The return of scarcity

It seems like only yesterday that scarcity had ended. And, yet, here it is again as big as life. Anyone who’s taken out a loan and bought gas lately knows that the price of oil has gone up sharply. Not enough supply or excess demand or both. James Hamilton notes that, fortunately, our elected representatives of both political parties have reached a consensus on the matter and they’ve ensured that gasoline shortages will continue for the foreseeable future:

Anyone who has taken an introductory economics class will recognize this as an example of exactly how capitalism is supposed to function. The gasoline seller and buyer are both just doing what is in their own selfish interests, yet the outcome is a sensible and appropriate response to the challenge.

Unfortunately, 389 members of the U.S. House of Representatives evidently skipped that econ lecture, and think that if the owner’s already paid for the gas in the pipe, you shouldn’t have to pay any more at the pump.

Read the rest over at Econbrowser.

Oil is not the only commodity whose price is rising. Mover Mike has noticed that gold is trading at a 26 year high.

As my contribution to the discussion let me point out that copper is trading at the highest price ever:

May 11 (Bloomberg) — Copper soared above $4 a pound for the first time and nickel and zinc rose to records on signs that higher prices have done nothing to curb demand. Gold climbed to a 26-year high and platinum jumped to the highest ever.

The London Metal Exchange today reported the biggest daily drop in copper stockpiles in five weeks, as consumers tapped inventory to make up for a shortfall in mine supply. Strikes and declining ore grades at mines in Mexico and Indonesia have cut output this year. Demand will climb 5.7 percent this year, compared with 1.8 percent in 2005, according to Citigroup Inc.

“There’s no indication as to when this extraordinary and resilient cycle will end,” Nick Moore, a London-based analyst at ABN Amro Holding NV, who has tracked metals for 22 years, said in an interview. “Every day I’m stunned as prices keep going up.”

Copper for delivery in three months on the LME rose $490, or 6.1 percent, to $8,560 a metric ton as of 3:16 p.m. London time. Earlier it traded as high as $8,800, the third consecutive day it’s touched a record. On the Comex division of the New York Mercantile Exchange, copper futures for July delivery rose 24.7 cents, or 6.7 percent, to $3.935 a pound. Earlier it reached a record $4.040.

I seem to recall that the demand for copper actually went down last year. There is something of a supply bottleneck, though, due to delays in a Mexican copper mine coming online:

On supply news, Mexican silver producer Penoles, which planned to open a major copper mine last year, is still running equipment tests at the mine and is unlikely to open it before the end of May, the company said on Wednesday.

But with lower grade ore in Indonesia, labour disputes at mines in Mexico and elsewhere lent support, while shortages of skilled labour and mining equipment were hampering efforts by producers to bring on new capacity.

Mike, are you listening? What’s going on? Copper speculation? Hedge funds of some kind?

UPDATE:  My goodness. I’ve made the rounds of the dozen or so econbloggers that I frequent and not one seems to be interested in this.  You’d think historic run-ups might be interesting but no.  Have they lost interest in everything but fiscal and monetary policy?

1 comment… add one

  • J Thomas

    This might be partly a monetary thing.

    When there’s a shortage then prices go up until demand drops to meet supply.

    But when there’s a surplus of money, prices go up but demand doesn’t go down. Just, prices go up until the money circulates.

    Are prices rising because there are shortages and physical demand must fall to meet the supply?

    Or are prices in dollars rising because there are more dollars? Or both?

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