Monday, August 11, 2003

Light blogging today since [1] lots of blogging last night on the Monday papers; and [2] it's a slow economic news day (the top wire service story categorized under 'Economy' is "June Machine Tool Demand Up 3.3 Percent" -- zzzzzzzzzz). One comment on an interesting story over at CNN/Money, however.
Oil prices have surged lately to their highest levels since before the start of the war with Iraq, but most economists aren't yet worried about them drowning a nascent economic recovery in the United States.

If that recovery's not self-sustaining, however, higher prices could become more of a problem.

Crude oil futures on the New York Mercantile Exchange were trading at more than $32 a barrel Monday morning, down a bit from last week but still near their highest level since mid-March, when prices were driven by fears about how war in Iraq, the world's No. 8 crude producer, would disrupt global crude supply.
So, the big rise from around $25/barrel in November to around $38/barrel was all due to the impending war in Iraq. Now the rise from around $25/barrel in May to around $32/barrel today is due to . . . what again? Here's a nice hint.
Many economists had hoped a dramatic, post-war drop in oil prices would be just what the doctor ordered for a U.S. economy still struggling to sustain growth after the 2001 recession . . . "At this point I would have expected more of a boost from lower oil prices," said Goldman Sachs economist Jan Hatzius. "If you'd told me before the war that the military action would go as smoothly as it did and that Saddam Hussein didn't blow up his oil facilities, I would have thought oil prices would be lower."
Ah, yes, good ol' undershooting and overshooting. Or maybe it's because
they could be interpreted as an early sign of economic spring -- just as higher interest rates, which tend to slow down economic growth, are tolerable as long as the rest of the economy is surging, too.
Oh, just admit it! The economists haven't the slightest damn idea why oil prices are doing what they're doing. All they can tell us is that they're going up. Hell, a computer can do that for me. Too bad it can't win a Nobel Prize.

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