Tuesday, September 16, 2008

Differing Skill Sets

John McCain's economic adviser says Palin not ready to run a large corporation. She then goes on to say:

"But that's not what she's running for. Running a corporation is a different set of things."

Which, if you're going to display any bit of integrity on this point you must agree is true. And that is why businesspeople run large corporations and politicians...do what they do.

Saturday, September 13, 2008

Gas, Hurricanes and Managing your Inventory

This is a marvelous post from Tennessee blogger Rich Hailey about reports of spiking gas prices in the path--and areas surrounding it--of Hurricane Ike. It's simple econ 101 but most people don't know it so they don't get it:

It's been more than a few hours, and shortages are already here.

So the price of a gallon of gas is skyrocketing, even at stations, like Pilot, that have enough gas to get through the interruption without going dry. So why are they raising their prices? Aren't they gouging?

Nope. If you've been out in Knoxville at all today, you've seen long lines of cars at gas stations. You've seen people filling up cars, trucks, motorcycles, lawnmowers and gas cans. They are in a panic mode, and they're buying more gas than usual. Even though Pilot has enough to get through the crisis at normal levels of sales, there's no way they can sustain sales at the rate they are going. So what do they do? They raise prices. By raising prices, they discourage people with brains from buying more gas than they need. They discourage people from driving more than they need to. In effect, they are encouraging conservation by using market forces rather than governmental coercion.

And it will work.

Consider the opposite case, where gas prices remain low, and everybody fills every container they can get their hands on with gas, and the stations run dry for the next three days. What happens when an ambulance needs to gas up? What happens when a fire truck needs fueling? What happens when you have an emergency and you need fuel but can't get any because everybody and his brother is hoarding it?

There are two ways to ration a short supply of a commodity. You allow the market to price it accordingly, and those who really need it will buy it, or you let the government come in and set the price. As a small government supporter, I favor the former. We're still dealing with the fallout of Nixon's wage and price controls from 40 years ago.

Anyway, that's what happened. Bulk storage facilities were acting to minimize the price of fuel and got caught short when the supply was interrupted. Barring major damage from Ike, supplies should be flowing again in a couple of days, and prices will resume their freefall.

The comments, for the most part underscore the basic point well. Something worth noting is this as it refers to 'motive':

I follow your explaination up to a point and the point is when you start ascribing altruistic motives to the gas companies - like helping us to conserve and saving enough gas for the ambulances and fire trucks. They just got the opportunity to sell their product substantially over cost and they pounced on it.

I look forward to the day that some technological advance is announced and the gas companies realize they can't sell all the product that they have on hand.

Gas station owners aren't acting altruistically, no. They are exhibiting the first and most profound of Adam Smith's observations: we directly benefit from the choices of others made in their own self-interests.

In this instance, the gas station owner has raised prices in anticipation of a supply shortage, in part at least, to maintain inventory. That act discourages what Hailey rightly describes as consumers engaging in "buying more gas than they need" and ultimately the more rational choice of conservation.

Tuesday, September 09, 2008

What are Seeps?

The Santa Barbara County board of Supervisors recently took up a symbolic resolution on the prospect of off-shore drilling along our stretch of the Central Coast. The measure passed. That and $1.50 will buy you a cup of coffee...

But it was an important vote symbolically. For too many years critics of off-shore drilling have cited the 1969 Santa Barbara Channel spill that decimated the South Coast as the ultimate example of why you don't want to drill for off-shore oil.

The Supervisors recognition that 40 years of technology make such a similar event very unlikely to ever happen again should put that argument to bed. But who knows?

While this article doesn't necessarily have much to do with that, it does take a look at some of the local politics involved in the issue. I especially liked the equivalent of the fact sheet at the end:

Oil and methane gas created in the heat and pressure under the ocean floor flows upward through faults and cracks in rocks.
Plumes of oil-coated methane bubbles reach the surface, creating natural oil slicks.

The natural seeps of crude oil and natural gas flowing into the ocean on and near the coast of California are among the largest and most active concentration of such seeps in the world.

Seeps off Coal Oil Point near UCSB put an average of 150-170 barrels of crude oil and 5 million cubic feet of natural gas into the ocean every day.

More than 1 million barrels of oil have seeped off the Southern and Central California coast since 1980.

Crude oil seeping into the sea from Coal Oil Point alone is equal to about 55,000 barrels of oil a year. About 1.8 billion cubic feet of natural gas is seeping annually into the atmosphere.

Seeps produce 122% more air pollution daily than all the motor vehicle trips in Santa Barbara County each day.

— SOURCE: Woods Hole Oceanographic Institution, U.S. Minerals Management Service, Western States Petroleum Association

Saturday, September 06, 2008

The Kudlow Effect

The Kudlow Effect in action:

Since oil prices peaked on July 3 and started to head down, airline stocks have taken off, lifted by the promise of lower fuel prices. Of the 21 publicly traded airlines, shares of all but two rose from July 3 to Sept. 2. The major carriers had sharp gains: US Airways, up 268 percent; UAL, parent of United Airlines, up 222 percent; AMR, parent of American Airlines, up 138 percent; Continental Airlines, up 97 percent.

Thursday, September 04, 2008

  • Better Living: Thoughts from Mark Daniels
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  • Right Truth
  • The Fourth Rail
  • Counterterrorism Blog
  • Just One Minute
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  • Econopundit
  • Tapscott's Copy Desk
  • The Blue State Conservatives
  • Palousitics
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  • Outside the Beltway
  • The Belmont Club
  • Froggy Ruminations
  • The Captain's Journal
  • Argghh!!!
  • Chickenhawk Express
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  • Taking Notes
  • ThisDamnBlog
  • Three Knockdown Rule
  • Dogwood Pundit
  • Dumb Looks Still Free
  • Unfettered Blather
  • Cut to the Chase
  • Alabama Improper
  • Austin Bay Blog
  • Michael Yon-Online
  • The Trump Blog
  • A Lettor of Apology
  • GM Fastlane Blog

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