Will the Fed's policies drive us to the socialists' wet-dream of total dependency on the gov't?
DeCoster and Englund, from the Mises Institute, discuss it...

Quote :

"Over the past ninety-three years, since the founding of the Federal Reserve, the dollar has depreciated by over 95%. With money no longer being a stable repository of value – thanks to inflation – a predictable shift in the American character has occurred. Gone are the low-time-preference days where hard work and savings paved the road to a better life for parents and children. As our fiat money perniciously lost value, time preferences shifted upwards as it made more sense to spend a depreciating currency today than save for the future. And, better yet, what is more seductive than to borrow ever-depreciating fiat money – as heavily encouraged by the Federal Reserve – and pay the principal back with money that has become worth even less? Gradually, savings becomes a vice, profligacy a virtue, and the character of a people regresses to a permanent state of adolescence — as all sense of value is forgone in favor of instant gratification. "

full article here: http://www.mises.org/story/2221

6/27/2006 1:44:06 PM

Quote :

"Over the past ninety-three years, since the founding of the Federal Reserve, the dollar has depreciated by over 95%. With money no longer being a stable repository of value – thanks to inflation – a predictable shift in the American character has occurred. Gone are the low-time-preference days where hard work and savings paved the road to a better life for parents and children."

this is so dumb, it hurts

6/27/2006 1:46:36 PM

Explain rather than saying it is done. You just look stupid when you say that.

6/27/2006 2:01:43 PM

i am no defender of the fed's actions

but damn

this is so dumb it hurts

6/27/2006 3:59:21 PM

First, you'd need to prove we don't work hard and save the way we once did. Second, even if you do this there are many good reasons why Americans would not do so. Savings are kind of like an insurance policy against future bad occurances, such as losing your job or getting too sick to work, as examples of worst case scenarios:

Saving made much more sense when the worst case scenario could land you and your family into starvation and homelessness. It makes much less sense nowadays when the worst case scenario has you working at Wal-Mart or on unemployment and disability, safe from the reach of starvation and homelessness.

Saving made much more sense when the worst case scenario was also more frequent. Back then workers and businesses were less able to respond to shifts in the economy, thus recessions were deeper and more frequent. Today's unemployment rates are half what they used to be.

Finally, it bears mentioning that we are probably saving more than ever, just the percentage of income saved has fallen.

6/27/2006 4:21:09 PM

do you leave your basement much?

i dont know anyone who subscribes to a theory of "total dependence". of course, you believe that the existence of the IRS and income taxes represent opressive tyrrany, so there's really no use arguing.

6/27/2006 5:29:38 PM

Quote :

"First, you'd need to prove we don't work hard and save the way we once did. "

Granted, we work pretty darn hard, but we're not saving much of it...

Quote :

"Americans' savings rate declines in 2005 By Martin Crutsinger, AP Economics Writer | January 30, 2006 WASHINGTON --Americans are spending everything they're making and more, pushing the national savings rate to the lowest point since the Great Depression. Soaring home prices apparently have convinced people they don't have to worry about saving, a belief that could be seriously tested as 78 million baby boomers begin to retire."

http://www.boston.com/business/articles/2006/01/30/savings_rate_lowest_since_great_depression/

Quote :

"..The government reported last week that consumers last year spent all they earned and then some, pushing the personal savings rate into negative territory at minus 0.5 percent. The savings rate has only been negative for a full year twice before, in 1932 and 1933, when Americans were struggling with huge job layoffs during the Great Depression. "

http://www.cbsnews.com/stories/2006/02/07/business/main1293943.shtml

Quote :

"Second, even if you do this there are many good reasons why Americans would not do so."

What would some of those reasons be?

Quote :

"Saving made much more sense when the worst case scenario could land you and your family into starvation and homelessness."

It looks like from those two news articles, that even before and during one of the biggest 'worst cases scenarios' - the Great Depression - Americans weren't saving much.

I still find the authors' arguments quite compelling.

