Thursday, March 8, 2012

"The Law Of Supply And Demand!"

When someone needs correction I've been told it's best to remind them than to tell them. The problem in this next situation is I'm just about certain they never knew in the first place, so we'll make this a teaching moment.

For some unknown reason America has decided to elect to it's highest office in a time of great economic strife a man qualified and taught in the skills necessary to become an ACLU lawyer. This became evident yesterday when the President offered up a speech in North Carolina at a truck manufacturing plant, where he decided to inform the nation that "those who tell you the answer to higher gas prices is more drilling either don't know what they are talking about or are attempting to deceive you. We have to lower the demand by finding new technology and that will lower the prices." Let's examine that....

There is a basic principle in business called "the laws of supply and demand." They are called laws for a reason, the same reason the "law of gravity" is also called a law. They work 99.9999999999999% of the time. There are four laws of supply and demand, they are as follows...

If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher quantity.
If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower quantity.
If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity.
If supply decreases and demand remains unchanged, then it leads to higher equilibrium price and lower quantity
We will focus on #3. When you drill for more oil, you increase the supply. When you find alternative sources for energy you also increase the supply by lowering the demand. Law # 3 states that if you increase the supply and the demand remains the same, the price lowers. So drilling for more oil domestically will lower the gas prices, as will finding alternative sources of energy. So the President's statement is in effect false, because truth tampered with is truth lost.

If we were to find an alternative source that was viable to operate our vehicles on tomorrow, the threat of the new technology would lower gas prices, as would the threat of drilling to increase the supply to exceed the demand. While both are necessary, the only logical and immediate response to high gasoline prices is to increase the supply which he can do with the stoke of a pen. Ergo, immediate relief. He could also approve the pipeline from Canada to America, and any number of things that will increase the supply threat to cause speculators to back off their raising price bids.

Let's also look at this from a cause and effect standpoint. All the ideas, drilling and building a pipe line, and finding new technology creates employment, which this country desperately needs right now. Wouldn't it be logical to enact all means of employment in the face of a crisis? If my ship was sinking would I assign just one person to bail water? No, I'd hand every able bodied passenger a bucket and expect them to participate.

We don't need anymore lawyers in Washington. Could we have some commonsense individuals who understand basic principles and the laws of cause and effect? The supply of ivy league lawyers in Washington exceeds the demand, lowering the value and the quality (see law 4).

God Bless!
Capt. Bill

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