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The Biggest Thinking Machine

Switzerland World Economic Forum

From The National Review, Davos’s Destructive Elites-“None of us is as dumb as all of usby Kevin D. Williamson

Conservatives are generally inclined to make a moral case for limited government: that transfers are corrupting, that taxes should be collected only to the extent that they are essential, that regulation is a necessary evil and that as such it should be kept to a minimum. That is generally true and persuasive, but the more important argument is the problem of ignorance. Even if Congress were populated exclusively by saintly super-geniuses, there is only so much that 535 human beings can know and understand. The more that decision-making is centralized in political agencies, or even in elites outside of formal government, the more intensively those decisions will be distorted by ignorance. This is true of market-oriented institutions, too, in the sense that big businesses make big mistakes. One of the lessons of the 2007 financial crisis is that the guys who run the banks do not actually know that much about how banks work, even if they know 100 times what the banking regulators know. Free markets offer a critical, if imperfect and partial, corrective to that in the form of financial losses and business failures, which is why things like cars and computers consistently improve while schools and welfare programs don’t. Big markets with lots of competing buyers and sellers are the biggest thinking machines we have, offering the broadest epistemic horizon that our species has figured out how to achieve.

There is a deep philosophical challenge for progressives in that: Progressives say that they want inclusive social decision-making, but the most radically inclusive process we have for social decision-making is the thing that they generally distrust and often hate: capitalism — or, as our left-leaning friends so often put it, “unfettered” capitalism. And who should decide what sort of fetters are applied to whom? The view from Davos is, unsurprisingly: the people at Davos.

The hypocrisy and material self-indulgence on display at Davos may rankle, but the deeper problem is the unspoken assumption that the sort of people who gather in Davos are the sort of people who have the answers to social problems. Historically speaking, there is little evidence to support that proposition. And that is why conventions like that in Davos end up being so frequently counterproductive. When elites get together to talk about the big issues, the discussion consists mostly of very similar people asking themselves what people like them can do. The answer is: A whole lot less than you think.

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Thoughts on Lower Oil Prices

therewillbe blood

At first glance the dramatically lower oil prices is great news because just about everyone we know will have more money in their pocket at the end of the week.   The middle class and the lower income will feel the greatest relief.  Every business that buys fuel for its fleet just got a boost in their bottom line.

Theoretically, though, every dollar gained by fuel consumers is a dollar not gained by the owners of the commodity.  To the extent that the owners of this commodity   are domestic the net effect on the economy is a wash.  But to the extent that the loser in this price shift is a foreign source then this will have a greater impact of the balance of trade and likely strengthening of the dollar.  A strong dollar makes our export more expensive, especially relative to a currency like the Russian ruble which is in a state of collapse.  Imports on the other hand are cheaper.  This is good for domestic consumers, bad for domestic producers who must now compete with cheaper imports.

The oil price drop highlights the foolishness of many of our Congressional leaders who have blamed greedy speculators for the higher price of oil in the past.  Did these greedy bastards just get the Christmas spirit?  It also highlights the completely ineffective  and misguided energy policy of this administration; making reckless loans for risky unproven green energy project that often ended in bankruptcy and failure while the cronies lined their pockets getting a great return for their campaign contributions.

The oil and gas energy industry, demonized by this progressive administration, have not only aided the lower income with lower fuel prices, but they also were the largest source of job creation.  The president and his party promised huge job growth from their investment in green energy and it proved to be just another lie.  They were bailed out by the antithesis of their policy.

Because such a large portion of the new jobs came from the oil and gas industry, lower oil prices will likely shelve new exploration and extraction projects and hurt job growth in the one industry that has created the most new jobs.  Will this be offset by the stimulus of an extra thirty bucks a week in everyone’s pocket? Somehow, I do not think so, but we will see.  It is possible that lower fuel prices will hurt job growth because, while lower prices may decrease job creation in the oil business,  many of the friction costs from the regulatory state still burden most other businesses.  The job growth from entrepreneurial activity outside the oil industry remains stagnant.

