Tag: Economics

You’re talking history, right? I’m talking now. Because down here, it’s still “Who’s your old man?” ‘Til you got kids of your own and then it’s, “Who’s your son?” But after the horror movie I seen today… Robots! Piers full of robots! My kid’ll be lucky if he’s even punchin’ numbers five years from now. And while it don’t mean shit to me that I can’t take my steak knives to Dibiago and Sons, it breaks my fucking heart that there’s no future for the Sobotkas on the waterfront!

~Frank Sobotka, The Wire

One of my favorite concepts in economics is the Theory of the Second Best.  While it can be a bit technical, in summary, the theory is that if, for whatever reason, the required conditions for the optimal outcome are impossible to achieve, the second best outcome may require deviating from the conditions which were required to make the optimal outcome possible.  To use an analogy, most Democrats preferred ranking of the last three candidates for President was Obama, Clinton, McCain.  But one of the required steps to the optimal outcome of Obama’s election was his nomination, which made the second best outcome impossible.

The second-best problem is one which has particular resonance for me as a libertarian.  Many libertarians allied themselves for years with the Republican party, to try and establish the required conditions for a libertarian state.  However, the outcome of a libertarian state is further away than ever; responsibly, a libertarian must consider which of the desired conditions for our optimal outcome are negotiable in order for us to achieve our second-best outcome.  Of course, this is hardly only true for libertarians.

Today, as I drove past a local intersection in upstate, Eastern New York with 2 gas stations, Mobil and Sunoco, and observed that the price of unleaded regular was now $4.169/gallon, I said aloud, making a terroristic hand gesture, “Basta ja!  Enough already!  Somebody needs to freeze the price right where it is before it gets even higher.”  Sometimes the truth is said in anger.

Maybe what’s needed in the short term is a price ceiling on gasoline, diesel fuel, home heating oil.  Admittedly this would not be a long term solution to America’s lack of an energy policy, but it might provide some short-term relief to consumers.  And it would provide far more relief than the bogus McSame proposal for a “gas tax holiday.”

This is an extremely brief sequel to this gasoline essay.

Here you go:

Oil prices veered wildly on Wednesday, as they swung back from a spike higher on a sharp fall in crude oil stocks shown in weekly data. Crude oil in New York trading jumped $6.79, to $138.10 a barrel immediately after the release of the inventory data. It retreated to $134.66 but was trading up $4.25, to $135.56 at midday.

The government’s Energy Information Administration showed that American crude oil stocks fell 4.6 million barrels to 302 million barrels last week, four times the drop that analysts’ expected.

The price fluctuations came as the Energy secretary, Samuel W. Bodman III, representing the world’s top energy user [that would be the US], said on Wednesday that he would attend a meeting later this month in Saudi Arabia where global energy producers and consumers will grapple with record-high oil prices.

As oil prices have surged 40 percent since January, Washington has differed with Saudi Arabia – the world’s top exporter – on the reason behind the price increase.

Did you get that?  Again:

where global energy producers and consumers will grapple with record-high oil prices

Producers and consumers will “grapple” in Saudi Arabia.  This will be bigger than the Thriller in Manilla.  Not.  This “grapple” is being promoted by the alleged “free market,” supply side, tax cutting Ayn Rand fans in DC.  I wouldn’t expect a caged, no rules, death match.  I’d expect more kissy face and tea with “our Saudi friends.”  And, of course, no short term solution, and no longer term energy policy changes.  Crickets.

Folks, everything is breaking down. Since we don’t have a short term solution for gas prices, I have nothing new to offer, except maybe hiding your wallet.

cross posted at The Dream Antilles

Is lack of any US energy policy designed to drive the poorest Americans even deeper into poverty?  To drive them to the cities?  To drive them off their land?  To drive their wages lower? It sure looks like it, and that rising gas prices are the means to those ends.  

This morning’s NY Times, focusing on the Mississippi Delta, finally reveals the problem all of us suspected as soon as gas prices started to spike.  The bleak news:

Here in the Mississippi Delta, some farm workers are borrowing money from their bosses so they can fill their tanks and get to work. Some are switching jobs for shorter commutes.

People are giving up meat so they can buy fuel. Gasoline theft is rising. And drivers are running out of gas more often, leaving their cars by the side of the road until they can scrape together gas money.

The disparity between rural America and the rest of the country is a matter of simple home economics. Nationwide, Americans are now spending about 4 percent of their take-home income on gasoline. By contrast, in some counties in the Mississippi Delta, that figure has surpassed 13 percent.

As a result, gasoline expenses are rivaling what families spend on food and housing.

“This crisis really impacts those who are at the economic margins of society, mostly in the rural areas and particularly parts of the Southeast,” said Fred Rozell, retail pricing director at the Oil Price Information Service, a fuel analysis firm. “These are people who have to decide between food and transportation.”