6/27/2006 5:43:43 PM

Quote :

"It looks like from those two news articles, that even before and during one of the biggest 'worst cases scenarios' - the Great Depression - Americans weren't saving much."

Well, to be brutally honest, during a recession it is already too late to save, most people are already subsisting off their savings.

Quote :

"What would some of those reasons be? "

I gave you three:
#1, our ability to survive without savings has dramatically increased
#2, the frequency that we need to survive on our savings has dramatically decreased
#3, the percentage of our income required to satisfy a sensible amount of savings has fallen

Any one of which makes the U.S. savings rate fall, factor in all three of them and it seems that Americans are probably saving too much.

[Edited on June 27, 2006 at 5:57 PM. Reason : .,.]

6/27/2006 5:56:41 PM

Quote :

"our ability to survive without savings has dramatically increased"

The authors claim that a Fed-induced bust would decimate many of these middle class so-called "two thousandaires". A depression is not going to encourage Wal-Mart to hire more people. And your claim that people could survive without savings because the gov't would be there to prop them up entirely supports the authors claim. Gov't dependence. The socialists win.

Quote :

"the percentage of our income required to satisfy a sensible amount of savings has fallen "

So a savings percentage of minus 0.5% is sufficiently sensible?

6/27/2006 6:41:04 PM

Quote :

"The authors claim that a Fed-induced bust"

Now this is just silly. The 1930s were a product of much more than just the Federal Reserve. You see, the Federal Reserve has a limited influence on the economy. Just because the Federal Reserves sets overnight rates at 100% that doesn't stop citizens from loaning each other money at lower rates. Don't forget the large number of deep lenders around the world nowadays that could easily serve as lender of last resort to U.S. firms in our native currency.

The worst the Federal Reserve can do is cause a massive recession which would last about a year. Afterwards the financial system will adjust to the new rules and move on. The U.S. economy is very resilient thanks to technological advances, with sufficiently flexible labor and capital markets to make recessions less common, more shallow, and shorter lived.

In other words, it takes acts of congress to turn a recession into a depression. For examples just look at what policy changes occured before and during the Great Depression.

Quote :

"So a savings percentage of minus 0.5% is sufficiently sensible?"

From what I know of how the number is calculated, yes, it is very sensible and is a compliment to the average American's intelligence.

[Edited on June 27, 2006 at 7:22 PM. Reason : .,.]

6/27/2006 7:21:19 PM

Quote :

"The worst the Federal Reserve can do is cause a massive recession "

Yes I agree. In the short-term, this is about as much mischief the Fed could accomplish. But I think the point of this article was that our change in financial "character" (loads of personal debt, less than stellar savings results) has been a long-term problem that didn't just start overnight.

I'm not prepared to buy into some grand Federal Reserve conspiracy yet. I think the problem has developed from a lack of political and personal will-power more than anything else.

Would you agree?

6/27/2006 10:22:49 PM

The federal reserve really harms savings.

I hate those assholes for providing a steady supply of money so that we can have a good deal of confidence in our future, I wish they would just go away so that I would have to hoard up money in fear of the unpredictable rise and fall of gold prices.

[Edited on June 27, 2006 at 10:56 PM. Reason : ]

6/27/2006 10:54:10 PM

^what?

6/27/2006 11:21:25 PM

^Under the current federal reserve system the supply of money generally increases with or slightly outpaces the demand for money, meaning you dont live like a miser (pun intended) and can actually use the shit how you want.

What the mises institute and I assume Earthdogg are advocating is the use of a very, very hard gold standard with no central bank what so ever.

Since the supply of gold cannot keep up with economic growth or the demand for money, your money will usually experience deflation. This means youre gonna save up the stuff because it is going to be worth more in the future than it is now. It can also experience sharp a rise or fall in price due to events specific to the commodity that would otherwise have nothing to do with the economy.

[Edited on June 28, 2006 at 1:02 AM. Reason : ]

6/28/2006 12:58:33 AM

Quote :

" This means youre gonna save up the stuff because it is going to be worth more in the future than it is now. "

Which, in turn, shrinks the economy and makes gold worth less.