The true value of the oil price decline is noted by economist Mark Perry in his blog, Carpe Diem.  He notes  here:

 Incorporating the combined effects of: a) the increase in average fuel economy over time, b) the increase in the average hourly wage, and c) falling gas prices, the chart above shows the number of minutes of work required to buy enough gasoline to drive 100 miles. At 27.2 minutes, the current cost of gas in minutes worked to drive 100 miles is the lowest since 1999 (26.3 minutes). If gas prices fall another 26 cents per gallon from $2.36 currently to $2.10 per gallon, gas prices adjusted for fuel economy and wages would be the cheapest in US history. In some states like Oklahoma ($2.03), Missouri ($2.04), Kansas ($2.11), Texas ($2.13) and Indiana ($2.14), gas prices are already below or near that level.

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A Fading Shade of Green

It is ironic that the greenest president presides over the demise of the green industries while a new oil boom is making us more energy independent in spite of policies intended to stunt the growth and development of fossil fuels.  The jobs boom is not coming from the development of green energy, but it is coming from the ‘dying’ oil sector.  More and more countries are withdrawing from the Kyoto Accords and and more and more scientists have become skeptical of the absolutism of politically influenced science used to promote extravagant solutions to climate problems that may not exist, or at least may be beyond the cause or the control of human action..

Victor Davis Hanson writes in The National Review Online Obama 101, 11/30/11.


“Green” will never be quite the same after Obama. When Solyndra and its affiliated scandals are at last fully brought into the light of day, we will see the logical reification of Climategate I & II, Al Gore’s hucksterism, and Van Jones’s lunacy. How ironic that the more Obama tried to stop drilling in the West, offshore, and in Alaska, as well as stopping the Canadian pipeline, the more the American private sector kept finding oil and gas despite rather than because of the U.S. government. How further ironic that the one area that Obama felt was unnecessary for, or indeed antithetical to, America’s economic recovery — vast new gas and oil finds — will soon turn out to be America’s greatest boon in the last 20 years. While Obama and Energy Secretary Chu still insist on subsidizing money-losing wind and solar concerns, we are in the midst of a revolution that, within 20 years, will reduce or even end the trade deficit, help pay off the national debt, create millions of new jobs, and turn the Western Hemisphere into the new Persian Gulf. The American petroleum revolution can be delayed by Obama, but it cannot be stopped.

HKO comment:

With all of the enormous political power at his disposal, the president is unable to fight true market forces.  The crony capitalists who see enormous campaign donations as the same kind of investment as capital equipment and technology are able to suck large sums from the public trough until the market reality that their product cannot survive in a true market becomes obvious.  It is one thing for an objective investor to place his fortune at risk to develop new technology; it is quite another for a public official to place taxpayer money at risk while making endless efforts to hobble competitive energy options.  Markets move at a much faster rate than government.  This is the reason that such government solutions are always fighting the last war and ignorant of the developments that refute their best and most corrupt efforts.

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Clunker Math

A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline. A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.
They claim 700,000 vehicles – so that’s 224 million gallons / year.
That equates to a bit over 5 million barrels of oil.5 million barrels of oil is about ¼ of one day’s US consumption.
And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.
So, we all contributed to spending $3 billion to save $350 million.
How good a deal was that ???

Tips to Joe McKinney

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Build Strategic Reserves- NOW !

Investment personality Jim Cramer has proposed a great and simple idea- take advantage of the cheap price of oil to build the strategic reserve to huge levels. Build more storage facilities and tankers etc. A huge strategic reserve will keep a lid on future speculators and suppliers who would use oil as a strategic weapon against us.

You can not develop new sources at the current market price. Such an idea could be a part of infrastructure development. It could even be a source of future revenue.

During the oil crisis Pelosi and Obama advocated selling off the strategic reserve. It was a bad idea to expose ourselves to greater risk at that time, even though we would have sold at a peak. But it would be a great idea to now build our reserves.

The markets have dealt our nation an opportunity we should not miss.