It Would Have Happened Already

After we went and got the pizzas for the birthday celebration of my youngest son, my second-youngest daughter (younger still) said, “Elizabeth [oldest daughter] says that gas prices will reach $6/gallon this summer.”  I said, “If it were that certain, it would have happened already.”  I added that there is a tendency for gas prices to rise a little in the summer, but that it wasn’t always so, and that refiners are not running at capacity, as it was the last time gas prices spiked.

This piece is a warning against listening to those that say something is certain to happen when the present price is far from what is predicted.  If it really were that certain, it would have happened already.

I have my guesses, but I am not certain how the global economy or the markets will change from here.  Beware certainty in matters economic.  It blinds us to alternative ideas that might be less risky or more profitable.

Thus when you run across rhetoric like:

  • Interest rates must rise.
  • The US Dollar must fall.
  • The US Government will go broke.
  • Inflation must rise from here.
  • The stock market is too high and will soon fall from here.

Be skeptical.  There may be some wisdom there, but the result is not certain, or it would have happened already.

2 Comments

  • Keith Piccirillo says:

    This reads like efficient market hypothesis, which conjures up readings of Dr. Andrew Lo which says perhaps it’s adaptive market hypothesis that really co-exists at times.
    I was driving and heard the John Hofmeister NPR interview emphasizing demand, which represents big oil’s point of view.

    http://www.npr.org/2011/04/23/135655567/whats-driving-gas-prices-from-an-energy-insider

    Our president is saying speculation needs to be reined in.
    In an idealized form of capitalism, oil and food commodities would have some type of control mechanism in place to prevent many countries underclasses from the effects of such deleterious policies.
    Farm production response is to change production planting based on supply and demand but crops have a variance called time lag which results in over and under reaction.
    Countries are increasingly hoarding and banning exports, which at time of crisis puts the freedom model in peril, and at risk.

  • stevesteve says:

    I guess the sun isn’t going to set tonight. If it were certain, it would have happened already.

    Also where I live the government as announced that electricity prices are going up in a few months time. Regardless of how certain that is, it isn’t going to affect prices today.

    I mean at best this theory is true for a subset of some market-priced goods.

    Some goods are perishable too, in which case “certain” price changes that are still beyond the lifespan of the good won’t be priced into the market either.

    For example, if Florida announced a new tax on Oranges to take affect next year, no matter how certain it is (could be written into the constitution) I doubt it could raise orange prices today.

    I do agree, though, it might be useful to ask “Why hasn’t this happened yet” and if there is no good mechanism to explain it, then you’re probably left with the market’s guess at the event’s probability.

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