Throughout the history of Representative Democracy (for you who were educated by government schools like me, that is where representatives are elected by the people to make laws and govern) politicians have been passing laws that effect economics and social policy with the intention of making a positive difference and being able to take credit for it. This of course helps in their re-election bids. In the following two posts I will explain how those policies (usually enacted by liberals and thus the democrat party) might be well intended but instead destroy people's lives.
Beginning primarily with Roosevelt and the New Deal but really escalating during Lyndon Johnson's Great Society Programs, these policies began a trend that has now all but destroyed the Black American family. I am in support of the 13th, 14th, and 15th amendments in that it freed slaves, gave them freedom, and gave them the right to vote. But the laws I am talking about are the forced integration of schools, rises in the minimum wage (or even having such a communist law to begin with), putting price ceilings on housing to help low income families, affirmative action programs, and the countless welfare programs that have caused a steady increase in the divorce rate, pregnancy out of wedlock, single-mom homes and a rise in crime. There are of course many other programs but I think you get the point.
These laws of course were put in to help poor but also minority groups in forms of reparations due to discrimination they dealt with throughout history. When one forces schools to integrate they impose costs on people who choose not to want to integrate. Longer drives could be one cost and the risk of fights amongst groups that hate one another. This is why I supported the desegregation of our schools but the forced integration is WORSE than forced segregation in my humble opinion. I would prefer freedom and the right to choose where to go to school instead.
The minimum wage helps workers who have jobs and get to keep them by raising their incomes considerably. But it hurts MORE people in that people lose jobs because it costs to much to keep them working and it keeps firms and businesses from hiring more new workers who are inexperienced and might not be worth the forced raise in pay. This effects mostly low skill workers and young workers. When combining those two attributes you see that it really hits minorities. This is why in Europe they have extremely high unemployment among young people and even higher among young Muslims in France and other minorities who might not have all the basic skills that the native person or majority ethnicity has been able to acquire growing up there. Funny how most of these people working minimum wage are young people still living with their parents and simply want a job to pay for a new car or something. But now they can't get that job even if they were willing to work for a lower price it would be against the law to hire him at that price.
Price ceilings on housing to keep the price of apartments low has caused 50% of the minority race (black) to move out of the city that most displays these liberal policies of compassion. That being the wonderful city of San Fransisco. When landlords have a maximum price they can charge on certain housing implemented by the government, profits will fall swiftly moving landlords out of the area and into another area where profits can be made. What you see is a supply problems of housing. Not a scarcity problem. Oh the houses and apartments exist, but they are now abandoned because a landlord can not make sufficient funds in that area. With the fall in the supply of housing what happens to the price of the remaining housing people? If you said the price rises then move up to the front of the class. Thus those hurt most by these policies are those who were suppose to be helped- low income and minority families. If you don't believe me look and see what cities have the highest housing costs. San Fransisco and New York city and other cities that have implemented these policies. Houston has not implemented them and that is why it is a good city for poor people and minorities to live. Hmm maybe the liberal politicians in San Fransisco knew this and pass these laws and other zoning laws such as keeping land off limits for "environmental" reasons. What does this do? it lowers the supply of land. What does that do? If you said raises the price of land then go to the front of the class as economist Walter Williams would say.
These well intended policies hurt those whom it is designed to help. That is why I like a free market to choose where to live and allow the people decide what is a fair price. If the owner is charging too much he will know that with people choosing not to buy. He will thus be forced to lower prices, unless of course there is no other place for those people to go due to bad government policies that have destroyed the housing in cities like the gay city of America. I could go on and on and explain how affirmative action has hurt Black families and business, how welfare and the safety nets for those who have made mistakes have incentivize people to live together who are not married and thus raising the teen pregnancy even more. Why do you think most single moms end up with multiple kids? But I think you get the point.
The next blog will cover why a free market works and fixes these problems and I'll also cite statistics that prove how discriminating in a free market costs lots of money and how the discrimination will thus decrease and even go away completely and how wages were growing for most Black people far quicker than for White people just after the Civil War. I hope you tune in.
Friday, June 27, 2008
Tuesday, June 24, 2008
Gas Prices on the Rise- Conclusion
Concluding my extensive research on the prices of gasoline (well maybe not extensive) I would like to sum all we have gone over and explain how we can fix the problem immediately.
