This article in part treats certain important commodiities in simple commodity relation to each other , a la Chapter 1 of _Capital_ as a way of estimating current Values. CB ____________ [from Policy Pete, http://qv3.com/PolicyPete/policypete.htm ] It is common these days to run into the argument that the current oil and gas price level is not that high because a time series that discounts from nominal to real prices will show that prices in the late 70s were much higher. But these arguments, while literally correct depending on which deflator is used, can be misleading because so many of the relative indicators of the price level have changed so much. In 1980 the price of gold was more than three times the current price, so measured as a percent of the price of gold, current oil prices are high indeed, especially after years of fighting inflation instead of promoting it. Here is a quote, written just after oil prices first achieved unprecedented highs, to give you perspective when thinking about the real oil price and the prospects for inflation: At the time of the first OPEC price increase, in 1973, the United States had tangible capital assets with a value of about $3.5 trillion -- more than two and a half times that years gross national product and more than fifteen that year's very high level of expenditure for new physical assets. These capital goods ... had all been built, designed and located on the assumption that, regardless of overall price inflation, a barrel of oil would be worth one or two bushels of wheat, or one hundredth of a ton of steel, or less than half an hour of skilled labor. However, a barrel of oil today is worth eight or nine bushels of wheat, one fifteenth of a ton of steel, and more than two hours of skilled labor. These changes have made it uneconomical to operate much of 1973's physical plant the way it was intended to be, or, in some cases, to operate it at all; much capital and labor goes unemployed or malemployed. OPEC's price increase is thus a principal explanation for the high levels of unemployment that we have experienced since 1973. And unemployment leads to more inflation. Government policy becomes more expansive to combat unemployment, and succeeds, in part, by inflating the prices of everything else, so that the 1,000% increase in the dollar price of oil becomes "only" a 500% increase relative to the price of steel or labor. Another inflationary impulse comes from the interruption of productivity growth caused by sudden shifts in the relative price of oil.... When the anticipated increases in output per worker do not materialize, employers can maintain profitability only by increasing prices. Robert Zevin, "A Plan for Controlling Inflation" 1981. (Then Senior VP, US Trust Co. of Boston) _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
[from Policy Pete, http://qv3.com/PolicyPete/policypete.htm ] It is common these days to run into the argument that the current oil and gas price level is not that high because a time series that discounts from nominal to real prices will show that prices in the late 70s were much higher. But these arguments, while literally correct depending on which deflator is used, can be misleading because so many of the relative indicators of the price level have changed so much. In 1980 the price of gold was more than three times the current price, so measured as a percent of the price of gold, current oil prices are high indeed, especially after years of fighting inflation instead of promoting it. Here is a quote, written just after oil prices first achieved unprecedented highs, to give you perspective when thinking about the real oil price and the prospects for inflation: At the time of the first OPEC price increase, in 1973, the United States had tangible capital assets with a value of about $3.5 trillion -- more than two and a half times that years gross national product and more than fifteen that year's very high level of expenditure for new physical assets. These capital goods ... had all been built, designed and located on the assumption that, regardless of overall price inflation, a barrel of oil would be worth one or two bushels of wheat, or one hundredth of a ton of steel, or less than half an hour of skilled labor. However, a barrel of oil today is worth eight or nine bushels of wheat, one fifteenth of a ton of steel, and more than two hours of skilled labor. These changes have made it uneconomical to operate much of 1973's physical plant the way it was intended to be, or, in some cases, to operate it at all; much capital and labor goes unemployed or malemployed. OPEC's price increase is thus a principal explanation for the high levels of unemployment that we have experienced since 1973. And unemployment leads to more inflation. Government policy becomes more expansive to combat unemployment, and succeeds, in part, by inflating the prices of everything else, so that the 1,000% increase in the dollar price of oil becomes "only" a 500% increase relative to the price of steel or labor. Another inflationary impulse comes from the interruption of productivity growth caused by sudden shifts in the relative price of oil.... When the anticipated increases in output per worker do not materialize, employers can maintain profitability only by increasing prices. Robert Zevin, "A Plan for Controlling Inflation" 1981. (Then Senior VP, US Trust Co. of Boston) _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
