Yes, inflation has finally hit - at least here in Australia. A major milk supplier has announced a $0.16 per litre increase for milk. It's all over the news, and in Tasmania they're panic buying before the costs come into play on Monday. Why? Because the price of petrol/gasoline is finally raising the costs of certain goods and services.
I like to think of my fellow countrymen as being superior to all of those on planet earth when it comes to thinking and making decisions about things. Alas, this episode has confirmed yet again
the simple fact that Aussies are at least as stupid as anyone on this globe. At least.
This comes out in the responses of the Federal Government and the opposition to the current "crisis". The Federal Government is trying to point out that there's been some price gouging and profiteering going on. The Opposition is arguing for fuel tax cuts.
I've already posted on the reasons why petrol prices are so high. Eventually hikes of this magnitude would boost inflation.
So why is the government focusing so much on "price gouging" and "profiteering"? Well, for starters, it's actually a cynical way of diverting the issue. It's not actually the government's fault that prices have risen, but they can't exactly sit there say that to everyone so they feel the need to blame someone else - in this case, the oil companies.
I saw a graph shown by the government on tonight's news. It shows a rather large increase in the profit margin of oil companies since Katrina hit in Lousiana, and forced global gasoline prices to rise. I saw the graph and responded in the only way I knew how. I scoffed.
Of course the oil companies are increasing their profit margins. This is the normal way a market economy functions. Think about it - if you had your hands on a product that was in demand, but was getting scarce, wouldn't you want to increase your profit margins? The whole idea of a market economy is that goods and services are sold at the price they can be sold at. What's the point of selling something for $1.00 per litre when you can sell it for $1.35 per litre? The only reason why a person or company sells something at a certain price is because they can.
So worldwide supplies of petrol/gasoline becomes scarcer because of Hurricane Katrina hitting America. The product becomes scarce, so the oil companies make more money. That's just the way it is - we can't change it.
Think of what should happen if, in the middle of Australia, we discovered a source of Light Sweet Crude that is so refined that you could almost pump it directly into your car. And let's say that the quantity that is found is 20 times that known to exist in the Middle East. What do you think would happen? It would mean that the price of oil would crash, since there would be this enormous increase in quality oil coming (eventually) onto the market. Prices at the filling stations would drop. But you know what else would happen? Profit margins would collapse as well. Oil companies would go bankrupt - especially those whose extraction and refining costs are high. That's the down side.
So the reason why these oil companies are making lots of profit is because oil production is not meeting demand. For more of the reasons behind this, I suggest you peruse the Wikipedia article on Hubbert peak theory, where it explains the scientific reason behind declining oil production, and why oil prices are likely to continue going ever higher.
So that's the Australian Government put in its place. Now what about the opposition?
The Australian Labor Party (ALP) constantly amazes me in how dumb they are. If they weren't so dumb, they might be a viable alternative to the Liberal/National Coalition (the current Federal government). By the way, I don't vote for either.
Here in Australia, both the Federal and State governments have taxes on petrol. The ALP has called on the government to reduce these taxes. That is just not the point. Again their call is merely political, placing the blame for high petrol prices upon the government.
What is really needed is to conserve petrol, which means that we need to do away with our 4WDs and SUVs, V8 and V6 cars. We need cars with more fuel efficient engines. We also need to think long-term and work out alternative sources of energy. While I agree that such a priority requires direct government input, making petrol cost more via taxation is an indirect way that the government can force the marketplace to react.
All I'm saying is - keep petrol taxes. In fact, it would be good to increase them.
So what about inflation? What's going to happen? Are we due for another 1970s period? I think not.
Inflation in the 1970s was killed by monetary policy - the raising of interest rates. Everyone these days thinks that Allan Greenspan is one of history's greatest men. I think history will be very unkind to Mr G. I think, however, that history will be very kind to one Paul Volcker - the guy who preceded Greenspan. In a very short period of time, Volcker conducted some very painful economic surgery upon America in the late 70s. He raised interest rates and killed inflation. He also started a severe recession - but his actions were necessary.
So what is ahead of us? Higher interest rates. Even a recession. Not good news - but don't blame me when it happens.
I just read the following from the Sydney Morning Herald:
The federal government has delivered a blunt warning to businesses - do not use soaring fuel costs as an excuse to hike up prices on other goods and services.Duh. The logic behind this is... well... there isn't any. If a business has increased costs, then what should they do? Should they just take it on the chin or should they begin passing on those costs to their customers? If they want to survive in business, they'll do the latter.
Moreover, the "business friendly" Liberal/National coalition is trying to deflect blame onto businesses. Not a good way to treat your core supporters.
All this proves that spin and media manipulation is what politics is all about - not truth.
From the Osostrian School Department
© 2005 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/
This work is licensed under a Creative Commons Attribution 2.5 License.