Gas prices have risen for a number of reasons. Mainly because of the American people's lack of education and understanding of economics. With this lack of understanding, politicians, political pundits, the mainstream media (drive by media for you Rush fans), and the intelligente world has been able to confuse, lie, distort, and trick most Americans into believing the opposite of what is true. It is politically savy to blame the oil companies for the high gas prices. And with the high prices comes record profits and thus it is very easy to correspond the two rises. But when you observe the math and realize that if oil companies decided to go a full year without making any profits at all (meaning they would all go out of business, our gas stations would run out of gas, and our economy would go into a depression and our country would not exist in less than 50 years) the price of gas would lower by an amazing $.34 per gallon on average. This is the total profit of a gallon of gas that oil companies receive to be paid to their shareholders in dividends and reinvested into their company. That could save Americans an astounding $5.00 a week!!
When the numbers are put in reality only one thing can help and that is lowering the price without government condemning those responsible for getting us gas to start with. Government has caused the prices to rise exponentially in the last few years. The problem is that it has been every different government (meaning ever two years when we have elections) we have had for the last 35 years that has caused what is just now really hitting us. Why just now? Because President Bush is the first President of the U.S. to really go after the Middle East in a true war effort. Because India and China are just now raising their standard of living and consuming the energy needed to allow their economies to flourish and their citizens to begin experiencing what we have been experiencing for the last century. Remember there are 2.3 billion people over there! When our government restricts exploration so extensively, when they regulate oil companies in a way that does not make it profitable to them to, in a free market, expand their production and refining capacity of gas, then you have to expect prices to rise.
When our government refuses to allow the free market to allow nuclear energy to be used in highly populated areas like France and Germany have, what do you expect to happen to the price of energy? Oil is used in the Northeast to heat many homes when nuclear energy could be used if allowed. This would lower the demand for oil and thus the price would be lowered just by allowing other energy sources to be used. Not to mention the clean coal that we have out west that would be cheap to find and very clean to use. With that coal we could lower the price of powering our homes and just as the U.S. military does, we could turn some of that coal into oil and use for gas. These things would lower our dependency on foreign oil thus speculators would not have to worry near as much about war in the Middle East and thus the price would fall even more. Further we could use domestic oil not having to pay out billions a month to countries that hate us to begin with. These nations include but are not exclusive to Iran, Saudi Arabia and Russia.
If the government would stop changing interest rates every time we have a slight slow down in our economy to have the American people surge too quickly in buying things like homes, then the value of the American Dollar would not fall so quickly. When we print money and lower interest rates and force or at least pressure and subsidize banks to make loans to people that do not need or deserve or can't truly afford a house, then the markets rise to quickly, the value of the dollar lowers becaue of the extra cash on hand in our economy making our purchasing power in world markets-such as the oil market, weaker.
I hope you understand that adjusted for inflation, gas should be between $2.50 and $3.00 and will never be as low as it was a decade ago. But today it is $4.00 a gallon! You can blame that on liberal politicians (democrats and some republicans as well) who have misled you for way too long. Lets get a clue people.
Gas prices have risen for a number of reasons. Mainly because of the American people's lack of education and understanding of economics. With this lack of understanding, politicians, political pundits, the mainstream media (drive by media for you Rush fans), and the intelligente world has been able to confuse, lie, distort, and trick most Americans into believing the opposite of what is true. It is politically savy to blame the oil companies for the high gas prices. And with the high prices comes record profits and thus it is very easy to correspond the two rises. But when you observe the math and realize that if oil companies decided to go a full year without making any profits at all (meaning they would all go out of business, our gas stations would run out of gas, and our economy would go into a depression and our country would not exist in less than 50 years) the price of gas would lower by an amazing $.34 per gallon on average. This is the total profit of a gallon of gas that oil companies receive to be paid to their shareholders in dividends and reinvested into their company. That could save Americans an astounding $5.00 a week!!
