Bank economists take issue with the absurd assertion that higher oil prices, by pushing...

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Tony Petroski Comments (6373)
 
I'm having trouble keeping up. When the temperature gets cold, that's a sign of global warming. When prices go up, that's a sign of deflation?

Seriously. The market has been waiting for signs of the end of QE II in order to sell off. Therefore, in a contrarian way, if a short spike in oil prices can cool off the already cool "recovery" and scare everyone into holding or lowering other prices, QE II and the market rally can continue to roll right along.

Have I got that right?
25 Feb 2011, 12:11 PM Reply Like

Donald Rudow Comments (45)
 
As crude prices rise, all substitute forms for energy rise in price. With energy a production input supply shrinks because of the price increase causing equilibrium prices to rise, ceteris paribus, all over the world. This also causes output levels to fall. To claim that a rise in oil will cause deflation anywhere is absurd. That is like claiming that if the earth were to become more massive objects will float off of it somewhere.

If deflation were to occur anywhere following a rise in crude prices, it would do so in spite of the crude price change, not because of it.
25 Feb 2011, 12:34 PM Reply Like

rhgordon Comments (49)
 
i tend to concur with drudow's comment above, although i question his opening statement--"As crude prices rise, all substitute forms for energy rise in price. That would suggest that the demand for gas (oil) is totally price inelastic, but so is the price of other energy types, too.

there's no substitutability for gas. what are we going to immediately run our gas powered cars and trucks on without making major technology re-fits, which we all know isnt possible. Is natural gas an immediate substitute? Nuclear, Hydrogen? Coal? Trade our cars in for electric vehicles? it will take years before such technology is readily and commercially available.

think it through.
25 Feb 2011, 01:18 PM Reply Like

Donald Rudow Comments (45)
 
Oil provides more forms of energy than just gas. It is an input for petroleum coke, jet fuel, kerosene, and other residual fuels. While a gas powered car cannot convert to electricity, higher oil prices lead to higher coke prices, gasoline prices, kerosene prices, etc., which cause agents to seek out smelting methods, transportation, and heating that all use other sources of energy simply because they are relatively less expensive. Thus, higher oil prices do lead to higher energy prices in general, across the board and without exception, as consumers and producers seek alternative sources that are less costly.

You are claiming gas is perfectly price inelastic in demand and this is patently false. Gasoline is relatively price inelastic in demand. There are substitutes for transportation that do not involve the use of gasoline, but they are not perfect substitutes. Bicycles, our feet, and trolleys are examples. When gas hit $4/gallon gas consumption fell. This can only happen if gasoline has some degree of demand-price elasticity.
2 Mar 2011, 11:01 AM Reply Like

rhgordon Comments (49)
 
Gas is $4/gallon in Chicago now, and there has been no drop-off in usage, more bikes on the streets or more ridership of either the "El" or on busses. When did demand drop in your example? the 1970s? That wasnt a demand drop, it was a drop in supply so people COULDD'T drive Go study some Economics before you make clodish statements like you did.

And unless you are the ulitmate "literalist", i think everyone understands that the term "Oil" includes all of the by-products associated with it.
14 Mar 2011, 05:16 PM Reply Like