Get your gas now…

Panic causes price rises. Period.

The basics of supply and demand dictate that when there is a shortage or percieved shortage of supply then demand rises. Likewise, when demand rises so does price. If a hurricane, in this case Ike, causes damage to oil refineries we will likely see a rise in prices. This is natural and expected as it creates scarcity.

Unfortunately, what is also natural and expected is that people will speculate as to the effects of events, lending a pesemistic weight to the equation. This negative slant causes people to try to “beat the rush”, causing a spike in demand. This spike in demand causes a shortage in supply, thus hiking up prices.

STOP SPECULATING THAT HURRICANES WILL CAUSE SHORTAGES! You are causing the price to rise for everyone. If you are really worried about such things stock up over time and/or well in advance.

This is my rant for the month.


July 2008 CPI Data Out

The July Consumer Price Index (CPI) data is out and this is my monthly update to the projected annual inflation.

If you want more explanation of how I arrive at these numbers visit the May 2008 post. For information on why I am including the December 2007 numbers in these calculations see the June 2008 post.

The inflation so far for 2008:

Southeast = [ ( 213.304 – 203.457 ) / 203.457 ] * 100 = 4.84%
National = [ ( 219.964 – 210.036) / 210.036 ] * 100 = 4.73%

Average month to month change in 2008:

National CPI Southeast CPI National ? Southeast ?
12/2007 210.036 203.457    
01/2008 211.080 204.510 1.044 1.053
02/2008 211.693 205.060 0.613 0.550
03/2008 213.528 206.676 1.835 1.616
04/2008 214.823 208.085 1.295 1.409
05/2008 216.632 210.006 1.809 1.921
06/2008 218.815 212.324 2.183 2.318
07/2008 219.964 213.304 1.114 0.980
Average 1.413 1.407

Estimated CPI when average change is applied to the rest of the year:

Est. Southeast CPI = 213.304 + ( 5 * 1.407 ) = 220.339
Est. National CPI = 219.964 + ( 5 * 1.413 ) = 227.029

Estimated inflation for 2008:

Southeast = [ ( 220.339 – 203.457 ) / 203.457 ] * 100 = 8.30%
National = [ ( 227.029 – 210.036 ) / 210.036 ] * 100 = 8.09%

Getting better. Still a ways to go back to “normal” though.


A world without farmers

Over time developing and growing countries generally shift their skill set in an evolutionary manner. As I discussed in Outsourcing and the Economy, the cheaper cost of labor overseas generally creates a void in domestic markets where those workers must either learn a new skill or remain unemployed. People will usually opt to self-sustain and will learn a new skill to maintain a level of productiveness within society.

As more and more jobs move to foreign markets people will inevitably learn higher level skills as a result, thus progressing the entire economy. Assembly line workers in the states may learn to do data entry when their factory work is farmed out to China. The same employees may then learn software engineering when the data entry jobs are farmed out to India.

Alan Greenspan talks extensively about this concept in his book The Age of Turbulence: Adventures in a New World, calling the process “creative destruction”. He supports the eventual fall of blue and white collar work in developed nations saying, “Job security, historically a problem mainly of blue-collar workers, became an issue starting in the 1990s for more highly educated, alluent people.” He later explains the process more succinctly saying, “Production shifts, such as the transfer of some U.S. textiles and apparel manufacturing abroad, have freed resources to engage in the output of products and services world consumers value more highly. The net result has been increased real incomes”, alluding to the tight coupling between increased living standards and performing more valuable job functions as a nation.

If nations are constantly progressing it is feasible to imagine a world where there are no more farmers. This doesn’t necessarily negate having agricultural products, but just the fact that the labor portion of farming, factory work, and other things will have become largely obsolete. How would this world work with no farmers to reap and sow? Enter technology.

In our current society we are already making advances that will allow us to create more virulent fruits and vegetables and are even starting to discover how to grow meat in a lab. These innovations are just the tip of the iceburg and are a sneak preview of the things to come. Farms may be replaced by vertical silos with robotic “farmers” that reap and sow each harvest. We already have the technology to be able to provide artificial sunlight and hydration. This is just one scenario but the possibilities are truly endless.

Can the world eventually progress to a point where there are no farmers? Yes, but I don’t think it will happen, at least not on a global scale. Such a world would require that all the countries that are either unindustrialized or developing reach a point where they no longer provide a source for cheap labor. The basic concept behind this is that building the technology to replace the workers must be cheaper than the actual workers themselves. Until the world reaches a point where the available human labor is more scarce than technology, and thus more expensive, we will not see such a shift.