When the numbers are put in reality only one thing can help and that is lowering the price without government condemning those responsible for getting us gas to start with. Government has caused the prices to rise exponentially in the last few years. The problem is that it has been every different government (meaning ever two years when we have elections) we have had for the last 35 years that has caused what is just now really hitting us. Why just now? Because President Bush is the first President of the U.S. to really go after the Middle East in a true war effort. Because India and China are just now raising their standard of living and consuming the energy needed to allow their economies to flourish and their citizens to begin experiencing what we have been experiencing for the last century. Remember there are 2.3 billion people over there! When our government restricts exploration so extensively, when they regulate oil companies in a way that does not make it profitable to them to, in a free market, expand their production and refining capacity of gas, then you have to expect prices to rise.
When our government refuses to allow the free market to allow nuclear energy to be used in highly populated areas like France and Germany have, what do you expect to happen to the price of energy? Oil is used in the Northeast to heat many homes when nuclear energy could be used if allowed. This would lower the demand for oil and thus the price would be lowered just by allowing other energy sources to be used. Not to mention the clean coal that we have out west that would be cheap to find and very clean to use. With that coal we could lower the price of powering our homes and just as the U.S. military does, we could turn some of that coal into oil and use for gas. These things would lower our dependency on foreign oil thus speculators would not have to worry near as much about war in the Middle East and thus the price would fall even more. Further we could use domestic oil not having to pay out billions a month to countries that hate us to begin with. These nations include but are not exclusive to Iran, Saudi Arabia and Russia.
If the government would stop changing interest rates every time we have a slight slow down in our economy to have the American people surge too quickly in buying things like homes, then the value of the American Dollar would not fall so quickly. When we print money and lower interest rates and force or at least pressure and subsidize banks to make loans to people that do not need or deserve or can't truly afford a house, then the markets rise to quickly, the value of the dollar lowers becaue of the extra cash on hand in our economy making our purchasing power in world markets-such as the oil market, weaker.
I hope you understand that adjusted for inflation, gas should be between $2.50 and $3.00 and will never be as low as it was a decade ago. But today it is $4.00 a gallon! You can blame that on liberal politicians (democrats and some republicans as well) who have misled you for way too long. Lets get a clue people.
Sunday, June 22, 2008
Gas on the rise part 3
In the first two posts I discussed why government regulation on the production of oil and refining capacity has lowered the supply of oil for years in this country and is the number one reason that gas prices are skyrocketing. We covered the demand that is rising not just in the United States where standards of living and thus per capita (or per person) consumption of energy is rising but the demand in China and India where one-third of all the world's population is also rising at alarming rates. When production and thus supply ceases and demand rises, prices rise exponentially. Finally in the last post I discussed why oil companies need to have big profits and how political rhetoric can be deceiving when in fact oil companies make less per dollar than many companies in the world. I also mentioned that oil companies reinvest most if not more of those "obscene" profits into new sources of oil and energy.
Today I want to mention an area of the market that few talk about because their understanding or knowledge of this is at a minimum. Tomorrow in fact congress is meeting (lecturing) speculators about their part in the price of oil being so high. The press is also picking up their attacks on speculators for their part in the ever rising price of energy. What politicians, pundits, and other media outlets condemn speculators of is in fact true. Some experts have said that speculators have caused the price of oil to rise anywhere from $20 to as much as $60 a gallon. Allow me to explain why this happens and even more importantly why this is a good and important thing. I will do this by referencing to a recent May 28 article written by one of my favorite authors and economist- Walter Williams of George Mason.
Say today the price of corn is $6 a bushel. If I'm an economist and can predict that in the future- say a year down the road, that due to bad weather, supply and demand, or war that corn will go to $12 a bushel I could buy up extra corn today, store it for a year, and sell it for a 100% profit in a year. If my prediction is correct then I have just made a ton of money. This happens everyday at exchange centers such as the Chicago Mercantile Exchange. Some would argue that I am taking advantage of a situation and trying to profit from it. That would be true and you can call me greedy if you would like, I will not lose sleep over it. I could also guess wrong and the price of corn could go down to $3 and thus I would have a huge loss of money on my hand. But why are these speculators so important?
If there is going to be a drought, bad weather, war, or huge rises in demand in the future there is a great chance that there will be a shortage of corn. But if I have wisely bought extra corn up now in order to prepare for the future (despite my main objective being massive profits) there will be no shortage. Thus massive starvation around the world will not happen and I due to my "greed" will save millions of lives if I am one of the hundreds or thousands of speculators buying up food resources. If most speculators are guessing future prices to rise due to those factors then they will all buy up now which is a rise in present demand and thus what happens to the current price? If you said it goes up immediately then as Williams says, go to the front of the class. You are right. But this rising of the price causes people to conserve and use other resources that are not in fear of being in short supply in the future and thus we do not have empty food shelves like the Soviet Union did right before it collapsed. Of course if domestic production was much higher then these speculators would not have to worry about war in the Middle East and other issues which would allow the prices to drop again.
