ocschwar the unpronounced.

Al Greenspan went to speak to Congress. (Can't find link. It was June 7th, for the Committee on Foreign Relations.) Some of the points he made are interesting. He admitted that Saudi excess oil production capacity is now a negligible factor in the oil factor, just as American excess capacity disappeared in 1971, and that the major stabilizing factor in the market is hedge funds buying a stake in the market, particularly for long term futures.

So far, so good. But like so many economists, Al gets stupid. Oh, how stupid. It burns. It hurts.

Al points out that our oil per dollar GDP rate has gone down. Yes, Al, very nice, but there is a corollary. It means the dollars GDP lost if we don't get the oil, has gone up. Way up.

He points out that we have moved a lot of manufacturing offshore. Yes, Al. But we pay for the manufactured goods we import. Some of those goods are things we actually need, as opposed to blinky shiny baubles. And as energy prices go up, so do the prices of our imported goodies. All we get out of the deal is a little low pass filtering.

He points out that hedge fund managers have a big influence on the price of oil. No, Al. That is not the case. On the 21st of every month trading ends and delivery begins. Every month, hedge fund managers unload their stake in this month's contracts and trade them for longer term futures. By the 21st, the price is set only by those who drill for it and those who refine it. You can look at the graph. There is almost always a drop in price from the 15th through the 21st. And it's always small.

He claims that the price of oil will drop as soon as hedge fund managers have confidence in more oil production coming online. Yes, Al. And my stock in florist wholesalers will rise on the day the Pope marries. Hedge fund managers do better due dilligence than consultants, which is what you are now, Al. They know there isn't going to be any capacity coming online for some years. Look at the oil futures time spread.

Why must economists be so dumb? Why? Why? Why????

Now that gasoline is settling at $2.30 a gallon, there's a growing class of people that drives exactly 12 times a week. 10 times to get to work and back, and twice, on Sunday or Saturday, on a completely preplanned trip to the stores and back. And that's it. Too expensive to do anything else with it. There have always been such people, but now their number is growing.

What I wonder is if you can't use your car for anything spontaneous, is what you own really a car? If you reach the point where your car is only marginally more usefull than a horse & buggy, what are the social implications? You can't be too capricious with a horse. They have to fed and stabled, and they get antsy when they travel to a new area. They're slower and have less range. They "break down" more often, though usually they'll do that at the stable more often than on the road, but if you have to discipline your car usage rigidly anyway, how much harder is it to switch? I'm just wondering how precipitous America's falling out of love with the automobile will be.