Price volatility

No need to wonder why gasoline prices are so low – here is the explanation:  As gasoline prices increased and reached their maximum in July, 2008 at $147 a barrel, oil producers pumped out as much as they could to capitalize on the higher price and bring in immense profits.  Suddenly, the price of oil dropped some 70% in five months.  The reason for this is because demand dropped significantly.  People and businesses slowed their consumption of oil with gasoline at over $4.00 a gallon (expensive).  However, oil producers were still extracting oil at high rates (we are talking about numbers like 86 million barrels per day).  So there was an excess of oil on the market, making supply much higher than demand, leading to lower prices.  Now, what this means is that with oil prices so low, less investment is being made into alternative energy systems as well as current oil extraction projects because it is not profitable.

Say I am a professional illustrator and I complete one project a week at maximum (peak production).  I am charging $150 per illustration and spending a fixed $100 on finite supplies (pigments, paper etc.) per project.  Suddenly, whoever commissioned my work decides it is only worth $50 a week.  It does not make sense to sell or even continue working at that rate because I will be losing money.  So I decide to finish one illustration every three weeks until price (demand) goes back up.

Well, pretend the entire economy relies upon my illustrating.  My illustrations are dumped into the fuel tanks of machines, and the machines operate.  Sculptures and ceramics cannot operate the machinery the economy needs.  Only my illustrations.  These machines allow the economy to function.  They ship goods across oceans, they harvest and deliver food.  The illustrations can be altered into different forms and used as fertilizer to (temporarily) enrich soil and grow food for an expanding population.  They provide the means to create everything from containers which hold water and liquid soap to action figures.  As you can see, the entire economy relies on my illustrations for its well-being to fulfill its model of consumption, growth, and “progress.”

Now, with lower illustration prices people can afford, they begin to once again purchase my wonderful, under-appreciated illustrations that make life as we know it possible.  However, I have only been producing one illustration every three weeks, so there are not as many illustrations availaible.  Because of this scarcity, demand outstrips supply, and prices skyrocket to $175.  I try to crank out as many illustrations as I can because I want some fucking cash!  Woot woot! However, by the time I am back to producing two illustrations per week, prices plummet because people cannot afford it.  This time, however, there are not enough illustrations to go around and food shipments don’t arrive.

It is a frail system, totally dependent on dwindling supplies of “illustrations” which, in this case, is a substitute for “fossil fuels.”  And because the current economic system is modeled on infinite growth and infinite substitutability (created at a time when world population was a fraction of today’s and material goods were relatively scarce), it does not know how to react to shrinkage or contraction – hence the term “negative growth.”

*I got carried away in the previous version of this post.

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2 Responses to Price volatility

  1. Austra says:

    I think I could enjoy a world where the entire economy relies upon your illustrating.

  2. irkone says:

    I think I would get exhausted, much like oil fields are getting exhausted now! Booya, kept the analogy goin’!

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