Re: OPEC & Oil Prices - Typos corrected

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

Henry,
     Aw, I didn't think that I was being that picky.  Never
said boo about spelling.
     BTW, crude oil prices peaked in March, 1981 at
$40/barrel.  I understand that the Saudis currently
view $25/barrel as about right from their perspective.
They don't want a demand-reducing recession nor do
they want Americans trading in their gas-hog SUVs for
Honda Civics or funding alternative tech development,
despite Paul Davidson's assurance that such an idea is
a waste of time.  From what I hear, the runup in fuel cell
stocks may be one part of recent stock market behavior
that is not a bubble.
     As far as I am concerned the benefit of high oil prices
(aside from puffing up real estate and oil rig biz in Texas)
is to push us to alternative tech and get us off polluting the
atmosphere and bringing on global warming.
      A more general issue here that relates to my earlier
remarks about upward spikes of oil prices has to do with
the idea that there may be critical degrees of concentration
or market power at which there is a discontinuity in the nature
of the market.  I explored this issue at the end of Chapter 3 of
my 1991 book (From Catastrophe to Chaos: A General Theory
of Economic Discontinuities) and posed this in terms of
catastrophe theory, following a model put forth by Woodcock
and Davis.  Others who have argued for critical levels of
concentration leading to discontinuous changes in market
behavior include Bain (1951) and Bradburd and Over (1982).
There is also a rather large literature using game theory that
suggests that there may be critical numbers of agents.  I discuss
this stuff at greater length in my in press second edition.
      References:
Joe S. Bain, 1951, "Relation of Profit Rate to Industry
Concentration, American Manufacturing, 1936-40," Quarterly
Journal of Economics, 65, 293-324.

Ralph M. Bradburd and A. Mead Over, 1982, "Organizational
Costs, 'Sticky Equilibria,' and Critical Levels of Concentration,"
Review of Economics and Statistics, 64, 50-58.
Barkley Rosser
-----Original Message-----
From: 廖子光 Henry C.K.Liu 郭?? <hliu@xxxxxxxxxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Date: Monday, March 13, 2000 3:21 PM
Subject: Re: OPEC & Oil Prices - Typos corrected


>Sorry, in a few place 1996 was mistyped as 1966. This is to correct it
before Barkley
>gets excited. ;-)
>
>Henry
>
>"廖子光 Henry C.K.Liu 郭??" wrote:
>
>>  In the post World War II era oil prices have averaged $19.27 per barrel
in 1996
>> dollars. Through the same period the median price for crude oil was
$15.27 in 1996
>> prices. That means that only fifty percent of the time from 1947 to 1997
have oil
>> prices exceeded $15.26 per barrel. Prices have only exceeded $22.00 per
barrel in
>> response to war or conflict in the Middle East.  In 1972, $3.50 oil
translates to
>> $11.50 in 1996 dollars.
>>
>> The long term view is much the same. Since 1869 US crude oil prices
adjusted for
>> inflation have averaged $18.63 per barrel in 1996 dollars. Fifty percent
of the time
>> prices were below $14.91.
>> Using long term history as a guide, those in the upstream segment of the
crude oil
>> industry structure their business to be able to operate profitably below
$15.00 per
>> barrel half of the time.
>>
>> Pre Embargo Period Crude Oil prices ranged between $2.50 and $3.00 from
1948 through
>> the end of  the 1960s.
>> The price oil rose from $2.50 in 1948 to about $3.00 in 1957. When viewed
in 1996
>> dollars an entirely different story emerges. In 1996 dollars crude oil
prices
>> fluctuated between $14 - $16 during the same period.  The apparent price
increases
>> were just keeping up with inflation.
>>
>> >From 1958 to 1970 prices were stable at about $3.00 per barrel, but in
real terms the
>> price of crude oil declined from above $15 to below $12 per barrel in
1996 dollars.
>> The decline in the price of crude when adjusted for inflation was further
>> exacerbated in 1971 and 1972 by the weakness of the US dollar.
>>
>> OPEC was formed in 1960 (as you and Barkley have pointed out) with five
founding
>> members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.  By the end of
1971 six
>> other nations had joined the group: Qatar, Indonesia, Libya, United Arab
Emirates,
>> Algeria and Nigeria. These nations had experienced a decline in the real
value of
>> their product since foundation of the Organization of Petroleum Exporting
>> Countries.
>> That, Paul, is why I said cheap oil may not be in the US's national
interest.  Of
>> course, neither am I advocating or projecting $100 oil. $18 oil in 1996
dollar will do
>> very nicely for all concerned.
>>
>> Henry C.K. Liu
>>
>
>