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Wednesday, March 7, 2012

The High Oil Prices Canard

     As GOP Operation Tank the Economy has failed so miserably they have been grasping at straws. Their dive into social issues has blown up in their faces, the current Rush Limbaugh scandal being the nadir.

    After the birth control issue started getting away from then they've tried to switch back to economic issues. All they've been able to come up with is trying to hang high oil prices around the President's neck.

    They point out that gas was $1.87 when Obama because President as if correlation and causation are one in the same. Fact is that when gas was low, the economy was collapsing, losing 750,000 jobs per month, NGDP had collapsed. If the economy collapses again we'll get low oil prices. Who wants to make that trade? When the economy grows, more oil is used for the increased economic activity.

    The Republicans this year have showed they have no principles-just check out the op-ed Romney wrote in 2009 praising President Obama's individual mandate. At the time he was proud to note the similarity with his own bill back in Massachusetts.

    They don't even care about the free market evidently. If they did then how could a circus geek like Newt Gingrich promise categorically that 'if you elect me gas will go down to $2.50."

     Over the last 10 years oil has generally risen along with the equity market and most other commodities, along with a growing economy. While oil prices are not in themselves a pleasant thing they are to the extent they indicate heightened economic activity. Interestingly gold now acts the same way-it's not a counter-cyclical as it rises with a bull market and falls with a bear market.

    This morning there's an interesting article in CNBC.com that argues that high oil prices represents demand not the Iran conflict.

    http://www.cnbc.com/id/46644940

     The article also suggests that despite what know nothings like Gingrich and Trump claim gas likely won't reach $5 gallon this year. The reason Iran is not likely to be such a problem is that there is no supply disruption in Iran. In addition Saudi Arabia is picking up the slack from the export embargo against Iran while Libyan oil is coming back on the market.

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