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Sunday, November 22, 2015

Free markets do work. We will soon see $1 per gallon gas and $10 smartphones.

To update my previous post Fox News released the results of its poll after I had posted that the ABC / Washington Post poll and both polls showed Trump leading second place Carson by 10 percentage points. In a nutshell both polls show Trump, Carson, Rubio and Cruz as the only candidates in double digits and the Fox poll is a bit kinder to Cruz.
It is Sunday so please indulge me as I venture from politics into areas that may have an even more direct effect on your personal life than next year's election. To keep this blog remotely relevant requires me to reads volumes of news daily and much of that leads beyond the realm of politics. While most readers would not have needed the Psychic Friends Network to predict Charlie Sheen's AIDS, had they thought about it, there is more important if less salacious news to deal with.


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Energy prices have been an interest to me for some years because of the roll of energy in the economy and because the prices of gasoline, heating oil, natural gas and electricity eat up a large chunk of the average American's income. I would argue that the $140 per barrel of oil was the primary driver of the 2008 crash. Idiotic lending rules and a Federal Reserve that assured the nation that everything was fine right up until the crash of course contributed but there was a precedent. The 1973 OPEC oil embargo brought about a severe recession and helped curtail the political career of one James Earl Carter, brother of pop celebrity Billy Carter, and who in the midst of the Iranian hostage crisis was attacked by a giant swamp rabbit. Hostages, embargoes and giant rabbits have always been the bane of American presidents.
Moving from energy prices in general to gasoline prices I predict we will see $1 per gallon gas soon. Maybe not everyone will see it but some will. Early today Gas Buddy reported that gas was selling for $1.38 in nearby Henderson, Kentucky. ( If you don't have this app on your phone or computer you should follow the above link. Gas prices often vary as much as 20 cents within in a few miles.) A quick look around the nation show gas selling for $1.96 per gallon in Minneapolis, $1.59 in Perrysburg, $1.89 in Fargo North Dakota, in close proximity to the Bakken Shale, and $1.58 in Midland, Texas, the trading hub of the Permian Basin. There a number of reasons for the wide disparity in prices such as state taxes and proximity to refineries and pipelines but I predict that soon parts of the country will see $1 gas.
Dollar per gallon gas! What next? How about a $10 smartphone. Soon Walmart will market just that. It uses a low-end Qualcomm Snapdragon chip and there’s no front-facing camera, so selfies are going to be a challenge. Also it runs an older Android OS, has a small 3.8 inch display and with the TracFone service will not give 4G service. It is however, superior to the original iPhone and offers WiFi networking. This begs the question, how long will consumers pay up 60 times this price for an iPhone or Samsung Galaxy? Unlike expensive gasoline, the aforementioned premium phones do have some snob appeal but free markets can diminish that pretty quickly. The macroeconomic effect? The next president will be able to boast that the balance of trade with China and North Korea has been significantly reduced. Now if we can just figure how to get cigarettes back to a quarter per pack.

2 comments:

  1. Well, YEAH, but have you SEEN or HEARD those Samsung watches? Amazing. Geez. I dunno.

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    1. The saga of the smartphone is conforming perfectly to economist Joseph A. Schumpeter's invention, innovation, imitation theory. As an invention reaches the imitation phase consumption is democratized dramatically as the breath taking wonder fades into a mere commodity. My first PC was a 486 and I had almost $2,500 in the damn thing. I remember going to Best Buy and shelling out $195 for 4 MB of ram. Today that would probably buy 32GB of ddr3 memory. We can see the same parallel in printers but I suppose the one for the books would be Xerox, a very high end technology and so expensive that only corporation could afford it. Now we all have the ability to not only reproduce documents but to reproduce them in color and on plain paper. I'm not telling you to sell your Apple stock tomorrow but the bloom is off the rose.

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