Addicted to Oil?

Politicians of all stripes keep bleating on and on about our addiction to foreign oil. At last, someone (Robert Higgs) has described why this is a nonsensical argument. The concept of opportunity costs is close to the heart of economics, even more fundamental than the division of labor. Still, the idea seems a mystery to the political class.

Obama’s Tax Plan

Well well. This analysis shows that Senator Obama’s “tax cut for the middle class” is actually a tax increase for at least some of the middle class. This happens because of the complexity created by tax credits and tax credit phase-outs. I’m sure the good Senator doesn’t intend to increase middle class taxes (or, at the every least, doesn’t intend for people to know). These kind of problems result from the bewildering complexity of the tax code and Congressional attempts to micro-manage the economy. Regardless of what policitians propose, further complication of the tax code will make it harder to predict consequences. Obama may want to reduce taxes on the middle class, but without simplifying the tax code, the actual results are unpredictable. It’s a shame that tax simplification isn’t a big campaign issue.

Putin for President?

I refer to this article which, with tounge in cheek (I hope), advocates Putin for President of the US. More importantly, it has a view of events in Georgia that is quite different from what is portrayed in the US. It’s more of a realpolitik view than we’re accustomed to, but the logic can’t be easily dismissed. I particularly liked this observation:

Half the world’s population now resides in the world’s three largest countries, namely China, India and the United States. These are not multi-ethnic, but rather supra-ethnic states, whose identity transcends tribe and nationality.

Read the whole thing for a different view of the world.

Little Oil

As economics would teach us, oil consumption in the US is on the decline. I guess incentives really do matter. But, as Megan put it, don’t start pricing minivans just yet. Barry Ritholtz explains. Stock traders are circling the companies involved with oil, waiting for the right time to buy. Oil companies of all types are looking more and more like tasty morsels.

Big Oil

This post got me thinking: do people think that the oil industry is in some way fundamentally different from other industries? You hear a lot about “Big Oil” but not so much about “Big Shoes” or “Big Hamburgers” or “Big Dairy”. Why the attention and enmity toward companies in the petroleum industry?

Here’s a theory: with oil, the time from exploration to production of gasoline is exceedingly long, often decades. Short term supply can change some by changing pumping rates, but major structural change occurs very slowly. Demand, on the other hand, can and does change quickly.

While a few other industries have a similar profile (jetliners, for example), few others are so directly tied to consumers. I’ll never buy a Boeing Dreamliner, but I buy gasoline all the time. The supply and demand behavior for gasoline is very different from the supply and demand behavior of most things I purchase. Unless you’ve really thought about it, and understand some economics, gasoline pricing seems arbitrary and maybe even corrupt. It’s that suspicion of corruption that causes the enmity for “Big Oil”.

Of course, gasoline isn’t totally unique. A few other products have long term suply and short term demand issues. The one I can think of is prescription drugs. And you know how everyone feels about “Big Pharma”.

Georgia On My Mind

It’s hard to understand what is going on in Georgia without some background information, nicely provided here.

Naked Short Selling

…not as exciting as it sounds! If you need a good in depth analysis of short selling, naked short selling, and the dubious nature of the new government restrictions, this article is about as good as it gets.

Might Makes Right - And Left

Don Boudreaux makes a fine point:

Just as many on the right naively fantasize that foreign problems are best solved by force, “liberals” fantasize that domestic problems - real and imaginary - are best solved by force.

Given that some degree of government is essential, it is always tempting to use the power of government to force other people to change their behavior to become more to your liking. This is the essence of politics.

Economics and Politics

If you have a little time, there’s a fine old (1970) essay by Murray Rothbard that explains the relationship between economics and political theory. It’s the best thing I’ve read of its kind. He wrote a new introduction to it in 1991, which is also worth a read. These are great reading because they connect with first principles which sometimes get overlooked in thinking things through.

White House Economics

We don’t often get to see the “inside thinking” behind White House actions, but this description of why the White House proposed a stimulus package and is opposed to a second stimulus package looks like the real deal.

For sure, the first stimulus package was far better than the proposed second stimulus for the reasons stated. But I’m no fan of the first package, which was simply a wealth transfer from future taxpayers to some current taxpayers. I’m sure this caused some economic activity, but I’ll bet more of the stimulus was spent paying down debt than buying new geegaws.