6/28/2006 1:34:47 AM

^^ Both systems are predominantly arbitrary. Instead of the value of your money dropping because of the discovery of a large gold deposit it drops because the FED over-compensated.

That said, due to the present-preference of money all human beings must assume their money is going to be worth less to them in the future, even if it garners more goods. If the inflation rate is -1% on a gold standard instead of +1% on a fiat standard the long term difference to you is negligible: interest rates will adjust to meet the demand for capital. You can take your fiat money and buy gold and get that 1% gain, or put it in a mutual fund and get 6%. On a gold standard you can keep your money in gold and get that 1% gain or put it in a mutual fund and get a gain of 6%.
__________Nominal____Real
Standard___Return____Return
Fiat Cash____0%______-1% (assuming a 1% fiat inflation rate)
Fiat Gold____+2%_____+1% (under a fiat money system buying gold)
Fiat Saving__+7%_____+6% (under a fiat money system investing in productive enterprise)
Gold Cash___0%______+1% (under a gold money system hoarding gold, assuming a 1% deflation rate)
Gold Saving_+5%______+6% (under a gold money system investing in productive enterprise)

You see, you would be right that a fiat system encourages investment because the net gain to investing is 7% instead of 5%, but since "buying gold" is still an option and it returns 2% leaving you with a relative return of only 5%, on par with savings.

6/28/2006 9:04:41 AM

Congressman Ron Paul from Texas...

Quote :

" In an article entitled "Gold and Economic Freedom," Federal Reserve Chairman Alan Greenspan wrote that "The excess credit which the Fed pumped into the economy spilled over into the stock market- triggering a fantastic speculative boom...The speculative imbalances had become overwhelming and unmanageable by the Fed... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation." The irony is that Mr. Greenspan's words, written in 1966 to describe the era leading up to the Great Depression, could easily have been written in 2003 to describe the consequences of his own Fed policies during the 1990s. Mr. Greenspan once understood that a fiat money system represents nothing more than a sinister and evil form of hidden taxation. When the government can print money at will, it's morally identical to the counterfeiter who illegally prints currency. Fiat money polices especially hurt savers and those on fixed incomes, who find the value of their dollars steadily eroded by the Fed's printing presses. We need to understand why a fiat system is so popular with economists, the business community, bankers, and government officials. One explanation is that a fiat monetary system allows power and influence to fall into the hands of those who control the creation of new money, and to those who get to use the money or credit early in its circulation. The insidious and eventual cost falls on unidentified victims, who are usually oblivious to the cause of their plight. Another explanation is that it's human nature to seek the comforts of wealth with the least amount of effort. This desire is quite positive when it inspires efficient work and innovation in a capitalist society. Productivity is improved and the standard of living goes up for everyone. But this human trait of seeking wealth and comfort with the least amount of effort is often abused. It leads some to believe that by certain monetary manipulations, wealth can be increased out of thin air. Most Americans are oblivious to the entire issue of monetary policy. We all deal with the consequences of our fiat money system, however. Every dollar created dilutes the value of existing dollars in circulation. Those individuals who worked hard, paid their taxes, and saved some money for a rainy day are hit the hardest. Their dollars depreciate in value while earning interest that is kept artificially low by the Federal Reserve easy-credit policy. The poor and those dependent on fixed incomes can't keep up with the rising cost of living. We do hear some minor criticism directed toward the Federal Reserve, but the validity of the fiat system is never challenged. Both political parties want the Fed to print more money, either to support social spending or military adventurism. Politicians want the printing presses to run faster and create more credit, so that the economy will be healed like magic – or so they believe. Fiat dollars allow us to live beyond our means, but only for so long. History shows that when the destruction of monetary value becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable. Spendthrift politicians may love a system that generates more and more money for their special interest projects, but the rest of us have good reason to be concerned about our monetary system and the future value of our dollars."

A fiat system can survive only so long before inflation destroys it. Our dollar has lost 95% of its buying power since 1913 when the Fed was created. It may not happen today or tomorrow, but the ship has hit the iceberg and water is pouring in.