The real issue with oil prices is education. Until we Americans stand up and get rid of the teacher unions and stop government from running and operating our education system then economics will never be taught because with great knowledge of economics means the losing of political strength. When Americans know about economics they will also know why government must get smaller and why competition is needed in schools which will in essence end the role of teacher unions. This is why I think there is a conscious to down play the importance on economics in school. I hope I can get enough Americans to stand with me and demand "Good Change" not to be confused with "Real Change" (the hopeless slogan of the Obama Campaign).
Today I want to mention an area of the market that few talk about because their understanding or knowledge of this is at a minimum. Tomorrow in fact congress is meeting (lecturing) speculators about their part in the price of oil being so high. The press is also picking up their attacks on speculators for their part in the ever rising price of energy. What politicians, pundits, and other media outlets condemn speculators of is in fact true. Some experts have said that speculators have caused the price of oil to rise anywhere from $20 to as much as $60 a gallon. Allow me to explain why this happens and even more importantly why this is a good and important thing. I will do this by referencing to a recent May 28 article written by one of my favorite authors and economist- Walter Williams of George Mason.
Say today the price of corn is $6 a bushel. If I'm an economist and can predict that in the future- say a year down the road, that due to bad weather, supply and demand, or war that corn will go to $12 a bushel I could buy up extra corn today, store it for a year, and sell it for a 100% profit in a year. If my prediction is correct then I have just made a ton of money. This happens everyday at exchange centers such as the Chicago Mercantile Exchange. Some would argue that I am taking advantage of a situation and trying to profit from it. That would be true and you can call me greedy if you would like, I will not lose sleep over it. I could also guess wrong and the price of corn could go down to $3 and thus I would have a huge loss of money on my hand. But why are these speculators so important?
If there is going to be a drought, bad weather, war, or huge rises in demand in the future there is a great chance that there will be a shortage of corn. But if I have wisely bought extra corn up now in order to prepare for the future (despite my main objective being massive profits) there will be no shortage. Thus massive starvation around the world will not happen and I due to my "greed" will save millions of lives if I am one of the hundreds or thousands of speculators buying up food resources. If most speculators are guessing future prices to rise due to those factors then they will all buy up now which is a rise in present demand and thus what happens to the current price? If you said it goes up immediately then as Williams says, go to the front of the class. You are right. But this rising of the price causes people to conserve and use other resources that are not in fear of being in short supply in the future and thus we do not have empty food shelves like the Soviet Union did right before it collapsed. Of course if domestic production was much higher then these speculators would not have to worry about war in the Middle East and other issues which would allow the prices to drop again.
The real issue with oil prices is education. Until we Americans stand up and get rid of the teacher unions and stop government from running and operating our education system then economics will never be taught because with great knowledge of economics means the losing of political strength. When Americans know about economics they will also know why government must get smaller and why competition is needed in schools which will in essence end the role of teacher unions. This is why I think there is a conscious to down play the importance on economics in school. I hope I can get enough Americans to stand with me and demand "Good Change" not to be confused with "Real Change" (the hopeless slogan of the Obama Campaign).
Wednesday, June 18, 2008
Gas Prices on the Rise Part 2
Today President Bush delivered a speech calling on congress to act quickly to help stabalize energy prices. Bill O'Reilly, the staunch conservative on Fox News, starts his shows with his famous "talking points memos" and recently has spoken about gas prices, speculators, and oil companies around the world. It is sad to see that such an intelligent man with influence as wide and vast as he has is so ignorant of economics. His talking dirty about the oil companies and the Middle East, makes people feel better and thus they watch him more. It is for ratings in my opinion. He is just too smart to really get this one wrong.
