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Thread: 5ever and anyone else who knows economics

  1. #1

    5ever and anyone else who knows economics

    I'd really appreciate it if you could check out the latest post on [url="akivaforpresident2016.blogspot.com"]www.akivaforpresident2016.blogspot.com[/url] and let me know (by commenting there) if I'm on the right track or missing something. Of course, everyone else is welcome as well, but economics people especially since I have so little background in it and the post is so numbers-filled. Thanks guys
    Last edited by doggin94it; 10-09-2006 at 05:13 PM.

  2. #2
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    [QUOTE=doggin94it]I'd really appreciate it if you could check out the latest post on [url="http://www.akivaforpresident.blogspot.com"]www.akivaforpresident.blogspot.com[/url] and let me know (by commenting there) if I'm on the right track or missing something. Of course, everyone else is welcome as well, but economics people especially since I have so little background in it and the post is so numbers-filled. Thanks guys[/QUOTE]

    Hi Akiva,

    I am getting a "Not Found" error message when I click on that link....

  3. #3

    Smacks self in the head

    That should be [url]www.akivaforpresident2016.blogspot.com[/url]

    try it now

  4. #4
    A few things that I saw just by quickly scanning it so they might be irrelevant hence i'm posting it here and not there:

    I dont think you've given enough weight to OPEC and others influence on the price and supply of oil.

    The policy of subsidies and guaranteed profits, is bad economic pratice and goes against base economic and international business theory.

  5. #5
    [QUOTE=ragnarok14]A few things that I saw just by quickly scanning it so they might be irrelevant hence i'm posting it here and not there:

    I dont think you've given enough weight to OPEC and others influence on the price and supply of oil.

    The policy of subsidies and guaranteed profits, is bad economic pratice and goes against base economic and international business theory.[/QUOTE]

    I understand how much influence OPEC has on the price of oil. But add another Saudi Arabia sized production field to the world's supply - in a non-OPEC country - and there's not much they can do, practically. Sure, they can drastically cut their own production and artificially inflate prices that way. But all that would do is cut their share of the world's oil sales and increase the profitability of the new American competitor.

    On subsidies, they absolutely are bad economic policy - propping up businesses that cannot survive on their own does not promote efficient markets. But to my mind, oil shale is not an economic issue - it's a geopolitical and homeland security issue. If the oil producing countries of the world were Canada, Britain, Germany, France, etc. - countries whose interests are not necessarily aligned with the U.S.' but which also are not inimical to the U.S.' interests - it would be a different story. But bad economic policy can be good foreign policy when it lessens the influence of Iran, Venezuela and Saudi Arabia.

  6. #6
    Well then economics doesn't really factor into the article if its focus is on lessening the power of OPEC etc in a political way.

    Of course though if the USA goes this way and props up its own supply of oil then you have to look at what political effects it would have. Which, just off the top of my head, would be whether the US would begin selling oil in significant quantities outside of the US or if production for the shale deposits would be solely for the US market. If it is solely for the US market, would this in turn weaken the US position in world politics due to it own demishing need to be involved in it?

    If the USAs, for lack of a better term, allies are still heavily dependant on oil sources from the middle east for a number of reasons including production rates, cost etc, what effect will that have for Americas security?

    Is Americas dependance on middle eastern oil the only reason that there are potential security problems for the US?

    So the question would have to be, would you put a serve hinderence on your economy for something that might not improve your position in any significant way?

    Of course all of what I'm saying is without having done the necessary research and i'm relying on recalling information I used in an old paper etc etc.

  7. #7
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    [QUOTE=doggin94it]I understand how much influence OPEC has on the price of oil. But add another Saudi Arabia sized production field to the world's supply - in a non-OPEC country - and there's not much they can do, practically. Sure, they can drastically cut their own production and artificially inflate prices that way. But all that would do is cut their share of the world's oil sales and increase the profitability of the new American competitor.

    On subsidies, they absolutely are bad economic policy - propping up businesses that cannot survive on their own does not promote efficient markets. But to my mind, oil shale is not an economic issue - it's a geopolitical and homeland security issue. If the oil producing countries of the world were Canada, Britain, Germany, France, etc. - countries whose interests are not necessarily aligned with the U.S.' but which also are not inimical to the U.S.' interests - it would be a different story. But bad economic policy can be good foreign policy when it lessens the influence of Iran, Venezuela and Saudi Arabia.[/QUOTE]

    Why would oil shale necessarily flood the market? You are assuming that the level of demand will hold constant over time, which isn't a rational assumption. There are over 2.5 [I]billion[/I] Indian and Chinese people who have a voracious and rapidly growing demand for cheap energy and all indicators are that this demand will grow in the near future, not wane. Many other countries are beginning to grow and economic growth is made possible by infrastructure and cheap energy.

    Also, if oil becomes cheaper and more abundant (and less expensive to purchase for world consumers) OPEC loses much of its current leverage, no? Increased supply will harm OPEC, but you propose to harm OPEC by placing a cap on what companies can earn in the US and artificially depressing our supply? Seems a bit crazy to me.

