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May 30, 2009

Oil On the Rise: Here Comes Obama's Undoing

Voters are extraordinarily sensitive to hikes in gas prices. Ask George Bush.

Add in the coming general inflation, rising interest rates, etc., and Obama's determination to raise taxes still further and his true-believer zealotry in refusing to expand conventional (i.e., "real") energy production, and you can see the thunderheads sweeping towards the White House.

Crude oil rose, capping its biggest monthly gain in a decade, as the dollar weakened against the euro, bolstering the appeal of commodities.

Oil climbed above $66 a barrel to a six-month high as the dollar declined beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold an attractive alternative investment. Prices also gained as U.S., and Asian indicators pointed to a global economic recovery.

“The devaluation of the dollar is leading to the revaluation of energy and commodities in general,” said John Kilduff, senior vice president of energy at MF Global in New York. “This is a monetary-based rally. The market is focused on the future and ignoring the fundamentals of the present day crude-oil supply and demand picture.”

Prognostication: Depending on when the bad economic news hits, Obama's approval ratings will drop precipitously, beginning in six months to a year. He'll drop from his ~55% rating to ~40% in just a couple of months.

People are giving him a chance, and they do, of course, want him to succeed. This isn't ideological but practical: They just don't want to suffer through years of economic stagnation and misery.

But they will.

They also don't want to think of themselves as not giving the first black president a fair chance. And especially they don't want others to think of them that way.

These changes can be lightning-quick and deadly-deep-- when there is a lot of "preference falsification" going on.

Kuran begins his book with an illustration of a man at his employer's dinner party. Though the man dislikes the homes décor and the meal served, the man feels compelled to offer false compliments. At the end of the evening, the man kindly says he enjoyed the evening, though he is really happy to be leaving. The fictional person is constrained from being honest by societal pressure and personal fears. Whenever people choose to lie about their true beliefs, Kuran calls that "preference falsification."

Situations such as the dinner party do occur often in people's lives. When someone at work begins to express certain political views that the listener disagrees with, the listener must decide whether to respond with the truth, or to simply take another course. The listener might simply ignore the issue, or the listener might even nod in agreement. But, how does someone make the decision of what course to take?

Kuran theorizes that people evaluate their choices based on three utilitarian factors. There is a reputational utility, an expressive utility, and an intrinsic utility. The reputational utility is the amount a certain answer will raise or lower the listener's standing in the community. Expressive utility is the value in letting others know how one truly feels. The intrinsic utility is the degree to which an option fulfills the individual's greatest good.

When people are faced with the decision of how to respond to someone they disagree with, they evaluate the different utilities. As an economist, Kuran has created various graphical functions to depict the value of each utility.


There are serious social effects of preference falsification also. Kuran uses communism as an example of a time when the majority believed differently than their public personas led others to believe. The result was that social change was stifled for decades. When a trigger finally made people feel comfortable in publicizing their beliefs, communism quickly fell. Affirmative action is another issue, according to Kuran, where public personas are often different than private. Anonymous polls routinely show that most Americans are against affirmative action. Yet, the practice persists because few people are willing to endure the horrendous social attacks from the minority who demands the programs. People like Jesse Jackson quickly label as racist those who oppose affirmative action. Recently, the new president of Harvard University found himself in a heated public relations battle. One of the chief complaints against the president was that upon entering office, he did not immediately release a statement praising affirmative action policies. Suddenly, even silence was enough to be branded racist. Kuran notes that the tremendous amount of resources spent defending against claims of racism leads many reasonable people to simply support affirmative action in public.

Because so many people are unwilling to take positions seen as unpopular, there is a role for activism. Kuran states that activists are people who are willing to go against the prevailing norms. Their expressive or intrinsic utilities are enough to allow them to endure social stigma, loss of jobs, and other attacks. Activists make people aware of alternative views. Sometimes, activists create an environment where being honest becomes safer. And activists can actually lead people to change their minds on issues, possibly leading to social change.

When the trigger eventually comes, people begin feeling comfortable about publicly expressing long-denied beliefs. Which in turn impels others to feel comfortable about doing likewise, which encourages still more of it, etc. Preference falsification is intensified and reinforced by social pressure; but so too is the revelation of true preferences, after the triggering event occurs.

For Obama, that trigger is going to be rising prices, rising taxes, rising interest rates, and almost certainly a second recessionary dip.

When that happens, there will be a "preference cascade" as the new socially-acceptable and socially-privileged sentiment is anti-Obama rather than pro-Obama.

This happened in America before, of course. For years, from the 40's through the 70's, liberalism advanced -- even under Richard Nixon -- because opposition to it was deemed "crazy," etc. There was a false consensus in favor of liberalism.

Until, of course, Jimmy Carter's incompetence triggered a massive preference cascade. And the heresies of the "crazy" Ronald Regan quickly became the new orthodoxy.

Falsified preferences are like a bloated soap-bubble. It's a fragile, unstable construction and takes very little to burst.

Hat tip to Instapundit for having introduced me to this idea, which I'm now a zealous believer in.

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posted by Ace at 03:47 PM

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