6/28/2006 10:41:22 AM

Our economy is too prone to inflation, and we've done nothing to combat it. Eliminating the Federal Reserve would work, but it would create an economy prone to depressions instead.

In other news, big surprise that Austrian Economists hate Keynesian Economists. Gee nobody knew that.


[Edited on June 28, 2006 at 11:31 AM. Reason : fun things]

6/28/2006 11:10:21 AM

^ You didn't read what I wrote, didn't refute or even respond to any of the tennets, yet you restate the same that I responded to.

Any world is prone to "depressions" in so far as it suffers from monetary collapses.

A Hard-Gold Standard world is not capable of suffering a currency collapse, Gold will always be scarce and have value. Between the introduction of the hard-gold standard the 1870s and it's desolution in 1914 there was not one widespread currency collapse or banking collapse, both of which were common in the decades prior.

A Fiat Standard world, as existed since 1914, is capable of suffering a currency collapse if the currency becomes worthless (people refuse to accept it) and a banking collapse if currency becomes too scarce to satisfy deposits, such as in 1931.

6/28/2006 12:30:13 PM

Quote :

"LoneSnark: A Fiat Standard..."

I have to admit, this is the first time I've heard market-valued currency referred to as valued by "fiat"...

6/28/2006 2:26:36 PM

http://en.wikipedia.org/wiki/Fiat_money
In economics, fiat currency or fiat money is money whose purchasing power derives from a declaratory fiat of the government issuing it. It is often associated with paper money unbacked by fixed assets, issued without the promise of redemption in some other form, and accepted by tradition or social convention. Fiat money is called fiduciary money in many languages.

6/28/2006 2:37:50 PM

We call them federal reserve notes. 'Fiat' is just a matter of issue framing, along with calling inflation/deflation 'currency collapse', which is a tenuous assumption at best. A true collapse would require worthless money, or depleted money, which may or may not be possible depending on the FR system, and can still be possible in a Gold Standard system.

6/28/2006 3:04:33 PM

^^
I know what it is, I'm saying it's an inaccurate description. If money was truly valued by government fiat, there'd be no point in having things like floating exchange rates with foreign currencies. Money is ultimately valued dynamically by the market, regardless of what the government says it's worth...

6/28/2006 3:22:55 PM

The market is how we determine the value relative to other things, yes, and that is true regardless of what you are talking about: Gold, slips of paper, Gold backed slips of paper, etc.

The reason people accept these slips of paper is because Congress decreed that these are in fact money and we expect all taxes to be paid in dollars.

Quote :

"along with calling inflation/deflation 'currency collapse'"

I would never call mere "inflation/deflation" a currency collapse. Deflation, arguably, is the reverse of a collapse. Inflation is just inflation, by "collapse" I literally mean worthless, as in people trash all of it and start using other things as money. This type of event was fairly common in the 18th and early 19th centuries, hasn't happened that much in the 20th, although one might argue that Hyperinflation is the modern equivalent since modern governmental controls have on numerous occasions succeeded in preventing the general populous from switching to other means of storing value (for a time in Cuba anyone caught holding dollars could be imprisoned).

[Edited on June 28, 2006 at 4:47 PM. Reason : sp]

6/28/2006 4:46:28 PM

bttt

didnt want to make a new thread...just had a quick question on how the us economy works

Quote :

"The Fed is being forced to balance signs of rising inflation with other signs that the economy is slowing under the impact of the Fed's long string of rate increases."

i read that in a news article today...i thought inflation happened usually when the economy was growing, not slowing

like the curve in economics would always expand which would lead to higher prices, well i'm guessing since the economy is slowing the graph would get smaller, but wouldnt that make prices lower?

