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Source link: http://archive.mises.org/5448/oil-and-the-apocalypse/

Oil and the Apocalypse

August 9, 2006 by

Blaming BP for higher gas prices misses the mark. The real world is characterized by risk. Bad things happen. The key point is that when they do, the price system reacts in ways that ensure the quickest and most socially optimal response. And contrary to the White House, more regs are not the answer. Tony Snow spoke as if only the lack of regulations forestalls a world in which nothing bad ever happens. FULL ARTICLE

{ 12 comments }

M E Hoffer August 9, 2006 at 7:20 am

I think that the “Full Article” link may be “broken”.

It is interesting though, the premise of your first paragraph, “regulation(s)”, was going through my mind, just yesterday.

I find the idea that this “corrosion” incident came, suddenly, “out of the blue”, a little hard to believe.

“Pipelines” from Day One, since the Chinese were transporting Gas through Bamboo, and the World over, have been susceptible to “corrosion”.

If BP is, truly, so negligent, that this “episode” caught them by surprise, in a field of obvious consequence, what then ?

Dan Coleman August 9, 2006 at 8:54 am

Excellent article; I’ll be passing this along to friends and family.

I have a feeling that the Republicans are going to get very angry about BP’s shut-down, and that this will further reveal their true stance on business: “We believe in free markets. . .when the companies do what we tell them to.”

Roger M August 9, 2006 at 9:16 am

Milton Friedman advocated gridlock in a recent interview, and I’ve seen a few more conservative writers do the same. Many conservatives who lean toward libertarians are disgusted by the conduct of Republicans. We now trust neither party. As Friedman said, the best government we have had in recent times occurred when Republicans controlled Congress and Democrats the presidency; that period saw the greatest roll-back of governmental power since the Reagan revolution of the early 80′s. Gridlock isn’t the libertarian ideal, but it’s the best we can hope for in the near future at a time when most Americans worship at the altar of the federal government.

Roger M August 9, 2006 at 9:20 am

PS, If you get import oil price data from the DOE web site and deflate it with the GNP deflator from FRED, it’s easy to see that the recent rise in oil prices is just making up for a decade of horrendous inflation. Real oil prices today are about what they were in the early 80′s.

adi August 9, 2006 at 10:18 am

Very good article !

Mr Westley wrote that temporary stop in production would not necessarily cause price increases if the volume of production is limited compared to worlds production. But if we have a very tight situation
in a sense that consumption is increasing and supply is lagging behind then even small decrease in production could have large effect in price.

This reminds me of Sir John Hickses essay titled Causality in Economics where implications of different kinds of economic equilibria were discussed. If a consumption and production are to be in equilibria then we must have a flow equilibrium at every point of time. Concept of stock equilibrium do not seem to have a relevance concerning oil production althought some firms could want to have a kind of strategic reserve of oil in inventories.

Harry Valentine August 9, 2006 at 10:46 am

The oil pipeline runs from Prudhoe Bay to Valdez in Alaska. The old single-hull oil tanks would have been split open by the ice that is in the Beaufort Sea. Modern double-hull oul tankers may be able to navigate through the icy that floats on the Beaufort Sea between the Bering Strait and Prudhoe Bay.

Future double-hullled oil tankers could incorporate some ice-breaker technology in their bows and water lines to deal with that pack ice. Then there’s global warming that is causing thinner ice in the Arctic and making for easier ship navigation in the Beaufort Sea. Perhaps BP may built a few double-hulled ice-breaking oil tankers in the future

David Spellman August 9, 2006 at 11:20 am

Ah, an interesting observation by Mr. Valentine: one positive effect of rampant global warming would be to eliminate the need for the Alaska oil pipeline! If it gets hot enough, we could ship oil north above canada to the East Coast, too! I hadn’t thought of it that way, but every cloud does have a silver lining.