In the last post I discussed the supply issue which is the most important issue in that it effects the market price for oil. I briefly mentioned the also important aspect of the demand for oil in the last blog. Keep in mind that oil is not sold to countries separately at different prices but is in fact sold on a world market at one price. Thus our slowing economy does not mean that the demand is lessening. Just as our economy and standard of living rose dramatically during the 1950's, the mid to late 80's, again in the mid to late 90's and now recently in the past 4 years, we have now seen uimaginable growth in other countries around the world. China and India have seen much of that same type of growth recently. Actually they are finally using energy sources in large amounts for the first time in their nation's histories. With rising standards of living in countries that have over one-third the world's population, is it really a surprise that prices have risen without the same increase in supply? Demand rises due to wealth. That is a good thing my friends. The government does not have control of demand but can easily pass laws that affect the supply of oil which is exactly what they have done while beholding to the liberal anti-capitalist environmental wacko movement. Lets now move to a well believed fallacy in the world of corporation profits.
Many of you are angered to hear that oil companies are profiting at our expense. With gas prices through the roof, these oil companies are making bank! Lets examine this for a minute. The profits of oil companies are up big time but so is every other company that deals with markets of energy prices. The question is how much has their profit margins risen? Profit Margin is the percentage of total revenue that is kept in a form of profits to be either kept, paid to stockholders, or reinvested. In other words are they themselves charging more or is the rise in Price dictated by the market raising the price of oil? Oil Companies profit margin (that is the percentage of the dollar we pay that goes to them in profits) has not risen but in fact lowered slightly to an average that is slightly below $.09 a dollar. Yes, less than 10% of the price we pay goes to oil companies in profits. Their revenues are high but their profits are a low percentage of those revenues. It is easy for someone who does not understand the different between profits and profit margin to be angered easily when politicians can come out and condemn big oil for their record profits.
Allow me to end with this today. Oil companies are much like drug companies in that they must have high profits for two things. They must pay their investors a higher amount in dividends to convince the investors to continue risking their money on such an unstable market. An even larger expense is the necessity for this section of the economy to reinvest a higher percentage of those profits into future oil exploration and drilling. In fact most of the oil companies reinvested more money than they had in profits to find new oil this past year. Did you hear me? They have reinvested more than the "obscene" profits we have seen them make. They are not just sitting on those profits but are spending it on finding new energy resources. Just as drug companies must make a high profit margin to invest money into more and better drugs so does a company that has such high fixed and variable costs of operation. Google what is required to open up a new avenue of oil. Sometimes companies have to drill miles into the ground then sideways for miles then back down again. Needless to say this equitment and operation can cost billions not millions of dollars.
In the next blog I will discuss the impact speculators have on the market of oil. This is an often misunderstood concept and I will attempt to discuss it in layman terms.
In the last post I discussed the supply issue which is the most important issue in that it effects the market price for oil. I briefly mentioned the also important aspect of the demand for oil in the last blog. Keep in mind that oil is not sold to countries separately at different prices but is in fact sold on a world market at one price. Thus our slowing economy does not mean that the demand is lessening. Just as our economy and standard of living rose dramatically during the 1950's, the mid to late 80's, again in the mid to late 90's and now recently in the past 4 years, we have now seen uimaginable growth in other countries around the world. China and India have seen much of that same type of growth recently. Actually they are finally using energy sources in large amounts for the first time in their nation's histories. With rising standards of living in countries that have over one-third the world's population, is it really a surprise that prices have risen without the same increase in supply? Demand rises due to wealth. That is a good thing my friends. The government does not have control of demand but can easily pass laws that affect the supply of oil which is exactly what they have done while beholding to the liberal anti-capitalist environmental wacko movement. Lets now move to a well believed fallacy in the world of corporation profits.
Many of you are angered to hear that oil companies are profiting at our expense. With gas prices through the roof, these oil companies are making bank! Lets examine this for a minute. The profits of oil companies are up big time but so is every other company that deals with markets of energy prices. The question is how much has their profit margins risen? Profit Margin is the percentage of total revenue that is kept in a form of profits to be either kept, paid to stockholders, or reinvested. In other words are they themselves charging more or is the rise in Price dictated by the market raising the price of oil? Oil Companies profit margin (that is the percentage of the dollar we pay that goes to them in profits) has not risen but in fact lowered slightly to an average that is slightly below $.09 a dollar. Yes, less than 10% of the price we pay goes to oil companies in profits. Their revenues are high but their profits are a low percentage of those revenues. It is easy for someone who does not understand the different between profits and profit margin to be angered easily when politicians can come out and condemn big oil for their record profits.