8/8/2006 1:21:41 PM

^ Not saying we're in stagflation yet. But here's an example of what you describe and explains it:

http://en.wikipedia.org/wiki/Stagflation

8/8/2006 3:51:30 PM

^^ Inflation and economic growth are only indirectly linked. "Inflation" is caused by money creation such as when the FED runs the presses or if banks step up their lending, recycling money at a faster rate. Strong economic growth can increase financial confidence and engender banks to loan more readily, causing inflation. Also, as banks loan more readily the cash-on-hand drops which means the bank is more likely to need an overnight loan from the FED which means the FED is more likely to run the presses.

But I think the main issue right now is the FED running the presses. Last year the FED was still increasing the money supply by 8% a year. Luckily, almost all of this was being sequestered either overseas or inside domestic firms, safely out of reach of product markets. Nevertheless, it was inevitable that this money would turn up as inflation, we just hope that by then the economy will be sufficiently robust to allow for reduced money creation, such as 4%, in effect draining it back into the vaults through higher interest rates.

[Edited on August 8, 2006 at 4:23 PM. Reason : .,.]

8/8/2006 4:21:42 PM

Quote :

"we just hope ...."

Let's keep in mind that this pattern of boom and bust has resulted in the spending power of the dollar to fall to about a nickel from 1913. Great job of protecting the currency value, huh?

With nothing but debt to back our dollars, the gov't has been given a powerful tool to wage wars, create massive social programs and expand gov't control. And all of it based on a sham fiat currency system.

"we just hope" That should be the motto of the Federal Reserve. We just hope enough people don't catch on.

8/8/2006 8:22:31 PM

Quote :

"With nothing but debt to back our dollars"

I never understood where this sentence comes from. It is a fiat currency, there is nothing backing it, much less debt. Perhaps you could explain how people arrived at this sentence?

The currency value of the dollar has fallen a lot in the last 93 years, but most of that damage occured in the 60s and 70s. Not to imply the damage is irrelevant nowadays, 2% a year is still cutting purchasing power in half every 36 years or so. But I suspect the actual damage is minimal since most savings are invested anyways, rendering inflation irrelevant since you aren't holding dollars.

But I too must register respect for the long lost gold standard; it was simple, understandable, and reliable. Regretfully it was not very forgiving of bad behavior, largely doomed to the trash-heep the instant governments started trying to play games with the system (see Great Depression).

8/8/2006 11:58:29 PM

I've got two words for this thread: spiraling depression.

The gold standard simply doesn't allow for growth. If you really want a standard for currency, why gold? Why not gasoline or vagina? Fiat currencies foster trade, standardized currencies foster depression, it just seems silly to me to base our wealth in shiny rocks.

8/9/2006 12:20:22 AM

raarrrr socialists

8/9/2006 12:37:23 AM

Quote :

"most of that damage occured in the 60s and 70s."

Actually, between March 1951 and Jan 1978, the value of the dollar dropped 23 cents. While in the period of the 1930-1948, the dollar lost 35 cents.

Quote :

"it just seems silly to me to base our wealth in shiny rocks."

Shiny rocks vs worthless paper. The shiny rocks are harder to get and universally valued. We are forced by law to accept the pieces of paper as payment.

The Fed's Keynesian inflation strategy gave Pres. Wilson the money he needed to drag us into WWI. The easy money and credit led us into the 1920s boom, and the contraction sank us into the Great Depression and FDR's expansion of state controls.

The gold standard is a vital tool in the control of run-away gov't spending. It helps keep us out of unnecessary wars. If the gov't wants to spend more money, it has to raise taxes and answer to the voters. Under our fiat system, spending and debt will continue out of control. The costs will be paid through the sneakiest of taxes: inflation.

8/9/2006 12:44:04 AM

Quote :

"worthless paper"

I wouldn't say worthless. It represents our government's strength, and by association the strength of our economy as a whole.

Quote :

"The easy money and credit led us into the 1920s boom, and the contraction sank us into the Great Depression and FDR's expansion of state controls."

I'm sure that's what Friedman thinks, but the great depression was much more complicated than that, and it was Keynesian ideas that got us out of it.

Quote :

"It helps keep us out of unnecessary wars."

If I had to choose, I'd take unneccesary wars over unneccesary depressions. Why don't we let democracy take care of government spending and wars?