    Oil is a volatile, risky asset. Investment in oil production is a risky venture. The BILLIONS of dollars needed to be successful are only part of the equation, you also need patience and enough cashflow to sustain periods of heavy losses. You also need the freedom to make enough money in the good times to offset these bad times and fund exploratory drilling and new technologies like shale production. Capping profit margins at 6% is a ludicrous proposition. No reasonable investor would incur the level of risk associated with this investment at such a price and the government would be bailing out these firms during the many down cycles with money they don't have. Where does the government get the money to buy all of this oil shale and bail out firms? People would simply find other places to invest their capital and capital and other resources would move away from oil shale to other, more profitable things.

    Price caps don't work. Government intervention into free markets does not work. You are assuming way too many things and companies and people respond to incentives in ways that are very, very difficult to predict, especially revolving around highly volatile commodities like oil. Geopolitical factors like the rapid growth and expansion of China and India are hard to predict. We cannot wave a wand and make something sustainably profitable. What if Shell is wrong about its $40 per barrel estimate...on either the up or down side? What if in six months Chevron comes up with entirely different estimates? Technology is not static and enacting a huge, sweeping piece of legislation based upon a few superficial data points taken at a snapshot in time is no way to run a country. If oil shale production is profitable, resources will flow to it. If not, they won't. It's just that simple and no amount of clever government planning will ever fundamentally change the effects of supply and demand on the choices people make, including where to invest their money.

    You have a fundamental disconnect at play here. You seek the increased supply of domestic oil in order to defang OPEC. In effect, you seek to lower OPEC's market share. And to do that, you propose to cap profit margins that U.S. companies can make supplying oil. It doesn't compute. Companies should be allowed to make tons of money producing oil shale, no? Wouldn't that increase production in a more sustainable fashion?

  8. #8
    Ragnarok - economics comes in as a question of feasability; if subsidizing oil shale would be economically ruinous or cost prohibitive, then it simply can't be done, whatever the beneficial political effects. It's a limiting factor, not a motivating factor, and the economic discussion is there for purposes of arguing that it is not cost prohibitive.

    As for US influence - the US is a net importer of oil; making it a net exporter or oil neutral wouldn't lessen US influence because US oil consumption is not a major source of US influence. If nothing else, it would help the US image in the world by stopping the blood for oil nonsense.

    5ever - I think you misread my position. I'm not proposing a cap on profits - I'm proposing a floor. If a market that includes oil shale production results in a supply and demand price-point above the subsidy level, then the subsidy is $0 and the oil companies are free to sell on the market for that price.

    As for flooding the market, you're right, it is entirely possible that increasing demand would outstrip or match the increasing supply. But first, in that case prices would stay above the subsidy level so the subsidy would be a nullity, and second, the one thing that can't be denied is that whatever the supply of oil in the market with oil shale capacity included (call it X) it would be significantly greater than the oil supply without oil shale capacity (Y). And that inarguably increased supply will impact the global price of oil whatever the demand is.

    As for investment incentive - well, I respectfully disagree (though I think if you realize that I'm not proposing price caps you'll take back this argument). What I'm actually proposing is a minimizing the risk by eliminating the possibility that market prices will drop below the projected profitability point, leaving only the risk that the technology itself does not pan out, and that production costs end up more expensive than current models indicate. The key is to spur investment in the technology by removing one of the major obstacles to full investment - market risk. Under my proposal, if the technology panned out as preliminary testing indicates it will, investors would realize a [b]minimum[/b] 6% return (7.5 Billion Barrels * roughly $2 profit margin per barrel would equal $15B profit yearly, a fairly tidy sum) with a maximum of whatever the market will bear.

    Because really, the problem is in your last point - "If oil shale production is profitable, resources will flow to it. If not, they won't." The history of oil shale is a cyclical interest as prices spike followed by declining interest as prices drop, and the inherent risk that prices will take a downturn either in the years between initial investment and production readiness or due to the increased supply from oil shale itself is a disincentive to the massive investment needed to make it a reality. And yes, from an efficient markets, purely economic standpoint, that's fine. That's what efficient markets do - funnel limited investment funds to projects most likely to be self sustaining.

    But what even the most efficient markets are fundamentally incapable of taking into account are the noneconomic benefits of a particular business activity. How do you value, as a matter of economic theory and efficient markets, decreased OPEC influence and diminished cash flow for terror supporting regimes? You can't. But that doesn't mean that those two outcomes are valueless. The problem with using efficient markets theory as a guide for all governmental acts in the sphere of economics is that it is inherently myopic; it does not and cannot take into account the political or security effect of a particular policy. Where efficient markets theory is useful - and necessary, I think - is in warning of a disaster in the making (interfere, and you'll actually decrease revenue/jobs/etc.). I don't see that disaster in subsidizing oil shale, because I think even in a worst case scenario - oil prices plummeting to $12 per barrel, which would require a $20/barrel subsidy at a cost of $165B per year (and again, as you said, how likely is that??), the monetary cost is worth it in return for the noneconomic benefits. Iran made $35B on oil revenue in 2004-2005. Cutting prices by 6/7 (estimate of $12/barrel oil, which is a realistic worst case, most expensive the subsidy could get price) would have cost them $28B, down to $7B. Saudi Arabia earned $116B. Cut prices by 6/7 and that's down to $16B - it would cost them $[b]100B[/b]. What does that do to their ability to fund radical Islamists across the globe? What does that do to their ability to maintain their repressive state machinery? Just looking at those two countries, by spending $165B (of which we would receive some portion back in the form of increased tax revenue) we take $128B out of the pockets of two not exactly friendly countries. Take the time to calculate the effect on other oil producing countries (such as Venezuela and Russia) and I'd bet we more than break even. And, of course, if the price of oil stays higher than $12/barrel they would not lose as much - but the subsidy would not cost as much either, so we'd still at least break even.