Allow me to end with this today. Oil companies are much like drug companies in that they must have high profits for two things. They must pay their investors a higher amount in dividends to convince the investors to continue risking their money on such an unstable market. An even larger expense is the necessity for this section of the economy to reinvest a higher percentage of those profits into future oil exploration and drilling. In fact most of the oil companies reinvested more money than they had in profits to find new oil this past year. Did you hear me? They have reinvested more than the "obscene" profits we have seen them make. They are not just sitting on those profits but are spending it on finding new energy resources. Just as drug companies must make a high profit margin to invest money into more and better drugs so does a company that has such high fixed and variable costs of operation. Google what is required to open up a new avenue of oil. Sometimes companies have to drill miles into the ground then sideways for miles then back down again. Needless to say this equitment and operation can cost billions not millions of dollars.
In the next blog I will discuss the impact speculators have on the market of oil. This is an often misunderstood concept and I will attempt to discuss it in layman terms.
Wednesday, June 11, 2008
Gas Prices on the Rise^^^
With the War in Iraq improving daily the news has turned to rising energy prices and the weakening of the U.S. economy. This is a fun time for me because the debate is centered on a subject that I have given much time to studying. This post will be split into a number of posts so that slowly we can learn why prices of energy have risen and put an end to some of the economic fallacies that are involved.
Gas prices rise for a number of reasons. Supply and demand, taxation, war in the Middle East, speculation, environmental protections, regulations, the falling dollar, and more are the reasons. Today lets focus on Supply and Demand. Anyone who knows the basics of economics knows that supply and demand effects the prices of a good. More supply causes prices to fall while lower supply causes prices to rise. More demand causes prices to rise while lower demand causes prices to fall.
Throughout history American entrepreneurs have created new ways of energy. Years ago we used the mule. Later we invented the steam engine and even later used coal burning which is still used today in many areas of life. Finally Oil became available. With the help of John D. Rockefeller and his creation of Standard Oil, this resource became available to many and eventually most everyone in the country. Prices fell because Rockefeller created ways of raising the supply of oil and thus causing prices to fall to levels where more Americans were able to use it. Today oil companies around the world search for oil. Exxon being the largest company in America but not near as large as many Middle Eastern oil companies. Today there are several oil companies in America although some are small and a small few are by far larger than the rest. The problem today is that oil companies are not producing more oil in correspondence with rising populations and thus demands
In 1995 President Clinton vetoed a measure that had passed the Congress allowing for oil drilling in ANWR (Artic National Wildlife Resort). This and Senators continuing to vote against any new measure to drill in ANWR has kept the estimated 10.4 billion barrels of oil there off the market. For every gallon of oil that is drilled, 27 gallons of gas can be created. This along with 85% of our continental coasts are off limits to domestic drilling by American companies. This took out what the U.S. Minerals Management Service has estimated to be about 86 billion barrels of oil and 420 cubic feet of Natural Gas off the market. I said "domestic" drilling because just 60 miles off the coast of Florida, China in cooperation with Cuba does drill for oil there. I wonder if American Companies could begin drilling there how many more barrels of oil could be found to exist. Remember these estimates rise all the time as oil that was not expected to exist has been found from time to time.
Many praise President Clinton and many Senators for their efforts to save the environment. Since 1969 of the more than 7 billion barrels of oil pumped off the coast only .001 percent has spilled. That is one-thousandth of one percent. So much for the claim that drilling for oil damages the environment. Today the Congress is controlled by Democrats and in the past enough Republicans have walked across the aisle to vote down any measure to drill for more oil.
So as the population has increased, our economy continues to grow meaning the use per person has also increased, more people move further away from the city, requiring more gas to drive, and the populations of China and India beginning to use oil for energy, you can imagine how the demand for oil has risen dramatically in recent decades. Should it even be a question as to why gas prices have risen so much? Without the production of oil and refining of gas rising at the same levels as the demand for that oil rises the price will continue to rise.
The next post will talk more about the demand side of the equation and explain other reasons for the rise in the price of oil and gas.