Quote :

"If the gov't wants to spend more money, it has to raise taxes and answer to the voters. Under our fiat system, spending and debt will continue out of control. The costs will be paid through the sneakiest of taxes: inflation."

Even under a standardized system, nothing is stopping the government from borrowing from foriegn and domestic banks, then you've basically got the same situation. Fiat currency just allows us to invest in ourselves and to borrow from ourselves. It allows us to but our currency into credit rather than just rocks.

You seem to think that debt is always a bad thing, it isn't neccesarily. It takes debt to foster growth. It takes government spending to foster economic growth.

8/9/2006 1:16:10 AM

Quote :

"If I had to choose, I'd take unneccesary wars over unneccesary depressions."

Where did you get the idea that a "Gold standard" fosters depressions?

The only "Great Depression" I know of took place 28 years after the Hard Gold Standard was abandoned in 1913. From this year on what we had was a fiat monetary system that we called a gold-standard. It was only a matter of time until faith in the currency was lost, as it was in 1929 when most nations faced a run on their gold reserves. If the Federal Reserve had not been created in 1913 then this cash destroying run on gold would not have occured in 1929 and 1930, which means deflation would not have crushed the banking system in 1931, which means the 1931-1936 depression would have been just another recession lasting a year or two at most.

Kris, you hold a lot of flattly wrong ideas. The Great Depression took place at a time of high tarriffs, high income taxes, and no hard-gold-standard, yet you have been brainwashed by something to associate these as anti-depression measures. What's the deal?

8/9/2006 9:26:48 AM

Quote :

"Where did you get the idea that a "Gold standard" fosters depressions?"

It doesn't allow the government to account for aggregate demand during reccessions.

Quote :

"The only "Great Depression" I know of took place 28 years after the Hard Gold Standard was abandoned in 1913."

There has been more than one depression.

Quote :

"Kris, you hold a lot of flattly wrong ideas."

Like?

Quote :

"The Great Depression took place at a time of high tarriffs, high income taxes, and no hard-gold-standard"

And where did I say it didn't?

8/9/2006 12:25:51 PM

Here's a good presentation on the gold standard from j. Bradford Delong:

http://www.j-bradford-delong.net/politics/whynotthegoldstandard.html

Here's the part on the great depression:

Quote :

"The gold standard and the Great Depression. The current judgment of economic historians (see, for example, Barry J. Eichengreen, Golden Fetters) is that attachment to the gold standard played a major part in keeping governments from fighting the Great Depression, and was a major factor turning the recession of 1929-1931 into the Great Depression of 1931-1941. * Countries that were not on the gold standard in 1929--or that quickly abandoned the gold standard--by and large escaped the Great Depression * Countries that abandoned the gold standard in 1930 and 1931 suffered from the Great Depression, but escaped its worst ravages. * Countries that held to the gold standard through 1933 (like the United States) or 1936 (like France) suffered the worst from the Great Depression o Commitment to the gold standard prevented Federal Reserve action to expand the money supply in 1930 and 1931--and forced President Hoover into destructive attempts at budget-balancing in order to avoid a gold standard-generated run on the dollar. o Commitment to the gold standard left countries vulnerable to "runs" on their currencies--Mexico in January of 1995 writ very, very large. Such a run, and even the fear that there might be a future run, boosted unemployment and amplified business cycles during the gold standard era. o The standard interpretation of the Depression, dating back to Milton Friedman and Anna Schwartz's Monetary History of the United States, is that the Federal Reserve could have but for some mysterious reason did not boost the money supply to cure the Depression; but Friedman and Schwartz do not stress the role played by the gold standard in tieing the Federal Reserve's hands--the "golden fetters" of Eichengreen. o Friedman was and is aware of the role played by the gold standard--hence his long time advocacy of floating exchange rates, the antithesis of the gold standard. "

8/9/2006 1:06:30 PM

Quote :

"There has been more than one depression."

All of which were puny compared to the Great Depression of the 1930s.

