Tag Archives: Fox News

Critique of O’Reilly’s Article – Oil Price Economics

Bill O’Reilly of Fox News fame states in a recent article that energy independence is a national security issue. With that subject I agree, however, it is the predicate of his argument – namely, that big oil interests (e.g., petrol corporations and OPEC) are responsible for high gas prices – with which I take exception. O’Reilly’s role as a television news anchor notwithstanding, sensationalist rhetoric dodging the point at issue by Red Herring which points to the symptoms of the problem rather than the cause is naive at best and irresponsible at worst.

The US consumer is at fault here, not Iran or the mullahs, for high and rising oil prices. If household balance sheets were in order, our external debt position would not be where it is today. Moreover, if households collectively exercised prudence with regard to their political decisions surrounding the government budget (the other constituent part of our ‘twin deficits’), and specifically regarding our entitlements crises (e.g., Medicare and Social Security), by electing officials who would put an end to the abuse of unaccountable government spending facilitated via the laundering effect of statist welfare mechanisms or by simply voting away these monstrosities via referendum, our spending power, hence the price of goods such as oil, would be much different.

The rationale to back the premise that household profligacy leads to higher prices is thus: the market is more or less efficient in that investors, traders, merchants, and the like do not want to put themselves at more risk than necessary to make a living. Hence, there are limits to supply and demand, limits facilitated by the price mechanism.

(Disclaimer:  If you wish to skip the wonkery, pass by this paragraph and you won’t lose any meaning behind my point.) The elasticity of demand for and supply of goods determines what degree supply and demand changes affect the [equilibrium, or market clearing] price. To be sure, the elasticity of demand for oil increases as the price rises as a percentage of household income. However, conjoined with other factors such as necessity and lack of proper substitutes, the relative inelasticity of demand for oil leads to consumption patterns which do harm to household balance sheets in the aggregate. Thus spending, investment, production, and employment growth in the economy is duly constrained. On the supply side, elasticity is affected by, among other things, the existence of raw materials (e.g., crude), production spare capacity (e.g., OPEC’s ability to put more petroleum onto the market), the length of the production process (e.g., refining Canadian tar sands) coupled with factor immobility and time (e.g., drilling and exploration).    

American money is worth less than it used to be due to the monetary approach to the balance of payments whereby, according to Krugman and Obstfeld, “An increase in the supply of domestic currency bonds that the private sector must hold raises the risk premium on domestic currency assets,” (524, International Economics Theory and Policy). In other words, our trade deficit is financed, indirectly, via US government treasuries, among other securities. And the more financing activity we pursue (e.g., via household debt) the higher the risk premium we have tacked on to the price of our money. Therefore, purchasing power is directly linked to our spending activities – i.e., there is a causal link between debt and inflation.

The argument can also be made that the US is exporting inflation from wars in the Mid-East as financing overseas adventures puts a strain on government coffers. That oil prices are blowback of government overextension. Yes, that point is well received, however, government defense appropriations still do not make up nearly the proportion of the budget as entitlements (e.g., war = 20% while SS and Medicare = 60%). Moreover, estimates project that 2/3 of our economic growth has been consumption based. This suggests that the impact from government spending on war has had concomitant effects in the domestic economy (on the demand side), which have led to the impacts we now face in terms of our purchasing power [parity] reflected in higher prices.

The strength of the dollar, essentially, is determined by, among other things, our capital position (e.g., net assets or deficits) and future income earning potential coupled with past performance (e.g., market returns) and overall risk (e.g., default rates). When investors, traders, merchants, foreign sovereign wealth holders, etc. look at the US and its indefinitely increasing entitlements overhang (e.g., $42 Trillion Social Security and Medicare debt projected over the next 75 years) coupled with its increasingly stagnant economic growth (e.g., due to normal business cycle fluctuations), lending to decadent and irresponsible Americans looks less than appealing.

The meaning of our present condition lies much deeper than the vacuous notions propagated by populist demagogues of price manipulation for ‘windfall profits.’ The cost of oil is a proxy for a downgrade in [worldwide] investment opinions of the United States and these opinions reside in and are buttressed by rational economic expectations.

Chris Wallace Fox News Sunday Interview with Obama

My reaction to the Chris Wallace Fox News Sunday Interview with Obama is thus:

Obama passes the [scratch and] sniff test with flying colors; he is well-polished and statesmanlike. However, his positions are anything but conciliatory. Insofar as the issues he is a hard leftist. In order to explain away those divisive positions, Obama pursues an oratorical stratagem consisting of tall tales and circular rationale (e.g., moral equivalence). He is a master of sophistry.

To underscore the point, in one instance, when asked to justify his decision on voting against the nomination of Chief Justice John Roberts, Obama said that, although he voted against the nomination, he ‘vehemently defended’ the individual amongst various left-wing loons on the Daily Kos blog site.

Furthermore, Obama gave virtually the same answers to questions regarding abortion, war, taxes and the like.

There is a strong racial component to Obama’s campaign, one that is carried on, in the words of [one of Bill O’Reilly’s guests with a Ph.D I don’t know his name], ‘in subterranean fashion; it is very inferential.’ To the fact that 97% of blacks in Pennsylvania voted for Obama, the self-same Ph.D suggests that when black people vote for a black over a white, it’s ‘racial,’ but when whites vote for a white over a black, it’s ‘racist.’

The difference, this Afro-American suggests, is that when blacks vote monolithically [for a black over a white], it is somehow noble, but that in reverse [i.e., when whites vote for a white over a black], it is ignoble. Therefore, according to this logic, it is ignoble to support a white over a black – across the board. Ergo, it is a morally superior thing to support black people over white people. In other words, black people’s interests and values, according to this view, are more important than white people’s interests and values. Therefore, black people are better than whites. Therefore blacks must empower themselves over whites and whites must assist blacks in empowering themselves over [whites]. Therefore, whites must subjugate themselves to blacks. Therefore, blacks must be whites’ masters.

 To the question of NC being a state with a high percentage of blacks, and therefore, of Clinton having little if any chance of winning in that state (versus a black opponent), the aforesaid principle, according to the aforesaid view, must be said to apply [in like manner].