RE: Re: RE: Re: Re: gas

["David Shemano" <dshemano@xxxxxxxxxx>]

Doug Henwood wrote:

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Why compare the price oil to other commodities? There's probably a
high degree of correlation among commodity prices, based on the stage
of the business cycle and inflationary expectations. Let's be
Keynesian in spirit and use the wage unit as our measure. In the late
1960s/early 1970s, just before the first embargo, a barrel of oil
cost about an hour's wage (West Texas Intermediate divided by the
average U.S. hourly wage). Almost overnight, it more than doubled, to
around 2.5 hours. After the second embargo, it more than doubled
again, to around 5.5 hours in 1980. It eroded for the next 18 years,
bottoming out at just under an hour in 1998. It's now up to about two
hours.

Tell me how this is rational, and how it's more efficient than human
beings contemplating their energy future dispassionately over the
long term and planning it.

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Rational as explanation, or rational as policy?

It is rational as explanation, in the sense that the price of oil reacts
very quickly to the brilliant decisions of the Federal Reserve to
intentionally or unintentionally inflate or deflate the money supply, while
the change in wages lags relative to commodities in response to the Fed's
decisions.  The price jumps in oil, under my analysis, in the early 1970s
and again in the late 1970s were simply an effect of the Fed's policy to
inflate the money supply.  This can be seen from the fact that the prices of
other commodities, including gold, skyrocketed contemporaneously.
Comparatively, in 1998, as I have suggested earlier, the Fed deflated the
money supply and, therefore, the general price level of commodities,
including oil and gold, followed quickly by dropping in price.  I reject
your assumption that price increases and decreases, at the aggregate level,
are determined by a business cycle or mere expectations separate and apart
from changes in the money supply relative to the aggregate demand for
monetary liquidity.

As to the rationality of producing and allocating oil by price versus
central planning, I love your phraseology -- you are in favor of
dispassionate long-term planning, while I am presumably against that and in
favor of emotional short-term anarchy.  If that is the choice, I am 100% in
agreement with you.  Now, about the details . . . .

David Shemano