Discovering oil is not the same as creating oil. But people get confused about it. There is a certain amount of oil in the world. It’s been there all along. We’ve discovered it one piece at a time. But it’s always been the same total amount. There’s no new oil. It’s just the old oil we didn’t know about before.
That’s the difference between oil and things like computers. We can build computers. There’s no upper limit on computers. We can build as many as we want and keep making new ones. Oil doesn’t work like that.
True. But now you’re talking about politics instead of economics. So it’s a whole different topic. Bringing things like politics into the issue doesn’t change the economics; it just ignores the economics.
Though it may have a very similar economic effect.
It’s news to me that politics and economics are entirely separate.
But what do you say to the specific point I’ve made - that there are serious economic costs to shutting down production while you wait for better prices?
Not at all. Economists grasp the concept. They understand that every oil producer is dependent on some finite resource so anyone who tries to take over the market will not be able to stay on top in the long run. Oil producers do not compete like Toyota and Ford. Toyota can outproduce Ford in 2008 and keep on out-producing Ford forever. Oil producers cannot do that. They cannot produce oil forever. So if they try to outproduce you this year, they’re just using up their oil faster and when they run low you’re back on top. You just have to outwait the other guy.
They are seperate. Sometimes there will be something that makes better economic sense but you won’t do it for political reasons. But that doesn’t mean it wasn’t the better economic idea. It means you didn’t choose the better economic idea.
To re-use my car example, suppose Toyota makes better and cheaper cars than Ford. Economically, I should buy a Toyota. But if I’m running for Governor in Michigan I’m going to buy a Ford for political reasons. That doesn’t mean that politics made buying a Ford a better economic choice. Economically, the Toyota is still the better choice. But I made a political choice not an economic choice. Politics and economics are seperate.
Keep in mind, you’re not waiting for a better price; you’re causing a better price. There’s a difference.
But as I said above, people don’t always follow the most rational plan. The most economically rational plan would be to sell your oil for the most money. But if you have to sell it for less, than you have to. That doesn’t make your decision to sell more economically rational. It means you decided to do something less rational.
Well, if Yemen tries to outwait Saudi Arabia (60 times the proven reserves) it’s could be a long wait.
In the mean time. Yemen’s oil infrastructure will be decaying, its experienced oil workers unemployed (and probably headed to Saudi Arabia), its former customers making other plans, its banks who loaned money for oilfield equipment insolvent, etc.
Congratulations - you’ve provided a valid example of how politics and economics intertwine. There are many, many others (c.f. recent debates about Big 3 bailouts).
Yemen’s withdrawal is not going to have a big effect on the price. Saudi Arabia may simply produce a bit more to offset the reduction (this decision will obviously depend on the state of Saudi Arabia-Yemen politics, OPEC policies, etc.). As you yourself note above, Yemen will have to “outwait the other guy.” (And it may take a good while.)
I think this can be an entirely rational choice, for reasons noted upthread.
No, it’s not an example of how politics and economics intertwine. It’s an example of how they lead you to two different conclusions and you have to choose politics or economics. If they intertwined they’d lead to a single combined choice.
Sure. But if they wait, it will happen. If Saudi Arabia produces oil and Yemen doesn’t, then eventually Yemen will have more oil than Saudi Arabia. That’s the whole point we’ve been trying to make.
I think you need to go back and re-read the OP. HeyHomie asked why it made a difference if you sold a product at different rates if you were making the same profit either way. And we explained to him why the rate of production makes a difference when you’re selling a finite resource.
This is a basic economic question and we gave a basic economic answer. You keep adding in extra things which have nothing to do with the basic question and don’t change the basic answer.
I used to teach classes in penal law. I would explain what the law said to the students. I would tell them something like Gang Assault is when three or more people are present and intend to cause another person injury and cause that injury. Second degree gang assault is when it’s physical injury. First degree gang assault is when it’s serious physical injury.
