Oct 7, 2017 Employment Explosion
June 26, 2017 Why's the FED Panicking?
May 25, 2017 LFPR anyone?
Apr 26, 2017 What's up with the FED?
March 10, 2017 Feb Employment Situation
Oct 10, 2016 Tax Burden
Aug 1, 2016 Here Comes the Debt
June 26, 2016 Moribund US Economy
June 16 2016 Labor Update
Mar 10, 2016 Spring Renewal for Labor Markets?
Feb 21, 2016 GDP Gap
Feb 16, 2016 FED and Monetary Policy
Jan 19, 2016 Employment Gap Age Groups LFPR
Jan 10, 2016 A look at the Employment Situation
Dec 30, 2015 Fed Funds Rate up 25 Basis points...so what?
Dec 15, 2015 Fed Funds on the rise? Has Yellen 'Fell-in'?
Oct 15, 2015 Labor Markets Seven years of misery
Oct 6, 2015 Sept: Horrible Month for Labor
Sept 30, 2015 The FED: Interest Rate Angst
Sept 11, 2015 FED on the Monetary Policy Front
July 31, 2015 Trade and Foreign Exchange Rates
July 20, 2015 Economic Growth?
July 10, 2015 Labor Picture by Age Group
July 2, 2015 Disastrous Month in Labor Rpt
June 19, 2015 Minimum Wage - Income Distribution
Jun 5, 2015 Encouraged Worker Effect
May 8, 2015 Updated Employment Situation for April
May 4, 2015 Languishing Labor Markets
Apr 7, 2015 LFPR Doldrums on the Labor Front
March 8, 2015 Less than Zero Interest Rates - Trade War
2014 Articles
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Dec 23, 2011 Revisionist History Depression
Dec 10, 2011 Depression & Now Part 1
Dec 5, 2011 Lies, Damned Lies, Statistics
Nov 16, 2011 Taxes Part 2
Nov 8, 2011 Taxes Pt 1
Nov 1, 2011 Demographics
Oct 12, 2011 Fed-FOMC
Oct 6, 2011 Fed's Operation Twist
Sep 30, 2011 What Price Bailouts?!
Sep 9, 2011 Trade Deficit - States
Sept 3, 2011 Unemployment Ongoing Challenge
August 22, 2011 Restricting Oil Supply
August 11, 2011 Credit Rating-Taxes
August 8, 2011 QE3? What to do?
Aug 5, 2011 Employment Update
August 1, 2011 Competitive Free Mkt Capitalism
July 26, 2011 Cradle of Democracy
July 16, 2011 Capital Ratios
July 10, 2011 Unemployment Again
July 1, 2011 QE2 Over-Apres Moi, le Deluge
June 11, 2011 Unemployment
June 8, 2011 Net Worth Collapse
May 18 2011 Credit Collapse '08-'10
May 15, 2011 Fed Miracle-Mayhem
May 10, 2011 Unemployment
Mar 30, 2011 Puppet Show
Mar 18, 2011 Locked-in-Effect
Mar 10, 2011 Bummer Days
Feb 12 2011 Inflation by Decontenting
Feb 6 2011 Unemployment
Jan 14 2011 Money Supply
Jan 12 2011 Trade Deficit
Jan 6 2011 Printing Press Myth
Dec 18, 2010 College Pricing
Dec 7 2010 Debt & Deficits
Dec 2, 2010 J-Laffer Curve
Sep 24 2010 Competition
Sept 23 2010 Trade Deficit China
About us
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Economic Newsletter for the New Millennium

August 22, 2011

Donald R. Byrne, Ph.D.

Associate Editor
Edward T. Derbin, MA, MBA

Download Current Blog

Restricting Supply of Oil-Recartelization.pdf


To paraphrase an old saying, they can price gouge some of the people all of the time and all of the people some of the time, but with a reasonable passage of time, they cannot price gouge all of the people all of the time…or can they???

When the oil cartel, OPEC, began in 1973 to price gouge oil buyers by seizing production and pricing decisions from the SEVEN SISTERS and restricting production, the duration of these periods of economic carnage lasted about one to two years.  This pattern can be seen in 1973, 1978 and 2004-2008.  

U.S. Balance of Payments and the Greatest Puppet Show on Earth: China; the Oil Cartel(s); and Energy and the Environment

"...prior to 1973, the per barrel price of crude was about $3.50.  When the Middle East power brokers led by Saudi Arabia took control, they forced the Seven Sisters to reduce production and set the price at $14 per barrel, a 300% increase."

The Nature and Possible Solutions to the Current Energy Challenge

“In 2004 OPEC (Organization of the Petroleum Exporting Countries) and OPIC (our acronym for domestic big oil – Organization of the Petroleum Importing Countries) struck again and raised their per barrel price from $35 and along with massive speculation in oil futures fostered by the same investment bankers that gave us (MBS) mortgage backed securities (CDOs, CDSs, etc.) and the financial chaos surfacing in 2008, the per barrel price rose to $145 in the June/July 2008. 