  9. #9
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    Akiva,

    Good reply. I'll reply when I have some time. Swamped now and leaving for a show tonight....

  10. #10
    [QUOTE=jets5ever]Akiva,

    Good reply. I'll reply when I have some time. Swamped now and leaving for a show tonight....[/QUOTE]

    Thanks - could you do me a favor and actually post your reply as a comment to the blog? As it is, my sole comment has been (no joke) "Jew will never win, Sieg Heil" and I'd like to start getting some comments going on there. No big thing, but I'd appreciate it

  11. #11
    [QUOTE=doggin94it]I understand how much influence OPEC has on the price of oil. But add another Saudi Arabia sized production field to the world's supply - in a non-OPEC country - and there's not much they can do, practically. Sure, they can drastically cut their own production and artificially inflate prices that way. But all that would do is cut their share of the world's oil sales and increase the profitability of the new American competitor.

    On subsidies, they absolutely are bad economic policy - propping up businesses that cannot survive on their own does not promote efficient markets. But to my mind, oil shale is not an economic issue - it's a geopolitical and homeland security issue. If the oil producing countries of the world were Canada, Britain, Germany, France, etc. - countries whose interests are not necessarily aligned with the U.S.' but which also are not inimical to the U.S.' interests - it would be a different story. But bad economic policy can be good foreign policy when it lessens the influence of Iran, Venezuela and Saudi Arabia.[/QUOTE]

    I'm a big believer in open markets but OPEC is clearly in the business of manipulating prices. We very often place tariffs on goods where producers are selling what the Commerce department determines is below cost. It's called dumping. In this case because of scarce supply a Cartel is in effect racketeering to fix prices. The problem with oil shale and tar sands is when the demand drops it's the high cost producers that will be squeezed out and OPEC will have an even greater share of the market. Since it's clear that OPEC is a Cartel and attempts to fix prices the US government should comply by taxing imported OPEC oil at a fluctuating rate at a high enough level to break the Cartel. To do that it would have to maintain Oil price high enough to promote oil shale, tar sands and other higher cost none OPEC producers. While this may be bad for the most efficient producer, it's probably good for us on a national security level and it will also have the added benefit of breaking the Cartel.

    Rather than subsidizing an industry why can't the Commerce department treat a Cartel the same way it treats a plant in China producing clothing.

  12. #12
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    [QUOTE=doggin94it]...my sole comment has been (no joke) "Jew will never win, Sieg Heil" and I'd like to start getting some comments going on there.[/QUOTE]


    How cool is that Doggin94it!? Mel Gibson reads your blog! Awesome :D

  13. #13
    [QUOTE=PlumberKhan]How cool is that Doggin94it!? Mel Gibson reads your blog! Awesome :D[/QUOTE]

    :applause::applause::applause:

  14. #14
    [QUOTE=jets5ever]Akiva,

    Good reply. I'll reply when I have some time. Swamped now and leaving for a show tonight....[/QUOTE]

    How was the show?

  15. #15
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    [QUOTE=doggin94it]How was the show?[/QUOTE]


    It went well. We played well, a good crowd showed up and all. It was a blast!

  16. #16
    [QUOTE=jets5ever]It went well. We played well, a good crowd showed up and all. It was a blast![/QUOTE]
    Speaking of blogs, why don't you have one jets5?

  17. #17
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    [QUOTE=jets5ever]It went well. We played well, a good crowd showed up and all. It was a blast![/QUOTE]


    your album comes out soon, right?

  18. #18
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    [QUOTE=Lawyers, Guns and Money]your album comes out soon, right?[/QUOTE]

    Within a few days, actually. The fansite is now up.

    [url]www.thebiltmores.com[/url]

    and you can hear (I think) each track on there, though you can't download them yet.

    I am waiting for the CDs to arrive in the mail from the company. We'll have a hyperlink on the fansite and at myspace for people to buy the CD with a credit or debit card online. We have a deal with a company to handle order processing and shipping and everything. A week from now, it should be available.

  19. #19
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    [QUOTE=sackdance]Speaking of blogs, why don't you have one jets5?[/QUOTE]


    No time! Plus, I am a wordy bastard, no one wants to read everything I have to say and my wife already thinks I spend way too much time online chatting.

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