Back then they simply didn't know what a depression really was. Nowadays we know those were just severe recessions and that only government can lay the foundation of a truely Great Depression.

Quote :

"It doesn't allow the government to account for aggregate demand during reccessions."

I suspect you might be right on that account, nevertheless you seem to disagree with yourself:
Kris: "nothing is stopping the government from borrowing from foriegn and domestic banks"

8/9/2006 1:49:56 PM

Quote :

"All of which were puny compared to the Great Depression of the 1930s"

There were a lot of factors involved in that, the fiat switch was only one of them.

Quote :

"I suspect you might be right on that account, nevertheless you seem to disagree with yourself: Kris: "nothing is stopping the government from borrowing from foriegn and domestic banks""

Touche, but their borrowing power is going to be signifigantly lower given they are in a recession to begin with.

8/9/2006 2:26:14 PM

^i have a question i asked in another thread like yesterday

so why doesnt the government take control of the oil...then all the money we make from the oil could be used by the government

seems like an easy way for a country to get really strong and wealthy

8/9/2006 2:39:01 PM

Because that oil is privately owned, it was bought and paid for. To just take it without compensation would be a violation of the owner's human rights, civil rights, and constitutional rights.

8/9/2006 4:27:38 PM

Quote :

"so why doesnt the government take control of the oil...then all the money we make from the oil could be used by the government"

The government can't really take it without paying someone for it, but the government can regulate it. I've kind of been asking myself the same question being that clearly the oil transport must have large barriers to entry, seeing as how we have heard of large oil company profits, yet see few firms entering this industry.

But I'd say a better industry the government should consider taking over is the drug industry.

8/9/2006 6:44:24 PM

Quote :

"clearly the oil transport must have large barriers to entry"

You might think that, but in reality the oil transportation and distribution industry is predominantly independent from the production industry. Anyone that wants to move oil can do it for the same price; all you have to do is get it to a terminal, lay some pipe or rent some trucks.

That said, Kansas and Colorado are enjoying an extensive boom in exploration by lots of family owned businesses.

8/9/2006 7:36:56 PM

Quote :

"But I'd say a better industry the government should consider taking over is the drug industry."

think about how much money the gov. could get if it sold weed

[Edited on August 9, 2006 at 8:40 PM. Reason : .]

8/9/2006 8:40:22 PM

^I was refering more to medicine.

Quote :

"You might think that, but in reality the oil transportation and distribution industry is predominantly independent from the production industry."

Depends on what you mean by production and distrobution. The four major oil companies jointly own all of the pipeline around the US and much of the world. They take care of refining it and sending it out as well as other things, by transport I was refering moreso to using the pipelines.

Quote :

"all you have to do is get it to a terminal, lay some pipe or rent some trucks."

It would cost far too much to lay down a pipe all the way from russia, brazil, or saudi arabia or whereever you're going to get your oil. What you're more or less forced to do is rent the piplines from the existing company, much like telephone or electricity.

Quote :

"Anyone that wants to move oil can do it for the same price; all you have to do is get it to a terminal, lay some pipe or rent some trucks."

In a perfectly competitive market, you should be able to do it for less considering these companies are seeing large economic profits, thus we should be seeing more and more entering firms into this industry, yet we do not. So what is clearly a contestable market must be imperfectly competitive.

[Edited on August 9, 2006 at 8:48 PM. Reason : ]

8/9/2006 8:48:11 PM

Quote :

"The four major oil companies jointly own all of the pipeline around the US "

Completely false. Exxon itself owns a lot of pipeline, to be sure, but the really important ones were not built by one company. If it made sense to lay pipe to Idaho, for example, the numerous transport companies set up independent and separate companies to construct and then manage the pipeline for the purpose of sharing the costs of construction.

Of course, since there is usually more than one way for oil to get somewhere, even if a pipeline management firm tried to block entry by competitors, such as into Idaho for example, all the blocked oil would just take an alternate route, increasing competitor costs slightly, to be sure, but at the same time bankrupting the firm managing the pipeline.

It is both of these reasons why the price differential across much of the U.S. is paltry.

