He concludes:
The oil patch isn’t suffering cheap oil, rather it’s being wiped out by an unstable dollar. We’ve seen this movie before as this column has been repeating in annoying fashion since 2005. Cheap oil isn’t what’s shaking the oil patch simply because the oil in the ground was never expensive to begin with. It’s the unstable dollar that caused an artificial boom, and it’s that same unstable dollar that’s authoring the bust. Until the U.S. Treasury gets serious and gifts the U.S. economy with a dollar that is constant in value, the gut-wrenching reversal that’s taking place now in economies reliant on commodities will be the tragic norm.- Economist Bob Higgs of the Independent Institute discusses the burdens placed on the private sector of the U.S. economy since WWII. Though the market system is robust, Bob correctly points out that there is a limit to the regulatory burdens the private sector can bear.
- On another note, Don Boudreaux shares a snippet of an e-mail from Bob Higgs on what makes a good economist. His comments are similar to those I made in a previous post. One big difference between my post and Bob's email is tone; assistant professors can't afford to be as blunt as Bob is!
- Randall Holcombe of Florida State University provides a graph of new pages in the Federal Register by decade. Note that regulations (as measured by this page number data) are increasing at an increasing rate. He also discusses the recently-proposed Regulatory Freedom Amendment to the Constitution. Put simply, the amendment would allow the Congress to regain its power to decide the regulatory power of the Executive, rather than regulatory bureaucrats deciding the scope and scale of their power.
If we are going to really be serious then let's call a spade a spade. Rarely is any boom or bust related to one simple reason or parameter. Yes, the dollar has played a role. Yes, the tremendous ROI's in the oilfield have played a role. But most certainly, new technology that became feasible with improved oil prices also played a role. The supply of oil has been in surplus for quite a while and the price has been propped up by the unrest and reliability of supply in many of the production regions of the world. As the US, Canada, Russia, et al continued to take market share away from OPEC it was only time before "high prices would fix high prices". We all witnessed this same situation in the 80's. We went from gas lines to lines of moth balled drilling rigs. Since Mr. Tamny has it all figured out then I'm sure he will be first in line to buy moth balled drilling equipment to teach everyone else how to make money extracting cheap oil. It's simple, buy in cheap and move the rig to the cheap oil. Yes, the dollar played a role. But, I'm not sure the market really cared about the dollar when the Saudis' cut the price. I'm no expert, but the recent upturn in oil prices sure resembles a "dead cat bounce" and only time will tell it that is the correct diagnosis. The bottom line line is that the free market and capitalism is alive and well, as painful as it may be. Darwin J. Anderson
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