And then the questions would start. What happens if two of the people wanted to cause serious physical injury but the third one only wanted to cause physical injury? What happens if one of the three people leaves during the assault? What happens if the guy who leaves was there when the physical injury was caused but left before the serious injury was caused? What happens if the victim had a bad heart and they only meant to cause him physical injury but it actually caused him serious physical injury? What happens if one of the three assailants knew he had a bad heart but didn’t tell the other two? What happens if he did tell them but told them in medical terms they didn’t understand? What happens if he wrote it down on a note but they decided not to read the note? What happens if they were illiterate and couldn’t read the note? What happens if he didn’t know they were illiterate? What happens if he asked them if they were illiterate and they lied and told him they could read when they couldn’t?
We used to call these “what if the sky was green?” questions. You can’t ask every possible question ahead of time and get an answer for it. I used to have to tell them that all I could do was give them the basics and they would have to figure out on their own if the basics applied when they encountered a particular situation. You learn the basic principles and then you can answer the specific questions.
Or, as is exceedingly common, a combination of the two. Your Michigan politician believes the Toyota will last longer and be less expensive to operate. But he also thinks it may make it tough for him to hold onto his job, the loss of which he perceives as having a high negative cost. So the sensible economic choice for him is clearly to buy a Ford. His cousin has different circumstances and may well reach a different conclusion.
For each chooser, they do. In the aggregate, they lead to many different choices, which reflect the different circumstances and perceptions of those making them. The notion that in each case there’s a single, logical, “economic” choice applicable to everyone is far out of touch with reality.
Well, I’ve been trying to make the point that shutting down production may have associated costs well beyond what Yemen is willing to suffer. Sure, if Yemen were nuked from orbit such that no human could approach it for 200 years, at the end of that time its oil reserves would be larger in proportion to Saudi Arabia’s than currently. But this is kind of a “what if the sky was green” scenario - far enough outside reality that its contemplation doesn’t enlighten the debate.
The phrase economists use is “all other things being equal”.
If you ask “which is better A or B?” you can get an answer “A is better.”
But if you ask “which is better A or B; if you add C and D to A and E and F to B?” you get an answer like “A is still better than B and A is also better than B+E or B+F but A is not better than B+E+F. A+D is better than B+E but not better than B+F. A+C is better than B+F but not better than B+E. A+C+D is better than B+E+F.”
Which answer gives you a better idea of the relationship between A and B?
So the question, “Which is a better way to sell a finite product, quickly or slowly?” has two answers. One answer is “Slowly, because a slower production rate causes a price increase which will give you a higher price per unit.” The other answer is “Slowly, because a slower production rate causes a price increase which will give you a higher price per unit, unless you have seperate overhead expenses which must be immediately met in which case the answer is quickly, unless you can borrow the money to pay your overhead expenses off in which case the answer is slowly, unless the interest rates on the debt are higher than your estimated price increase in which case the answer is quickly, unless you expect a future war to drive up the price of your product in which case the answer is slowly, unless you estimate that the war might involve your country and you need to upgrade your military so the answer is quickly, unless you can form an alliance with other countries in which case the answer is slowly, unless those countries want you to increase production as a term of the alliance in which case the answer is quickly, unless you can offer them other terms which are acceoptable in which case the answer is slowly, unless you expect that someone will develop an alternative to your porduct in which case the answer is quickly, unless you estimate that the cost of the alternative will be higher than your product’s in which case the answer is slowly, unless there are other factors which would cause quicker production to be better than slower production, in which case the answer is slowly, unless there are factors which favor slower production and outweigh the factors which favor quicker production in which case the answer is slower.”
Both answers are true but one’s a lot more useful.
The genuinely useful answer isn’t necessarily the simplest - it can often be the one that best takes account of the real conditions, even (especially?) if those include some complications.
But an answer like “A is better than B unless there are other factors which make B better than A which are not counterbalanced by other factors which once again make A better than B” has been qualified to the point where it conveys no information at all. Sometimes you have to cut to the quick and say “A is better than B and that answers that question. If you want to know if A is better than B+C then you’re asking a new question.”
Unless you explain what those other factors are and when they come into play - in which case it may be much more useful than some simple answer that ignores them.