Commodity prices
How do you respond to the following claims? Read the Bloomberg article as well as the interpretation below. I emailed the article's author and she said the numbers she cites are nominal prices, not real prices. Are nominal prices really indicating scarcity? What are the escapes from scarcity?
THE PRICES' HEIGHT
Market notices that natural resources are shrinking fast
While some folks in political circles still like to pretend that
natural resources are endless, global financial markets aren't, uh,
buying it. Commodity prices recently hit a 24-year high, driven by
worries that burgeoning global demand is rapidly outstripping supply.
We'll try to spare you most of the numbers (masochists may click the
link below), but suffice it to say: Copper and oil prices are near
record highs. Countries that export loads of raw materials
(Australia, Canada, South Africa, et al) are loving life as their
currencies rise against the dollar. Continuing economic growth in
the U.S. and China means that prices will probably continue to go up,
and "[t]he only thing that will get us to move decisively lower is a
global recession that would reduce demand,'' said Citigroup analyst
Kyle Cooper. Analysts at Lehman Brothers Holdings Inc. said oil
prices will rise until 2008 and stay high thereafter, based on
worries that global oil production is reaching its peak. Hmm ...
seems like the Birkenstock crowd has been saying that for a while.
straight to the source: Bloomberg.com, 08 Mar 2005
posted by randytsimmons @ 10:20 AM
5 Comments:
This may sound dumb but I have a question. Is it proven that resources are going to disappear at an alarming rate or, could it just be that the markets are seeing a fear in the general public and playing off that fear in order to charge us more. Does that make sense? We are self-interested, people running the markets are self interested, so is it possible that the "natural resource market" doesn't reflect the true price of the commidity? Americans are going to drive their cars, we have proven that we aren't going to stop driving or boycott them even if the price is ridiculous, so I think it could be possible that we are not dealing with a crisis, rather we aren't forcing the market to fall to the true price.
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This idea that global demand for these resources is in some way going to drain our supply echoes the claims of the Club of Rome so many years ago. The sky isn’t falling, and more importantly the Birkenstock crowd is not right. Sorry for the cynicism but the rise in commodity prices is a good thing, maybe not in the short run but in the long run this “shock” is causing consumers to look for cheaper alternatives and moreover, producers are forced to find less costly and more efficient modes of extracting these resources. Resources by nature are scarce, the rise in the price of commodities is normal. Market prices are not static; thank goodness b/c if they were resources would be depleted at an unchecked pace. If prices remained constant we would have little incentive to change our pattern of consumption until we reached a point of consumption where the utility we received from the consumption of the resource was incredibly small or even negative. Since oil and copper are essential resources this point would be nearly unattainable. Indeed, this rise in commodity prices is a good thing.
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