Friday 9/25/ 2026
About that Invisible Hand
Going far beyond the original intent of Adam Smith's metaphor, twentieth-century economists popularized the use of the term to refer to a more general and abstract conclusion that truly free markets are self-regulating systems that always tend to create economically optimal outcomes, which in turn cannot be improved upon by government intervention.
Adam Smith, An Invisible Hand
Except for the fact that politicians have never and will never, embrace the idea. Today’s topic is the $6.5405 per gallon national average price of diesel fuel.
This cost is important for truckers, ships at sea, and railroads all of which run on diesel. And eventually that higher price will be reflected in higher consumer prices. Every item in every store is delivered buy a diesel-powered truck.
The Strait of Hormuz blockade has resulted in less crude to refine. Ukraine’s attacks on Russian refineries added to the shortage. A Clinton era, who needs an invisible hand when we have a political one, restriction is not helping.
Clinton’s EPA created the Diesel Fluid Exhaust System DFE. The idea was to inject DEF into the diesel fuel system to, yes, lower emissions. The real-world result is a mess. Filters clog, sensors break, failure rates are high. A black-market solution was to delete the controls The Biden administration then prosecuted those attempting to do this. Think the Democrat favorite disincentive, fines and yes prison. Recall this is the party of wind turbines, solar cells, and the never-ending war on fossil fuels.
The Trump administration idea is to limit or prohibit diesel exports. The thinking is that this will increase domestic supply. Not so fast. Gulf Coast refineries supplied 90% of distillate exports last year. This means most of the US diesel is right there on the Gulf Coast. The two coasts tend to import their diesel lacking pipelines to buy from the Gulf Coast.
Banning exports means storage facilities on the Gulf Coast would quickly fill. Refiners would have to cut production not only of diesel but of gasoline and jet fuel. The better idea would be to
-Waive Jones Act restrictions requiring US flagged ships for transport
- Ease conflicting fuel standards requiring different blends
- suggest China increase diesel exports
Easing permit restrictions might result in some new refineries, the last new refinery built in the US was n 1976.
The lack of refineries has meant the big Hormuz winner has been US refineries. Valero stock has soared from $100 last summer to $400, now $375.
Weekly momentum charts of major stock indexes are turning down but not yet in a truly convincing manner. Seven percent mortgages, $90 crude oil, and $40 T debt makes us dubious a rally is at hand.
Professorelam.blogspot.com
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