With the ensuing recession, oil prices fell back to around the $40 range only to rise back up well above the $100 per barrel range.”

Restricting Supply - Gasoline.jpg

In the most recent supply restriction beginning in 2004, the newly re-cartelized American segment of the oil industry, unofficially joined the OPEC thugs and declared they would abide by the market.  Of course a market with a cartelized structure which was completed between 1997 and 2002 is not a competitive market unlike that of some cereal grains such as wheat which would come close to a perfectly competitive if government would cease its intervention as embodied in its farm policies. 

Restricting Supply Oil Recartelization.jpg

Paying for Gasoline eating up more of American Consumer's Budget.jpg

Instead of such goals as efficiency and equity being approached when significant competition is present in a market, those economic welfare conditions are violated as huge amounts of excess profits and excess compensation to management and labor occur (in excess of these productive resources’ opportunity costs and thus they are a violation of equity) and price, e.g. a barrel of crude oil exceeds marginal opportunity costs of selling it in the market (violation of efficiency).

Note bene, N.B.…Note well! 
Definitions of equity and efficiency, etc.  

Maybe it is time to point out why equity maximizes the consumer surplus subject to the constraint that productive resources receive their opportunity, no more and no less.  We should also point out that profits are the reward to a productive resource (productive resources: Labor, capital (including equity and debt capital), entrepreneurship, and land) and to achieve equity this economic cost like the others such as labor should receive their opportunity costs, no more or no less.  Violation of equity is a major reason for the huge inequality in the income distribution usually giving rise to government intervention and attempting to redistribute income and wealth, often very unsuccessfully.

Circular Flow Household as Supplier of Productive Resources (bottom) and as Consumer (top).jpg

As we have explained in articles on this web site for eight years, the promise of good things for the public from free market capitalism, are only realized when the markets are sufficiently competitive.  Wall Street may praise unnecessary mergers and acquisitions and receive enormous profits, fees, and commissions for doing so, but the public will suffer from being exploited by an increase in market power if it results from these activities of the investment banking community.  

The original Chicago School argued these points very clearly.  Henry C. Simons, and later George Stigler and Milton Friedman were among the stalwarts of the Chicago until it morphed into the Second Chicago School that at least condones excessive rewards to productive resources whether it is to labor, management or equity capitalists.  While Stigler and Friedman were associated most closely with the Second Chicago School, based on their adherence to neoclassicism, they were strong and strict adherents to competitive framework; with the former warning against what he termed as regulatory capture, where the regulators become captives of the regulatees – in short, regulatory agencies become the puppets of those they are regulating.  


A maximization of producer surplus (formerly called economic rent) at the cost of drastically reducing the consumer surplus such as we are now experiencing in oil prices and the petroleum derivatives such as gasoline seems now to be acceptable and compatible with free market capitalism in this version of the Second Chicago School.  The editors of this web site strongly disagree.  If it waddles like a duck, quacks like a duck, and looks like a duck, it is highly probable that it is indeed a duck.  Consumers do not collude and collectively contrive to increase consumer surplus by restricting demand.  Productive resources do however, restrict supply, whether they be business cartels like OPEC (Organization of the Petroleum Exporting Countries) and now OPIC (our acronym…Organization of the Petroleum Importing Countries), or labor unions like AFSCME (American Federation of State, County and Municipal Employees), UAW (United Autoworkers), or NEA (National Education Association) and its state and local affiliates.  




An Inquiry into the Nature and Causes of the Wealth of Nations

(First published 1776)

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

-- Adam Smith


Book 1, Chapter 10

Of Wages and Profit in the Different Employments of Labour and Stock



From the Adam Smith Institute

(July 17, 1990)

“For Smith, government should not seek to subvert the creative process that is the market, but should establish the framework necessary to keep it alive.  It should enforce competition.  It should not give in to the well-argued demands of monopolists and would-be monopolists.  It should punish people and authorities who conspire to fix prices, divide up markets, or restrict production.  "Monopoly," wrote Smith, "is a great enemy to good management."


Michael Forsyth MP (British)

Adam Smith's Relevance for Today



In articles on other websites we have argued as have many others that the path to justice is best reached by ensuring as much competition in markets within a free market capitalistic system as possible.


“The effects of this increase in competition bring the income distribution closer to the theoretical economic welfare condition of equity -- consumers pay the lowest price possible consistent with the reward to resources equal to their opportunity cost -- and thus to conformity  with commutative justice.  It simultaneously causes the market price to approach the theoretical economic welfare condition of efficiency.”  

“As the distribution of income is more closely based on opportunity costs of the productive resources such as labor and capital, the closer is the economic system to conformity with distributive justice.  This in turn reduces the need for government to reallocate income.”