Put simply, gas at $4 a gallon and more means that the poor, who go without on a good day, are forced to go without even more.  It’s not a pretty picture.  It means that paying for gas competes with the utilities, food, health care, clothing, school supplies, and every other household item.  

Economist Dani Rodrik excerpts from economist Robert Kuttner’s (subscription only) article about the transferability of the Danish economic system with interesting results.

Does Denmark have some secret formula that combines the best of Adam Smith with the best of the welfare state? Is there something culturally unique about the open-minded Danes? Can a model like the Danish one survive as a social democratic island in a turbulent sea of globalization, where unregulated markets tend to swamp mixed economic systems? What does Denmark have to teach the rest of the industrial world?

These questions brought me to Copenhagen for a series of interviews in 2007 for a book I am writing on globalization and the welfare state. The answers are complex and often counterintuitive. With appropriate caveats, Danish ideas can indeed be instructive for other nations grappling with the enduring dilemma of how to reconcile market dynamism with social and personal security. Yet Denmark’s social compact is the result of a century of political conflict and accommodation that produced a consensual style of problem solving that is uniquely Danish. It cannot be understood merely as a technical policy fix to be swallowed whole in a different cultural or political context. Those who would learn from Denmark must first appreciate that social models have to grow in their own political soil.

Both Kuttner and Rodrik conclude that while Denmark’s model is not easily transferable, the ideas there are too important to be dismissed by the US.  What is most interesting about this is that while Kuttner is a liberal, Rodrik is more center-right.  Worth reading Rodrik’s post at the least.

A new economics study by Joseph Altonji, Prashant Bharadwaj, and Fabian Lange demonstrates that:

The earnings premium for skilled labour has increased dramatically in recent decades. Yet, as this column shows, Americans are not acquiring significantly greater skills in response to this change. The resulting gap will increase US income inequality in the coming decades.

The study goes on to demonstrate that despite the increased premium value of developing labor skills through higher education, the population in general has not sought these skills in relative proportion.  In other words, we aren’t seeing many gains in people improving their financial prospects by investing in their own education.

Economist Brad DeLong says that the study’s authors don’t know why this is happening (which is a fair complaint), but goes on to suggest that

This raises the possibility that the only easy way to reduce market inequality is to greatly increase the supply of the skilled and educated in the long run by making higher education free

This seems unlikely to be effective to me on two levels.  First of all, an economist ought to understand (and DeLong does) that there is no such thing as “free”; someone will have to pay for higher education to be free to its consumers.  Indeed, as he points out, “which is a very dubious policy on the inequality front, because it starts with a honking huge transfer from the average taxpayer today to the relatively rich well-educated of tomorrow.”

But the more important rebuttal to his point (more effective than his own) is that brought up by Tyler Cowen: that the skills required to succeed at even a low level in college are poorly taught to the population at large.

One of my close friends is completing her first year as a public school teacher in New York City (her third year as a professional teacher).  Her class is a fourth grade class at a public school in Grand Concourse in the Bronx.  She has 28 students, only one of which reads at a fourth grade level.  For a wide variety of reasons, despite her significant efforts, it is unlikely that more than a couple of her students will be at a fifth grade level when the school year ends this month.  And no, this is not the most remedial class of fourth graders her school has.

It seems to me that DeLong obscures the real problem, that of students being unprepared and unlikely to succeed in higher education, with that of students being unable to afford higher education.  Many, if not most, college and graduate students debt finance their education; a rational choice considering the economic benefits that education will offer them.  However, rational actors will not pay for a premium education if they consider themselves unlikely to succeed at it and therefore unlikely to reap the future economic benefit.

I read this study as evidence of the continued failure of our primary and secondary education systems, not as a study of the failure of our society to make higher education affordable or making the information about the benefits of higher education widely available.  What say you?

This is a re-post from my word press blog and just wanted to see if anyone wanted to predict the future.

A Japanese oil tanker was damaged Monday when it was attacked by a small boat in Middle Eastern waters off the coast of Yemen, the tanker’s owner said. Word of the attack helped to drive world oil prices to a new record.

The attack rattled the nerves of global energy traders, sending the price of benchmark light, sweet crude to a record $117.40 per barrel. Oil prices had also briefly touched $117 per barrel last week, after rebels attacked a pipeline in Nigeria, Africa’s largest oil producer.

Okay this is a daily occurrence, but now I want to start a prediction that oil will hit $125 a barrel by July 4th.  Anybody else want to join in?  Come on what you got to lose?

The original article, by Mike Whitney, via dissidentvoice.org.

The bright new financial system, with all its talented participants, with all its rich rewards, has failed the test of the marketplace.

– Former Fed Chief, Paul Volcker

Not much more needs to be said, but will the failure in the marketplace be allowed to die a dignified death?  Yeah…right.