Industry Rule #4080 – Peak Oil

In case you haven’t seen the commercials, Daimler A.G. (a.k.a. Chrysler LLC, a.k.a. DaimlerChrysler prior to the Cerberus group purchase last year) has recently launched a promotional campaign in which, in exchange for buying or leasing a new car (see Marc’s earlier post for the environmental cost of doing so), Chrysler promises to pay the difference in price if gas exceeds $2.99 per gallon. 

I think it’s fairly obvious why I tie this marketing scheme to the exploitation of ‘peak oil’ fears.  Such a promotion treats the peak oil theory as a foregone conclusion, with Chrysler as the consumer’s saviour in a world where oil prices inevitably rise.  So what’s the problem here?

See this report from Wednesday on how peak oil fears are driving up the price of long-term oil futures contracts.  While there are substantial differences between the oil market and the collapse of the subprime market, a parallel exists:  investors are betting on price inflation, long-term in the case of the oil market, as a means of enhancing today’s portfolios.  This may be the point of the futures market, but it needs to be highlighted that the benefit of a substantially lower price of oil becomes nil to all but the biggest risk-takers (who are betting against the trend) in such a scenario.  The short-term prospects are, of course, pretty much the same.  In other words, Chrysler and most investors are banking on the price of oil not dropping below $2.99 a gallon.  If the price does fall, those futures contracts become unsound.  The price may actually be above or below $140, but $140 is indeed the standard.       

The question follows:  how is the price of oil kept up?  Dave Emory, while not contending the basic peak oil thesis, is pretty obsessed with the idea that peak oil exploitation, like most other economic winds, has ties to the Underground Reich and the Bormann capital network, mainly based on an 1929 agreement between I.G. Farben and Standard Oil in which the rights to a synthetic oil process were divided.  This is basically the “They have the solution, but will keep milking the oil cow” argument, but it’s fascinating to see how far back peak oil exploitation goes and how the fears keep getting recycled.  A quote from an article from Liberty:

“In 1920, the United States Geological Survey officially estimated that the U.S. had just 6.7 billion barrels of oil left, including undiscovered oil fields. Eighty-two years later, the U.S. had produced 180 billion barrels of oil and still had 22 billion barrels of proven reserves. The USGS’s 1920 estimate was off by a mere 2900%.”

And, of course, there’s always flat-out lying done by ‘independent’ NGOs that are financially backed by the Bush administration to pursue an anti-Chavez agenda.    

Mainly, the confusion itself generated by the peak oil theory basically turns it into a self-fulfilling prophecy.  Do we have enough?  Have we hit it?  This is the line of reasoning that Chrysler’s ad campaign buys into, and it benefits no one but the oil industry. 

On that note, check out this Dilbert cartoon:

Marx No Longer is Current

I met someone last night at a get-together who, upon hearing of my interest in economics, brought up Marx, as if it was somehow relevant to economic thought of the last hundred years. Granted, he was more interested in the philosophical end of the thought, but it amazes me how many goofy liberal types think that Marx somehow still means something to mainstream economics.

Donʻt get me wrong, Marx was the biggest thing to happen in 19th century economics–but that just means that economics spent the next hundred years exacting how he got it all wrong. And you can thank his compelling arguments and persuasive writing for that.

The problem with Marx is that he assumes some shit that might make you feel nice, but has never EVER been shown to actually be true. Basically, he assumes that the value of an item is equal to the labor put into it. This gives the shaft to anyone with an entrepreneurial spirit who takes risks to make a profit, and anyone who knows how to make awesome things without working very hard. For example, say Iʻm Harry Potter, and I can fix broken glasses just by pointing my wand and saying “Ocumulosos..” (whatever). It doesnʻt matter how easy it is for me, and how little labor I actually have to put in; my service performed (fixing broken glasses) has a value worth whatever anyone is willing to pay for it (the market). If HP is the only glasses repairman it is worth a lot. If there are tons of wizards with the same idea then itʻs not worth much.

Value is only what someone will pay you for it. And unfortunately (fortunately?), it doesnʻt matter how nice you are, or how hard you work, or the labor you put into it. If you spend all week designing and sewing a pair of pants that someone could get at the store for $40, you canʻt expect someone to pay you like $1000 for them, because you say that is what they are “worth.” (But hey, you could get lucky.)

Itʻs kinda easy to see how people would want to think that something is worth the labor put into making it, but, well, just doesnʻt work that way.