04/05: Tragedy in the Gulf and the economics
This morning President Obama stated, flatly "This BP's fault and BP will pay the costs (of clean up compensation etc)".
This statement says a great deal about:
- one of the most common mistakes made by non economists
- just how attractive rhetoric rather than analysis is for politicians
And it's so simple.....
Ultimately the tragedy in the Gulf is the "fault" - and the term is a nonsensical one - of consumers of oil and all consumers of lifestyle benefits which derive from oil.
If there was no consumer appetite for oil BP would not exist - period. No one can set up an oil company if there is no consumer demand for oil. No one - not even BP - would explore for oil if there was no demand for oil and no demand for oil at the lowest price possible, in stable quantities and at a given quality.
What BP shareholders are responsible for is bearing the risk that meeting consumer demand involves. For a profit, those shareholders are prepared to take the risk of operating an oil company and exploring for oil.
What the President can do is reduce his appetite for oil or be prepared to pay higher prices as exploration efforts reduce or some combination of both.
What he can't do with any semblance of rigour, is simply "blame" BP.... Getting annoyed with business while ignoring the consumer demand which promotes its existence is both futile and an indication that one is more interested in politics than solutions.
This statement says a great deal about:
- one of the most common mistakes made by non economists
- just how attractive rhetoric rather than analysis is for politicians
And it's so simple.....
Ultimately the tragedy in the Gulf is the "fault" - and the term is a nonsensical one - of consumers of oil and all consumers of lifestyle benefits which derive from oil.
If there was no consumer appetite for oil BP would not exist - period. No one can set up an oil company if there is no consumer demand for oil. No one - not even BP - would explore for oil if there was no demand for oil and no demand for oil at the lowest price possible, in stable quantities and at a given quality.
What BP shareholders are responsible for is bearing the risk that meeting consumer demand involves. For a profit, those shareholders are prepared to take the risk of operating an oil company and exploring for oil.
What the President can do is reduce his appetite for oil or be prepared to pay higher prices as exploration efforts reduce or some combination of both.
What he can't do with any semblance of rigour, is simply "blame" BP.... Getting annoyed with business while ignoring the consumer demand which promotes its existence is both futile and an indication that one is more interested in politics than solutions.
