us with the energy that's so vital to our economy. Why do we need a queen of England and a pope, anyway? We should take their money and use it to finance biodiesel research, wind power and advanced solar cells.

Kinda like what the oil companies are doing.


Now, am I saying that we should let them have all this money because they're going to provide an alternative to their own product that will save our future? Hell no. A lot of what people are saying is true. They're a bunch of greedy fatcats that are rolling in cubic money. But that's not where the problem is.

The problem is that nobody sets the price of oil anymore. Back in the good old days when the price got too low, you turned down the spigot, when it got too high, you turned the spigot back up again. But that was then. Now everyone is pumping as much as they can and the price continues it's rise. We can't keep up with depletion. We can't feed demand. Price is found where supply meets demand. It's that simple. So the price goes up. Profits go up. The problem is not that the profits are up.


It's the shortage of oil.


If we were to "force" the price of oil back down, people would use more of it than they do when the price is higher. That's just how it works. How much less gas are you using today as compared with last year? If you are using just as much, what items have you been going without to make up for your increased fuel bill? I bet those items are made of oil, by oil, or at least tranported by truck.

The point is, the higher price exists when the supply goes down relative to demand. The only way to bring the price down is to reduce demand or increase supply. We know (if you've been paying attention) that we can't increase supply. We must reduce demand. That's what the high price does. It just so happens that the oil companies are there to take in a bigger profit. So what?


Q: So, why don't we just force them to lower the price by cutting their profits?

A: That would result in shortages due to overuse of oil relative to price. People would continue to live the way we have and use as much oil..... almost. There wouldn't be enough. Someone, somewhere would have to go without. I'm not expert enough to know who, but my guess is it would be the people the furthest away from sources of oil. Michigan perhaps? Nebraska? I'm not really sure, just guessing on that part. The point is, who goes without? The free market system decides that for us. If we tamper with that, then who decides who goes without? You? Me? The pope? The queen of England?


-LORD gotwa

5 Comments:

Blogger notyourmommasoatmeal said...

The issue is the deception. I always hear on the TV and internet that prices are going up because of this reason or that reason. If the prices are going up, then there shouldn't be any additional profit. If it cost (insert oil company here) $X more to deliver a final product to me because of whatever reason I have no problem paying it. However, when I hear all the reasons for the cost going up and then Oil Company says it just made a SHIT TON of money (more profit than any other company in the history of the western world mind you) I start to think that maybe their costs didn't go up and I just took it in the ass because they liked it.

7:22 PM  
Blogger Lord Gotwa said...

It's not about cost (those are going up as well, but that's not the problem). If you find a penny, it's worth a penny. You're costs are nothing.

If you find a rare double-stamped George Washington ass-penny, your costs are the same.

Because of the DEMAND on that rare ass-penny, your fortunes are much higher.

The market sets the price on both pennies, so to speak. Because collectors around the world need that pennny, the price goes up. If you were to sell it below market value, then the person who bought it could sell it for market value. The final price is the same and the profit is the same.

That's the bitch of demand.

11:07 AM  
Blogger notyourmommasoatmeal said...

Supply and Demand is fine, but at what point do you say that they cannot price gouge. If every oil company all of a sudden says that a bird sneezing in China is causing their prices to go up, any they all report 73% (thank you random number generator) profit increases, how can you not be upset. The same supply exists, the same demand exists (think short term, week by week demand) but the price at the pump went up 30% overnight.

7:34 PM  
Blogger notyourmommasoatmeal said...

( non-hybrid solution for you)

http://www.dailytech.com/article.aspx?newsid=1000

7:35 PM  
Blogger Lord Gotwa said...

Now you're talking!

Diesel is the future, folks. Any car that can run on stale peanut oil (which, incidently is what Rudolph Diesel demonstrated his engine running on) is good in my book.

Thanks, nonyourmammasoatmeal!

8:37 PM  

Post a Comment

<< Home