Posted on 02/24/2006 4:34:25 AM PST by ajolympian2004
Rosen: Our silly little 'addiction'
Sometimes you get great life lessons in unexpected places. Kudos to Scott Adams, the cartoonist who writes the Dilbert comic strip. Adams cut through the fog and gave his readers a valuable insight into the real-world international politics and economics of the energy conundrum. In a recent strip, Dilbert readers were treated to the following exchange:
Dilbert: I'm thinking about buying a more fuel-efficient car.
Dogbert: Why?
Dilbert: It's my patriotic duty to reduce this country's dependence on foreign sources of oil.
Dogbert: Why?
Dilbert: Because then the countries that hate us will have less money to fund terrorists.
Dogbert: Actually, developing countries would buy the oil you saved. Thus adequately funding those same terrorists.
Dilbert: At least I wouldn't be funding them myself.
Dogbert: Oil is a fungible commodity. The capitalist system virtually guarantees that you'll end up buying the lowest cost oil from sources unknown to you.
Dilbert: Well, maybe, but I want my car to make a statement.
Dogbert: And the statement would be "Hey, everyone, I don't understand what fungible means."
Fungibility is the degree to which units of a given commodity are interchangeable. While there are different grades of petroleum, in the overall world market, it's a basically fungible commodity. The same can be said of gold and silver. Money is fungible, too. So regardless of the source of government revenues - taxes, fees, debt, etc. - once the money is collected, it all goes into the same barrel to be spent.
To help explain that, a good example is the futile act of designating your United Way contribution to your favorite charity so some other one doesn't get the funds instead. Since United Way's collections are fungible, when you earmark dollars specifically to Charity A, it just means that other non-earmarked dollars, some fraction of which would have gone to Charity A, are now free to go to Charities B through Z.
Getting back to Dilbert and oil, the point is that all oil production becomes part of the world supply, and the price of oil is a function of aggregate demand for that finite supply. Changes in the amount supplied or the amount demanded cause the price to go up or down. It doesn't matter where the oil comes from or what it costs to extract it from the ground. So, lower cost producers, like Saudi Arabia, make more profit per unit of oil than higher cost producers like the United States. OPEC doesn't set the price of oil; the world market does that, although OPEC can influence the price by controlling its production.
It's silly to talk about our "addiction" to oil. We're no more addicted to it than we are to food or water. It's a commodity. We use it as an energy source and petrochemical raw material because it's abundant and a better value than other alternatives. We could have horses pull our cars but it wouldn't be as efficient - and you'd have to feed and house them, anyway.
It would be nice to find economical alternatives to petroleum and we no doubt will some day. Perhaps we'll solve the puzzle of nuclear fusion and figure out how to harvest water for its hydrogen power. General Motors and other automakers are working feverishly on developing fuel-cell technology. Conventional nuclear energy is a viable alternative for more power generation right now but environmental extremists have succeeded in sufficiently demonizing it to scare much of the public and politicians away - at least for the time being.
Once upon a time, whale oil was a major energy source and people worried, then, about demand outpacing supply. Petroleum solved that problem - temporarily. In President Bush's State of the Union address he talked about accelerating the pace of technological research into energy alternatives. That's a necessary and obvious remedy.
The history of human progress is the history of solving today's problems with tomorrow's technology. And we will do just that once again. But don't kid yourself about kicking our oil "addiction" or ending our dependency on foreign petroleum any time soon. For inescapable economic reasons, we're stuck with that for the foreseeable future and with all the international political complications that go along with it.
Mike Rosen's radio show airs daily from 9 a.m. to noon on 850 KOA.
http://www.dilbert.com/comics/dilbert/archive/dilbert-20060219.html
Note that this is not the same as saying "...if I purchase a Prius, total oil purchases MUST decrease" since the guy two blocks down may offset your Prius by trading in his Honda Civic for a Hummer; or the Red Chinese may build another one of their notoriously fuel-efficient factories.
Cheers!
If the price goes down, then people will demand more oil, and the price will go back up. There is really no way to get around this.
people can be so stupid when it comes to markets and economics.
If the price goes down, demand will inevitably go up. Supply and Demand from Economics 101.
"If the price goes down, then people will demand more oil, and the price will go back up. There is really no way to get around this."
There is a way around this. It is exactly what Bush is saying. By developing alternate energy sources, we will rely less on foreign oil. By combining that with opening ANWR and other areas for exploration, our dependence on foreign oil lessens.
Now that doesn't say that the rest of the world will not be dependent on foreign oil. However, with our reluctance to trust the Arab world (who would) we reduce that feeling because if the Saudis turned off the spigot tomorrow, we wouldn't be adversly affected like we are now.
Nawww, it's just I own a couple of dozen shares of ExxonMobil.
P.S. Buy lots of Band-Aids, Coca-Cola, Listerine, and Rogaine, too! ;-)
Cheers!
bump.
Now THIS is a great article. Someone should explain it to the President so he doesn't make any more idiotic statements about eliminating our dependence on foreign oil or "funding terrorism" by buying Middle East oil.
You're right--it would be less money to those selling oil, whether foreign or domestic. But who would that hurt the most?
What if oil drops to $20 per barrel? Say it costs foreign producers $5 a barrel, and it costs domestic producers $15. Who gets stung the most by low prices? Would lessening the demand for oil actually help domestic producers of oil and hurt foreign producers of this "fungible commodity"?
I don't know for sure. But I'm guessing if foreign producers can pump oil cheaper than we can, then it will hurt domestic producers the most.
Nice thought, there.
Now, let's try this one. What if we are doing a global sucker punch by forcing other countries to deplete their reserves first? ("Peak oil" and all that; but not if you find the oil and then just sit on it like we are with ANWR and off our coasts, due to environmentalist regulations...)
Cheers!
No oil for liberals. Anyone registered as a dim should be disallowed from using the various products that come from oil. :)
If ifs and buts were candy and nuts, what a fine world we would have. The point is that demand is going up, not down, and it is going up faster than the rate of supply. When oil becomes more expensive, other alternative fuels and energy sources will become more competitive. Market forces will determine our energy sources. Hopefully, the USG will stay out of it.
But if the price went up, I might decrease my usage, offsetting your increased usage.
Or vice versa.
You could lower your use of oil, lowering prices, and then I could increase my usage....raising prices again.
In other words, bottom line, no effect either way.
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