Hacker News Reader

Comment by TaylorAlexander | Hacker News Reader

There is so much going on in this article. The quote from a wall street banker says lower oil prices "will push back $3 trillion a year from oil producers to global consumers"... But since oil companies don't pay us to take their oil, the only way that could be true is if you believe that the people's money is supposed to be yours. Which perfectly sums up the attitudes of wall street bankers.

If I used to pay you a big pile of money, and now I pay you a smaller pile of money, that isn't a shift of money from you to me.

View on HN

Barring deliberate cost saving measures, consider something like electricity costs. Your electric use is probably pretty consistent whether the price is $0.10 or $0.15 per kWh (ok, perhaps not yours, but average across the economy). Depending on your environment and what you do, you have to run your fridge, you have to run your AC/heat, you have to turn on lights, you have to manufacture your goods (if you're a business and want to stay in business). The same (roughly) amount of electricity will be used regardless of the cost.

If electricity suddenly drops in cost by 50%, then money you expected to spend on electricity is now being left in your accounts. There's been no actual shift, but the expected movement of money has been altered.

I think the point was that the direction never changed, only the amount, yet it's portrayed as if the direction was reversed, leading to the conclusion that folks on wall st have a tainted view of the world.

Perhaps, but I think even untainted econ undergrads talk about everything in terms of rates instead of quantities.

Oil use is relatively inelastic. If prices drop, money you expected to pay and money they expected to receive isn't going to do what it was expected to do.

The value of oil has not changed during the last nine months. If the buyers had been breaking even at $100/barrel, at $30/barrel, they're getting $70 worth of merchandise for free. Imagine the shoe were on the other hand, and the average hourly wage were slashed by 70%.

It is important in this example, that I assume the original deal is not unfair, which is not always the case. Price of oil as well as price of labour has other dimensions; if it weren't so, there would be much less war and revolution, respectively.

The oil-producing countries still has to buy stuff, as they make little themselves, and they have to pay with the money they have hoarded. Hence a wealth transfer.

Reply on news.ycombinator.com