Once again, Kris, everywhere you look you see evil monopolies, when in reality there is no evidence to support such claims. If the transportation industry was monopoly dominated we would expect to see fuel prices higher near the interior of the contry where the only feasible choice of transport is via pipeline, but for reasons I'm not going into it is sometimes the exact opposite.

8/9/2006 9:20:04 PM

Quote :

"Here's a good presentation on the gold standard from j. Bradford Delong:"

Brad Delong, a Berkely professor, definitely touts the left-wing mantra. To give some balance, we have this from free-marketeer Milton Friedman:

Quote :

"The facts are clear. The U.S. gold stock rose from August 1929 to August 1931, the first two years of the contraction. Had the Federal Reserve System followed the rules of the gold standard, it should have reacted to the inflow of gold by increasing the quantity of money. Instead, it actually let the quantity of money decline"

Quote :

"It is neither feasible nor desirable to restore a gold or silver coin standard, but we do need a commitment to sound money. The best arrangement currently would be to require the monetary authorities to keep the percentage rate of growth of the monetary base within a fixed range. This is a particularly difficult amendment to draft becasue it is so closely linked to the particular institutional structure. One version would be "Congress shall have the power to authorize non-interest bearing obligations of the government in the form of currency or book entries, provided that the total dollar amount outstanding increases by no more than 5 per cent epr year and no less than 3 percent.""

8/9/2006 9:49:03 PM

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"Completely false."

So who owns them? Surely someone does and charges firms to use it, I doubt the governments build them out of the kindness of their hearts.

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"blocked oil would just take an alternate route, increasing competitor costs slightly, to be sure, but at the same time bankrupting the firm managing the pipeline"

They'd still have the same business from the oligopolistic firms, they'd just raise a barrier to entry to new firms.

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"Once again, Kris, everywhere you look you see evil monopolies, when in reality there is no evidence to support such claims."

I explained my reasoning, and you ignored it. Oil firms have been drawing record profits, if this is as you've implied, a contestable market with reasonably low barriers to entry, why has there been no signifigant number of competitors entering the market bidding the price closer to a competitive equilibrium price. It's not that I see evil monopolies, I simply recognize market failure, while you want the invisible hand to work so bad you choose to ignore the obvious. MARKET POWER _DOES_ EXIST, AND IT _IS_ USED.

8/9/2006 11:33:25 PM

Quote :

"why has there been no signifigant number of competitors entering the market"

Simple, there are, you just didn't bother to look. Like I said, "Kansas and Colorado are enjoying an extensive boom in exploration by lots of family owned businesses." What generally happens is people retire from the majors and go start their own company to drill baby wells in the parking lots of McDonald's Restaurants.

The major's are not bothering to look for oil there because the deposits are so small, but that hasn't stopped wild-caters from cluttering the valleys and hills with exploratory wells.

Quote :

"if this is as you've implied, a contestable market with reasonably low barriers to entry"

I said the network of pipelines here in the U.S. was a low barrier to entry; every other barrier still remains: the equipment is rediculously expensive, talent is both rare and expensive, tight governmental regulations, time of investment, high probability of failure, social stigma to operation, etc. etc. All together the barriers to entry of the oil production business are fairly high, none of which have anything to do with the existance of the super-majors (Exxon, BP, etc).

If you are going to call every natural barrier to entry a market failure then you need to look up the word failure. It would be a true failure if firms didn't take these realities into account before investing. Sure, oil prices would be closer to equillibrium, but as a whole society would have suffered because firms should be compensated for the high risk of such investments, which isn't taking place at the equillibrium price.

8/10/2006 12:47:02 AM

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[Edited on August 10, 2006 at 1:21 AM. Reason : DOH]

8/10/2006 1:20:53 AM

Quote :

"no more than 5 per cent epr year and no less than 3 percent"

Earthdogg, please go find a compound interest calculator and enter 3% over 90 years.

Now Compare this to the chart you just posted of how horribly the dollars value has fallen.

8/10/2006 2:47:14 AM