I read today about Walmart’s interest in selling E85 as an alternative to gasoline. Fumbling oil companies can slash their own throats by causing such an increase in gasoline prices that alternatives become viable. In the short term, the rise in fuel prices is painful, but this may be the catalyst that opens cheaper sources of energy in the future. So long as the government doesn’t step in to prop up the current monopolies, competition will rise to the occasion.

So as far as I am concerned, let BP and other oil companies charge as much as they want and bring themselves to ruin by negligent and shortsighted practices. In the aftermath we will be better off when the corporate mammals replace the corporate dinosaurs.

billwald August 9, 2006 at 11:29 am

Hard to believe that BP is intentionally cutting their profits by using bad materials and/or sloppy inspection. BP is the largest oil producer. Will the replacement crude come from another BP oil field or from competing companies?

Anyway, better keep our oil in reserve and to suck the Arab states dry of oil first, especially if the profits go off shore in either case.

Interesting that Ford is mentioned. An inlaw works for a Ford dealer and I could get a good price but there isn’t a Ford car being made that I want to own. Or Chrysler or GMC.

It is a joke that GMC is bragging about their flex fuel cars. Their only flex fuel vehicles are gas guzzelers. Switch from gas to alcohol and their 15 MPG veh becomes a 10 MPG veh because of the decreased energy content of alcohol. I would be happy to buy a 40 MPG car if it could get 30 MPG on alcohol.

Paul Marks August 10, 2006 at 4:46 am

Hard though it may be for us to accept but politicians and administrators tend to reflect public opinion (rather than plot to corrupt the public).

Most people we interact with are not statists – but most voters ARE statists (and have been since at least the 1930′s) – they believe that the way to deal with problems is either for governments to pass new regulations or to spend more money. The statism of most people is mild (they are not socialists and, with argument, opinion can be shifted on various matters), but it is real.

It is true that much of the elite (academia, the media and so on) are strong ideological statists – but this is not really true of most Republican politicians (although it may be true of many modern Democrats).

If most Republican politicians really believed that there were votes in getting rid of regulations they would support so doing.

They are corrupt (in that they follow public opinion, rather than having principles and trying to convince the public), but they are not strong ideological statists.

As I have said – convince them that there are votes in getting rid of regulations and they will do it (ditto cutting government spending).

But while more voters support regulations than oppose them (or support a spending program rather than oppose it) the politicians will not act as we would wish them to.

Senator H. Clinton (and her comrades) may have an ideological vision of collectivist future – but the Republicans really do not.

But they will not do anything good unless they believe that there are votes in doing so.

M E Hoffer August 10, 2006 at 11:04 am

“In an interview this week with NBC News, a federal official Thomas J. Barrett, with the Department of Transportation’s Office Of Pipeline Safety, stated bluntly, “What disappointed me was their failure to maintain these lines to an accepted industry level of care”. ”

M E Hoffer August 10, 2006 at 11:06 am

“MSNBC reported that allegations about BP’s maintenance practices have been so persistent that a criminal investigation is under way into whether BP has for years deliberately shortchanged maintenance and falsified records to cover it up. Further, that current BP employees claim they’ve been told to cut back chemical applications ordinarily put into the system to retard rust and corrosion, and to falsify records. That a federal official confirmed that many of these workers have also talked to the FBI.

In announcing the shutdown BP acknowledged that a key maintenance procedure to check for sludge otherwise known as “pigging” had not been performed for more than a decade.”

Brent Nelson August 10, 2006 at 2:25 pm

This from the rumor mill: Apparently the Alaskan governor wanted to increase oil taxes. Moments before the final vote, word circulated that BP Exploration (Alaska) Inc. was shutting down Prudhoe Bay, the nation’s largest oil field and the center of Alaska’s economy, because of transit line corrosion. The projection for bringing them back online is just after the election…

Governor Murkowski said he would direct Attorney General David Marquez to investigate the “state’s right to hold BP fully accountable for losses to the state.”

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