Paper Pushers by ProQuest


As the price of oil has marched higher during the past few years, the media has latched on to various one-time or "temporary" explanations: unrest in Nigeria, refinery problems in Texas, weather in the North Sea, pipeline disruptions in Iraq. Just before tensions boiled over along the Turkish-Kurd border in midOctober, oil was trading at $80. News reports cited a potential military incursion by Turkey as the reason for oil's subsequent rise. That incursion still hadn't happened by early November, but oil was $96. "Strong demand" is another oft cited excuse, and this one has more merit. There's no doubt that global growth and its impact on the supply/ demand ratio is an important factor. But during the last few years, and with increasing velocity, the rise in price has far outpaced demand. Between January and November 2007, the price of oil surged 92 percent. Those storms in the North Sea must have been pretty bad.The upshot? Moral hazard. Reckless risk-taking is encouraged because the public believes the government will act as a backstop. On Milton Friedman's 90th birthday in 2002, Ben Bernanke, then a Federal Reserve governor, honored the aged economist with a promise: "Regarding the Great Depression. You're right, we did it We're very sorry. But thanks to you, we won't do it again." He's done his best to keep that promise.Assume everyone in your town requires an increasing number of widgets. You're in an enviable position: you have the town's only widget-making machine. But your machine is old and past its peak, and you're having trouble meeting the demand. You've had an informal arrangement with your neighbor for many years. He has a machine that produces pieces of paper embossed with the phrase "Good For One Widget" Unlike your machine, however, his never breaks down. This arrangement has generally been acceptable to the people who live in the town; they like the way the "Good For One Widget" pieces of paper look, and they get their widgets when they need them.

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