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September 13, 2012


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If you want a good example of a free-to-transport completely-fungible product, then you want something with a very high price-to-weight ratio and also something that is just a mass of a pure chemical (element or compound, it matters not).

The best that I can think of are precious metals. Gold costs over $55,000 a kilo, and any two ingots are completely interchangeable.

Transport costs are so small relative to value as to make it effectively free.

As a result, there is a true commodity market in gold, quite different from the oil market.

That's a great example. I wish I thought of it!

You are correct that both Matt's argument against oil independence and the GOP argument against Obamacare's impact on the deficit are grossly simplified misstatements of a different argument, but in fairness to both I would note that that's the way the political game is played. As I've noted, those arguing in favor of "bringing back Glass-Steagall" are usually arguing for something that has nothing to do with the _actual_ Glass-Steagall or what it did and didn't do. It's sloganeering, and it works because the simplified (if erroneous) argument makes it easier to strike an emotional chord.

Nit: The realization spread noted in the Bernstein report is Brent vs. BOE (barrel of oil equivalent), so it implicitly includes the growing differential in NG vs. oil, particularly in North America. Don't know that it has a huge impact on your argument, though.

I agree with you about the game Bernard, but I don't think that Matt thinks that he is playing it. If you look at his blog, it's more like Ezra Klein or Tyler Cowen: you might not agree with these guys, but it is clear that it is important to them (and their readers) that their arguments be intellectually sound. My reading of Matt is that he would take it as an insult to have his argument compared to political rhetoric --- and he would be right!

(You're right about Glass-Steagall, but that's just political shorthand, not a direct attempt to mislead. A better example from the Democratic side is "Social security is fine!" When people say it, what they mean is "social security is fine with a few tax hikes that you will barely notice." That latter is a true statement, but it is misleading to leave out the second clause. That said, I have no problem when Nancy Pelosi does it, but I'd be surprised to see Brad Delong follow.)

Me making sense? Am tired.

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