My High School Econ Teacher Would Have Kittens!

Aside from the fact that my high school economics teacher was a human being, he was also, well, a he. In other words, it would be quite a feat for him to literally have feline offspring. However, if he had tuned in to the Rush Limbaugh show today, I am sure it would have happened. The discussion was spawned by the news that Halliburton is moving from Houston to Dubai. A caller named Barbara stated the following: "The government needs to put a stop to corporations leaving the country!" On its face, it's not a bad idea. After all, why would we, as a nation, want businesses to take their employment opportunities elsewhere? But then, Barbara kept talking.

She went on further to suggest that there is a legislative solution to this problem. In summary, she would like corporations that outsource and/or relocate to be penalized in some way. Many people who have a protectionist gut reaction fail to understand the fundamentals of economics and how, despite liberals' policies to squelch the workings of the free market, they still apply. The most basic of economic principles is at work: supply and demand. Rather than showing you some graph with lines that have little meaning, I give you a readily seen example...the Playstation 3.

When the Playstation 3 first came out, men and children (and the women in their lives) were lined up around the block several times over. What brought about this phenomenon? If you think back to this past Holiday season, not only were these things spendy (suggested retail at around $600, without taxes), but they were in limited supply. Unless you pre-ordered or took a couple of weeks vacation to camp in front of EB Games, you had less than a snowball's chance in hell of getting your mitts on one. Some enterprising individuals purchased the game system with no intention of taking it out of the box. Instead, these guys and gals took their purchased PS3's and sold them on eBay. The highest bid I saw on eBay was $4000! That is a gain of $3200 for doing very little, but there was a buyer that was willing to pay the price.

Now, if you were anything like my boyfriend, you did your product research and saw that the first generation of PS3 had problems with the Blue Ray technology and with reading discs from the previous two systems. In other words, you waited for the price to decrease and for the technology to improve. Perhaps you're like me and don't see a difference in graphics and gaming capability big enough to justify the cost of getting a new system. This, in combination with the "newness" being worn off, has caused the price to drop. You can go to bestbuy.com and find the basic PS3 system for $500. The lesson to be learned is that as long as you have consumers willing to pay the asking price, the price will stay there. Once consumers either have their fill of goods or find a better alternative, the price will have to come down to stay competitive.

Let's take the economics lesson and apply it to, say, the price of gasoline. You have people all over the world, not just the U.S, driving their vehicles. Most notably, China has an increasing number of drivers. There are only so many oil producing regions in the world that are actively pumping; there are places like ANWAR, the U.S. Gulf Coast, and unexplored regions of the world. Here in the U.S., the cost of obtaining construction and operating permits (not to mention the cost of labor and materials) is such that, depending on where you live, it could take around 5 years before you start turning a profit, if all you're doing is pumping oil. The stuff coming out of the ground isn't the only thing driving the price.

Petroleum has to be refined to a useable form. There hasn't been a new refinery built in the U.S. in the last 30 years. In addition, existing refineries are in dire need of upgrades to refine more petroleum, more efficiently. In order to upgrade equipment, parts of the refinery must shut down. This cuts back the supply even more. We haven't even delved into the cost of labor for the petroleum industry.

The recent increase in the minimum wage means that the cost of skilled labor, such as mechanics, welders, and refinery operators, must also increase or else the company runs the risk of losing their labor force to someone willing to pay prevailing wage. The petroleum industry, like any free-market industry, will pass its expenses on to the consumer. Thus, because of demand and increases in production cost, the price at the pump will rise. Since the major petroleum companies are publicly-traded corporations, decisions are made with one goal: maximize profit for the shareholders. That means everyone from the recent college graduate with a 401(k) portfolio to the member of the board with a twenty percent share in the company.

Any company's decision to leave these shores can be easily attributed to a failure in domestic policy. The education system has failed its students by not preparing them for careers and telling them that the guy who makes his living swinging a hammer is less important than the guy sitting at a computer. Legislators have seen private industries has a cash cow, free for the milking. "Nature Nazis", whose real agenda is to make everybody equally miserable, have seen to it that we are unable to build on existing technology, both in petroleum processing and nuclear power generation. The same people who complained that the Vice President was a former member of the board for Halliburton are now whining about their departure. Somebody call the "waaaaa-ambulance"! I think my econ teacher has gone into labor!