Gas prices rise for a number of reasons. Supply and demand, taxation, war in the Middle East, speculation, environmental protections, regulations, the falling dollar, and more are the reasons. Today lets focus on Supply and Demand. Anyone who knows the basics of economics knows that supply and demand effects the prices of a good. More supply causes prices to fall while lower supply causes prices to rise. More demand causes prices to rise while lower demand causes prices to fall.
Throughout history American entrepreneurs have created new ways of energy. Years ago we used the mule. Later we invented the steam engine and even later used coal burning which is still used today in many areas of life. Finally Oil became available. With the help of John D. Rockefeller and his creation of Standard Oil, this resource became available to many and eventually most everyone in the country. Prices fell because Rockefeller created ways of raising the supply of oil and thus causing prices to fall to levels where more Americans were able to use it. Today oil companies around the world search for oil. Exxon being the largest company in America but not near as large as many Middle Eastern oil companies. Today there are several oil companies in America although some are small and a small few are by far larger than the rest. The problem today is that oil companies are not producing more oil in correspondence with rising populations and thus demands
In 1995 President Clinton vetoed a measure that had passed the Congress allowing for oil drilling in ANWR (Artic National Wildlife Resort). This and Senators continuing to vote against any new measure to drill in ANWR has kept the estimated 10.4 billion barrels of oil there off the market. For every gallon of oil that is drilled, 27 gallons of gas can be created. This along with 85% of our continental coasts are off limits to domestic drilling by American companies. This took out what the U.S. Minerals Management Service has estimated to be about 86 billion barrels of oil and 420 cubic feet of Natural Gas off the market. I said "domestic" drilling because just 60 miles off the coast of Florida, China in cooperation with Cuba does drill for oil there. I wonder if American Companies could begin drilling there how many more barrels of oil could be found to exist. Remember these estimates rise all the time as oil that was not expected to exist has been found from time to time.
Many praise President Clinton and many Senators for their efforts to save the environment. Since 1969 of the more than 7 billion barrels of oil pumped off the coast only .001 percent has spilled. That is one-thousandth of one percent. So much for the claim that drilling for oil damages the environment. Today the Congress is controlled by Democrats and in the past enough Republicans have walked across the aisle to vote down any measure to drill for more oil.
So as the population has increased, our economy continues to grow meaning the use per person has also increased, more people move further away from the city, requiring more gas to drive, and the populations of China and India beginning to use oil for energy, you can imagine how the demand for oil has risen dramatically in recent decades. Should it even be a question as to why gas prices have risen so much? Without the production of oil and refining of gas rising at the same levels as the demand for that oil rises the price will continue to rise.
The next post will talk more about the demand side of the equation and explain other reasons for the rise in the price of oil and gas.
Wednesday, June 4, 2008
Why CEO's make so much money part 3
In the previous two posts I discussed how a man or woman could be worth millions of dollars if they make the company more than that company pays them. In addition, opportunity costs are very high as a CEO and that must be compensated.
Incentives are another reason for a CEO being paid such "obscene" amounts of money. Instead of using economic jargon or a hypothetical let me explain this to you from a real life scenario that has taken place. My brother Archie worked for Sears as I did for a few years. He was the Lead of Package Pickup. This job was tough and payed very little. My brother stuck with the job because he planned on becoming a salary manager when a position opened. Sears payed those people nearly twice as much a year to start off. After becoming a department manager, the successful ones are given the opportunity of becoming an operations manager which is second in command of the store. From there you can get promoted to Store manager and of course your first store manager position is at a small store and if successful then you can get moved to a larger store for much higher pay. From here you can imagine the levels that you go through before becoming a National level employee such as CEO. Each of these positions would not be filled with quality people unless each level is paid adequately to take the position. If Sears wants to have good district, region, and then National management (IE: CEO) then they have to pay that person not just enough money to take that position but enough to spend decades coming up in the ranks doing jobs that are not nearly as attractive and do not pay a lot. How important are these high pay incentives? My brother quit and got another job because Sears began hiring managers throughout the store from other retail chains. My brother was passed over and not given adequate raises for his work and thus lost interest in the company and now works for Comcast. Sears was very upset that he quit but they only have themselves to blame. They lost one of their best employees due to a loss of incentives.
If CEO's are not paid extremely high profits for a short career, to cover opportunity costs, to incentivize other managers to work hard in order to rise up in the company then the company will fall apart at all levels. Low scale management or "leads" work hard to rise up. If managers are not paid high amounts then low scale workers will too lose interest in doing a good job for the company because they will have no incentive to be successful hoping to eventually rise to that position.
