The People from Planet 1%
We do need to acknowledge the author and provenance of this article. Especially as she has 20 years of experience in writing about commodities. We believe she is thoroughly mistaken in her assessment, and we are surprised that her experience in writing about commodities did not prepare her to think more widely on the subject than she did.
On what planet is a drop in the oil price bad for the world economy?
Yes it means the petro states, and the 1% invested in oil, do not have such obscene amounts of money to recycle, but it also means Joe (or Basil, Helmut, Juan, Khoa, or Ali) Consumer now has significant extra amounts of money to spend, on the consumer-demand side of the economy.
Let’s take an example for Joe who owns a Chevy 2500 truck, and he fills up weekly.
This time last year is cost Joe $125 to fill up his Chevy.
This year it costs Joe about $75 to fill up his truck.
Joe is spending $200/month less on rent-for-oil. Mrs Joe will have $200/month to spend on other items this Christmas season, such as food and maybe a few extra presents, which will increase demand in the economy, which has been lacking for a while, now. If demand was less during Black Friday, it was because Saudi Arabia hadn’t given world consumers their pre-Christmas present yet. Wait for the post-Christmas analysis, which will show that Debbie Carlson completely misunderstood the effect of falling oil prices.
In short, due to the Saudi price drops, Joe has experienced a reduction in his “Oil Tax” which in turn allows his family to spend money in other parts of the economy, hopefully sectors with a better return to the economy than the Oil Barons and their Bankster friends (who like to gamble with their surpluses).
The Oil sector will not lose many jobs due to the price drops for oil, because the fixed costs to get the oil to the market have not changed. The non-oil parts of the economy will have extra demand because the Oily 1% will have less money. – Joe has the money. Consider it a small, but significant wealth transfer from the 1% to Joe Consumer. No wonder the Oily 1% are pissed. This was NOT their idea! It’s so unfair – They need transfers of wealth to go TO them, NOT FROM them!
From the viewpoint of the Guardian columnist and her 1% friends, however, this certainly might be viewed as a disaster. Her business friends and contacts are probably mostly drawn from the 1%. (Reporters do not write about us peasants, they only write about and talk to the 1% – unless you are an unfortunate dead unarmed black male in the US). Then they may write about you, but they won’t have talked to you beforehand.
OK, now that we’ve given you the background rationale, and assuming that you’ve read Debbie Carlson’s article [see the URL at the top of this article], let us give you our conclusions about the article. Having read Ms. Carlson’s article, and since you have noticed the non-sequiturs contained therein, you will have noticed the following:
Headline: “Collapse in Oil Prices leads World Economy into Trouble.”
For the rest of the world economy, low oil prices are a boon. They can help global gross domestic product growth. The International Monetary Fund (IMF) estimates that each $10 a barrel fall in oil prices increases world growth by 0.2%. In the US, for instance, the lower oil prices may spur growth by boosting discretionary spending by Americans.
Don’t tell that to Europe and Japan. Weaker energy prices will be another demon to fight in their attempts to keep away deflation.
So, let’s look at her logic for a moment. For the world economy, lower oil prices are a boon. For the 1% who are invested in oil, it’s a (temporary) disaster. So, on the whole, according to Ms. Carlson, it’s a disaster. However, we note that Mrs Joe Consumer disagrees.
In a recent conversation with Mrs Joe Consumer, we asked him what she thought about Ms. Carlson’s remarks. She said:
How is it possible that in a world where we Consumers barely have enough money to look after our families, that a $200/month price reduction can do good in the US, and harm everywhere else in the world? Ms Carlson’s logic is inconsistent. I believe that a price reduction which affects the whole world will have similar effects everywhere, even though low prices will certainly affect high-priced oil producers.
In my view, our family will have a bit more money for our Christmas festivities, and in aggregate, I believe that it will benefit all other sectors of the economy, except for oil. How sad. Ms. Carlson seems to think that a dropping oil price will cause DEFLATION by increasing demand in Europe. I don’t see it that way at all. I think Europe will have an better Christmas, courtesy of the Saudis.
I do wonder if our Neo Liberal leaders will note the potential boost to our economies because of an increase non-oil demand.
The article is riddled with either stupidity or ignorance or cognitive dissent. Or portions of all three. To us, the article is an indication that the Journalist is talking only to the 1% who are distressed to see their (unearned) incomes fall because they are invested heavily in oil, and they like high oil prices.
For the 1% this is a disaster, but only of moderate proportions.
For the rest of us, it’s a reduction in Oily Rent. A BOON!