The Mythical Money Maker
By
There is a pernicious myth running amok right now on the msm, today I saw it spewing over at CNBC. Here is typically how it goes: prices are high for many commodities right now (of course, we all understand its real cause – inflation of the money supply) and $120 oil, corn heading out of sight along with its field replacement bretheren (soybeans, wheat, barley, etc), and all the rest following in suit means that we are all paying substantially more for basic food stuffs and fuel. Reality is that we are in a period marked by a sustained long run inflation which is doing what it always does, inducing price rises.
So the myth purveyors state that with prices so high someone must be making huge profits, right? Well, not so fast. Return on investment may actually, and I would argue more than likely, be lower all across the board as a result of this inflation. Price rise is merely an after effect of inflation, whether or not someone, anyone, is generating an economic profit or not (let alone an accounting profit) above and beyond what anyone else in the market can make is very questionable. The problem businesses have in an inflationary environment is how to measure return on investment – it becomes increasingly difficult when the government prints money (and its equivalents) to measure profit. So, when in doubt raise your prices…. Couple this with other forms of government intervention (such as 25% of the corn crop diverted to ethanol) and you have an incredible problem on your hands. What these talking heads are doing here is engaging in anti-capitalist rhetoric designed to scapegoat someone.
The party they seem never to pin the real blame on, the party who is precisely responsible for the price rises and the misallocation of agricultural products, is the government!
I heard an equally moronic statement the other day by some politician who said, “at $117 per barrel, all these oil companies must be making outrageous profits.” Folks, who do you think purchases crude oil? Does your car run on crude oil? Good grief…
I wrote a piece a long time ago arguing that the greatest boondoggle of all time is this ethanol scam. One of my chief concerns was the ability of OPEC to very easily smash any efforts we might want to engage in with bio-fuels. Well, you are seeing the proof of my argument in spades right in front of you. The oil producers of the world are playing us like a fiddle right now, and it is our government, led by George W. Bush and the GOP, who is fully and completely responsible for the economic mess we are in – and it is only going to get much worse.
No related posts.
Bil, did I hear right? Some time ago I heard that food and fuel were taken out of the CPI. If this is true, it will have a terrible effect on lowering the CPI.
I am amazed at how many people blame BIG oil for gas prices. You tell them oil companies buy from OPEC nations, they don’t own the oil wells. All I get is a blank stare. With this attitude, it’s only going to get worse. Look for $25 gas.
After promoting the largest tax increase in the history of our state, I’m surprised that you even care.
Bil – I agreed with your post right up till the last sentence. I know you know better than to blame the price of oil on this president or the GOP. If that were true, then why hasn’t the price of oil came down since the Democrats have taken power of both the House and the Senate?
I guess the only thing left for us to watch is who you are going to support this November – Obama or Hillary?
Bob, the Consumer Price Index is calculated ex food and energy. This of course means a dramatic understatement as to the actual devaluation of the currency. One analyst today stated that the real CPI has been running at an annual rate of at least 10%.
This phony calculation by the Bureau of Labor Statistics would appear to be a way to cover the damage being done to personal wealth by the Federal Reserve. In other words, it gives the FOMC an alibi to continue inflating the money supply.
Kilo,
You will never find me voting for either Obama or Clinton – I will abstain from voting before voluntarily casting a vote for either one of these psuedo Marxists. I have already left the Republican party as there is simply nothing there for me anymore. My choice will be for the candidate that best represents my core philosophy and world-view.
To be fair, both parties get the blame here but it goes without saying (in my view) that whatever policy the dems introduce will simply add to the problems, but they did not hold the white house during this period leading up to this.
The democrats clearly have no answers, and their policies are generally worse but in order for the effects of the democrats to be fully felt we’ll have to wait a couple of years as there is always a lag between implementation of government policy and its full effect on the economy. What we are seeing now is the result of much of the Bush doctrine abroad, and his mercantilistic philosophy here at home.
Bush and the GOP have had full reins for 6 years and what did they oversee? The initiation of additional (some might characterize it as massive) government spending programs, exclusive of the war (farm bill, medicare, etc). Add in the war, and the pile gets even bigger. Remember, Bush was a big supporter of bio-fuels and has been generally supportive of the massive agricultural subsidy system.
To accomodate this spending, the Fed was fully complicit in expanding the money supply to unprecedented levels to accomodate the programatic spending.
Bush and the GOP could have embarked upon a far different approach that fully reflected a fiscally conservative program of limiting government spending and returning to sound money while making incremental steps towards getting out of the business of manipulating the economy. It ought to be obvious to all that there is no role for the federal government in crafting “economic policy” beyond simply getting out of the way, and enforcing laws which protect private property and the rule of law. Yet, this crowd has gone hog wild in getting intimately interventionist, making mercantilism a foregone conclusion.
Moreover, we are still not drilling in Anwar, or anywhere else in our territory, where government restrictions prevent it nor are they fessing up to the fallacy of farm subsidies to corn producers and ethanol plant developers.
#2, you must be losing sleep if my support of the NR school referendum is still festering in your mind.
IN the next 20 years, the taxpayers will pay $153,943,000 in debt service. What’s your estimate of the increase of energy costs will the average NR school district taxpayers pay in the next 20 years.
Since we’re talking energy here, stick to the issue.
Mark, I believe the estimate of the CPI at 10 percent if food and energy is factored in. Since the CPI is the critical factor in all union negotiations can you image what a 10 percent CPI would do to government workers wage increases. Maybe the QEO limit of 3.8 percent will be the salvation of WI.
Not if you can lead the charge for another referendum Bob.