ICOT, your make some very good points. Most of what we disagree on is opinion, and both opinions can be valid. I’d just like to respond to a few things:
1. I absolutely agree that Masters’ proposed solution would have been a terrible idea. That does not take away from the elegance with which he described the problem – a tremendous feat.
2. I am not aware of what you mean by the “current run up” in the oil market. To the best of my knowledge, the last run up was the one that took us to $120. After that bubble burst, the price dropped like a rock to the 30-40 range, but that was partially rubber band effect (snap the other way) and partially the fact that it was 2008 and no one had any money to take advantage of the arbitrage opportunity. Since that point, the price has more or less settled in the mid $80 range, with a relatively low standard deviation.
3. You wish for $30-40 oil prices without artificial means. In other words, you are hoping to drive out 50% of the buyers from the market. That means that you don’t want China, India, and other oil “newcomers” to have access to oil. I think of that as a selfish wish. [If you will say that your wish is not to remove buyers but to double supply, I will say unequivocally that this is a pipe dream. Production cannot be increased by anywhere near the amount you’d need, and even if massive amounts of oil were discovered today it would take years to reach the market- by which time demand will likely have overtaken it.]
4. I agree with you that the right way to create a disincentive is to raise the price through taxes and not through paying the suppliers more. This is not what is happening – the high price is the result of market forces and not disincentive actions. I am merely pointing out the silver lining when I say that it drives us to other technologies. If I believed in tax disincentives I could move to a country that has them (UK, Israel, EU, etc).
5. Your prediction of future gold prices is something I need to think more about. I think pretty much everyone agrees that there is a bubble in the gold market, but the question is how big is the bubble. You seem to think that 100% of the gains result from the bubble, while I think that the bubble is but one factor coming on the shoulder of price gains due to valid economic factors. It’s hard to deny that investors have permanently changed their thinking when it comes to currency and sovereign debt. It is also hard to deny the effect of inflation on a commodity that is not inflatable. My most liberal guess is that 50% of the gains in gold are from hype and fear – but if you put a microphone in my face I’d say my best estimate is 25-35%. But you could be right, as time will tell.
6. I don’t have any blame theories for the recessions. When I say that I blame stagflation on our work ethic, I mean something entirely different. In less comfortable times, people who had less did with less and dug their heels in. Many people, forced by poverty or other hardship, did things that no comfortable person would. Countless small businesses were created that way. It’s like playing the dice game craps- you might win or lose on the first roll, but if you roll the point you keep on rolling until you get something.
Now we live all in comfort- there are programs to fall back on in hard times, staples are cheap and easy to get, communication and transportation is taken for granted. We have giant efficient companies that make innovation and competition difficult and unnecessary. As a result, in bad times we are playing musical chairs – once you’re out you are eliminated from the game. You won’t find any laid off Vice Presidents looking for “unsuitable” replacement work because they don’t have to. The result is less competition in business, a tougher labor market, and more concentration of capital (rich get richer and everyone else gets poorer).