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thisvideoiswrong t1_iu0ajt3 wrote

Reply to comment by HobbitFoot in Shell paid zero windfall tax in UK despite record global profits by hugglenugget

You would if the free market were real. Profit margins are supposed to be miniscule because corporations have to compete for market share with the infinite number of other corporations making identical products, so they have to cut prices as much as they possibly can, and then find ways to lower costs further so they can lower prices more and get ahead. They're supposed to make money on volume when they come up with a way to do their business really well and get more market share. In that case low prices would mean a big innovation and more buyers, which would result in more profit.

But of course that's not how it works. There are only a handful of corporations in most lines of work, and they collude to set prices high together so they can all enjoy large profit margins. And covid and supply chain problems are giving them an excuse to increase those profit margins even further without people blaming them.

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HobbitFoot t1_iu0e00p wrote

That isn't how profit margins work in resource extraction.

Some sites have a low extraction cost, like Saudi Arabia, while other sites have a high extraction cost like Alberta. The cost of oil has little to do with the cost of extracting that oil.

So, when the price is low, it is economically viable for Saudi Arabia to pump while it isn't for Alberta. This is what restricts the supply. When the price is high, it is economically viable for both areas to pump, increasing supply. However, Saudi Arabia makes more money per gallon when the price is higher than when the price is low.

Substitution goods, like renewable energy, take years to build out. So, when you have an oil shock like now, it takes a while to stabilize. You may also have a case where the subscription good costs more.

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Mist_Rising t1_iu0x5n1 wrote

His economic theory is 101 level. It looks at the economy like everything else is equal, when in reality nothing is.

There are fields where his idea is closer to truth, fast food and grocery stores have low margins for example, but even then record prices occur at variable times. Grocery stores are making more currently due to inflation for example, but it's record profit that aren't as meaningful as it sounds.

He also forgot the capital part of capitalism, you can't just pluck a new company down and start selling. It takes money (capital) to build a store, get goods, get employees. This means competition is always based on how likely a return is for capital spent.

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thisvideoiswrong t1_iu3nh9g wrote

But if it's a free market then obviously there are no barriers to entry, so why haven't all the companies adopted this apparently better business strategy of pumping oil in Saudi Arabia? Obviously they can't, but that's the point. The Invisible Hand of the Free Market can only lead to the most positive results for society if consumers have perfect information, but we know almost nothing; have infinite choices, but we have at best a handful; and are totally rational, but humans are anything but. The market doesn't work in the real world, it just doesn't, and we have to stop pretending that whatever the market does must be right. We have to accept that government must intervene when the market fails.

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HobbitFoot t1_iu3s8yy wrote

So invade Saudi Arabia?

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thisvideoiswrong t1_iu3tg48 wrote

How about we start with an actually effective windfall profits tax (not building in absurd loopholes), and go on to jail time for executives implicated in price gouging if needed. On this issue, there's so much more we should be doing on so many issues.

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HobbitFoot t1_iu3udqg wrote

Is there price gouging or was it just the market reacting to a supply squeeze and existing infrastructure not in place to adjust for shifts in locations of supply?

At the point where the different governments want to dictate price, why not have consumer nations nationalize their energy industries?

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GreedyNovel t1_iubfklr wrote

Every economist in the world knows full well that the simplistic assumptions you've mentioned here aren't really true and are only there to help Econ 101 students start to learn the subject. If you study the field more deeply you'll see these assumptions are relaxed to varying degrees.

You aren't exactly breaking new ground here, you're just operating under the assumption that Econ 101 is being taught as the "Truth" to everything when in fact it isn't.

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thisvideoiswrong t1_iubiu6k wrote

Unfortunately there's a massive difference between what economists know and what conservative politicians talk about. And the media will never admit that those politicians are clearly wrong and probably deliberately lying (as a practical matter, when that power doesn't go to consumers it goes to big business, and conservatives care about little else besides what's good for big business). So in any policy discussion we get huge numbers of people saying that the market will take care of it, and they're wrong.

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GreedyNovel t1_iubnf90 wrote

Politicians always lie. Liberal politicians do too, of course, for their own special interests and donors.

It's all about convincing Joe Public who doesn't know very much or give much thought to these matters to peacefully line up at the polls instead of violently marching on the streets. Not much more than that, but that's socially useful too.

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