One more point. Some complain that CEO's are paid too much money when they do a poor job. Why would a company pay a CEO whom they just fired such an "obscene" payout to leave when he has lost the company millions of dollars or even more. This is simple. If that CEO is losing the company $100 million a year and is being paid $60 million a year as well then his cost to the company is $160 million a year. If he or she has three years left on a contract and the company wants to end that contract then it is more profitable and efficient to pay off the manager an amount that is less than what he would cost you in losses over the next three years of that contract plus the money in profits that is possible with a new CEO. This means even a $479 millions dollar payout is profitable to the company. This might be hard to swallow but it might be worth paying that CEO tens of millions to get rid of him or her now and not worry about a big drawn out court case that is expensive, you might lose, and doing so while your company is still losing money each year in profits.
I hope these last three blogs have been informative to you. If you learn just one thing from these blogs please let it be this; There is no way that YOU or the GOVERNMENT or any group of people can possess the knowledge and information to compute the correct salaries paid to CEO's, the price of a good or any other costs for that matter. That is why we have allowed the free market to make these decisions. The people with the most knowledge are the consumers paying the prices, and the stockholders on the board that has all the resources available to make the correct decision. How stupid can we be to think that Barack Obama or John McCain can honestly know what is best?
Incentives are another reason for a CEO being paid such "obscene" amounts of money. Instead of using economic jargon or a hypothetical let me explain this to you from a real life scenario that has taken place. My brother Archie worked for Sears as I did for a few years. He was the Lead of Package Pickup. This job was tough and payed very little. My brother stuck with the job because he planned on becoming a salary manager when a position opened. Sears payed those people nearly twice as much a year to start off. After becoming a department manager, the successful ones are given the opportunity of becoming an operations manager which is second in command of the store. From there you can get promoted to Store manager and of course your first store manager position is at a small store and if successful then you can get moved to a larger store for much higher pay. From here you can imagine the levels that you go through before becoming a National level employee such as CEO. Each of these positions would not be filled with quality people unless each level is paid adequately to take the position. If Sears wants to have good district, region, and then National management (IE: CEO) then they have to pay that person not just enough money to take that position but enough to spend decades coming up in the ranks doing jobs that are not nearly as attractive and do not pay a lot. How important are these high pay incentives? My brother quit and got another job because Sears began hiring managers throughout the store from other retail chains. My brother was passed over and not given adequate raises for his work and thus lost interest in the company and now works for Comcast. Sears was very upset that he quit but they only have themselves to blame. They lost one of their best employees due to a loss of incentives.
If CEO's are not paid extremely high profits for a short career, to cover opportunity costs, to incentivize other managers to work hard in order to rise up in the company then the company will fall apart at all levels. Low scale management or "leads" work hard to rise up. If managers are not paid high amounts then low scale workers will too lose interest in doing a good job for the company because they will have no incentive to be successful hoping to eventually rise to that position.
One more point. Some complain that CEO's are paid too much money when they do a poor job. Why would a company pay a CEO whom they just fired such an "obscene" payout to leave when he has lost the company millions of dollars or even more. This is simple. If that CEO is losing the company $100 million a year and is being paid $60 million a year as well then his cost to the company is $160 million a year. If he or she has three years left on a contract and the company wants to end that contract then it is more profitable and efficient to pay off the manager an amount that is less than what he would cost you in losses over the next three years of that contract plus the money in profits that is possible with a new CEO. This means even a $479 millions dollar payout is profitable to the company. This might be hard to swallow but it might be worth paying that CEO tens of millions to get rid of him or her now and not worry about a big drawn out court case that is expensive, you might lose, and doing so while your company is still losing money each year in profits.
I hope these last three blogs have been informative to you. If you learn just one thing from these blogs please let it be this; There is no way that YOU or the GOVERNMENT or any group of people can possess the knowledge and information to compute the correct salaries paid to CEO's, the price of a good or any other costs for that matter. That is why we have allowed the free market to make these decisions. The people with the most knowledge are the consumers paying the prices, and the stockholders on the board that has all the resources available to make the correct decision. How stupid can we be to think that Barack Obama or John McCain can honestly know what is best?
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