New Economic Realities

Sep 08, 09 New Economic Realities
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Paul Krugman made an interesting point about the rise in oil and gas prices.  Oil speculators have been receiving the lion’s share of the blame for increases in gas prices.  Speculators predict (guess) what the price of a barrel of oil will be in the future and make trades based upon that price.

According to some economists and politicians, speculators wield undue influence over the current price of oil.  As such, they are directly responsible for rising gasoline prices.  Because the oil futures market is currently so small, a few speculators with no skin in the game can easily control or corner the market.

Mr. Krugman believes that those who want to assign all of the blame to the oil speculators are denying a fundamental new reality.  The emerging economies or the BRICs (Brazil, Russia, India, and China) are demanding greater amounts of oil.  BRIC and other countries are responsible for the massive increase in global demand.  Because these emerging economies require so much oil to fuel their economic growth, while there may be slight fluctuations in the coming years, Mr. Krugman argues that oil prices will continue to rise in order to keep up with demand.

We must begin adjusting to these new economic realities.  As a technologically advanced, first-world nation, we have gotten away from bricks and mortar products that cause economies to expand.  In essence, we do not sell enough widgets.

The emerging markets of the world want widgets.  They are willing to buy every barrel of oil in order to make and sell widgets.  It is time for the United States to combine its penchant for technological innovation with production might in order to jumpstart a technological revolution that is not based upon dead plants and animals.

Whether you call it a green revolution or not, the United States will only remain the worlds strongest and largest economy if we shift some emphasis away from speculation and high finance, and place it on creating novel and durable products that everyone needs.

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