Relevant and even prescient commentary on news, politics and the economy.

The Race is on?

Will post-autistic economics review (who have, sadly imnvho, renamed themselves “real-world economic review) or The Economists’ [sic] Voice be the first to publish Robert Waldmann’s paper (a readable version of this blog post, which now also links to the paper)?

Only Brad DeLong may know for certain. But you should read it now.

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Oil Prices: Tracking the National Review Forecast Record

Paul Krugman has been double checking some of the claims from the folks at the National Review who have blamed speculators for the high price of oil since even before the invasion Iraq. For example, Frederick P. Leuffer was saying oil prices were too high back in early 2003:

Extraordinary events are now holding oil prices high. The uncertainties of potential war with Iraq and the Venezuelan oil workers’ strike have put a premium on oil prices of more than $10 a barrel (the barrel price at this writing was $36.06). In addition, colder-than-normal temperatures this winter and severe storm activity in the Gulf of Mexico last fall worked to wither commercial petroleum inventories to low levels, particularly in the U.S. All these factors have helped ratchet prices upward … Following Desert Storm, oil prices plunged, the stock market soared, and oil stocks underperformed. There’s no reason to think that same scenario won’t play out in 2003.

OK – this fool thought the Iraq War was going to be quick and easy – sort of like the fool named William Kristol. But what about the fool known as Lawrence Kudlow who wrote two years later, the following:

When I put a $55 barrel of oil on the table and look at it from all angles, there’s no way the current price can be justified. As a free-market disciple, I am compelled to accept the market’s verdict: $55 a barrel. But that doesn’t mean it’s going to last … The fact that oil has increased so much more than these commodity and financial-asset prices is important. It suggests that the oil sector is way out of line. Increased China demand cannot alone explain it — over-speculation is also a culprit.

We have provided a graph of oil prices since early 2003 to see how well their forecast of falling oil prices has panned out.

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Oil shale and solar status

Update: Shell’s in-situ R&D

Update 2: One description of the process, with attendant energy costs.

Update 3: Then of course the Oil Drum analysis takes time to read.

Update 4: Vtcodger sends this cool link giving us some history, geology, and current synopsis of processes at extraction. Update 2 describes Shell’s attempts in more detail.

The Rocky Mountain News reports on oil shale development moratorium from last May:

The Senate Appropriations Committee today narrowly defeated Sen. Wayne Allard’s attempt to end a moratorium related to oil shale development in Colorado.
It was a big day for Colorado energy issues on Capitol Hill as Gov. Bill Ritter testified before a senate committee asking lawmakers to move cautiously on oil-shale development until more is known about the environmental impact and other issues.
Meanwhile downstairs, the appropriations committee was considering a massive Emergency Supplemental Spending Bill. Allard, a member of the committee, attempted to insert an amendment that would reverse the moratorium that lawmakers approved late last year.
The moratorium prevents the Department of Interior from issuing regulations so that oil companies can move forward on oil-shale projects in Colorado and Utah. Allard said the moratorium has left uncertainties at a time when companies need to move forward and in the long term make the United States more energy independent.
“If we are really serious about reducing pain at the pump, this is a vote that would make a difference in people’s lives,” Allard argued.
But in a 14-15 vote, the committee spilt strictly on party lines and rejected the amendment.
One of the key votes was from Sen. Mary Landrieu, D-La., who said Sen. Ken Salazar had urged her to reject the amendment even though she personally thinks the moratorium on oil-shale development is unjust.
Landrieu vowed to try to lift the moratorium when the large appropriations bill reaches the floor of the U.S. Senate in coming weeks.

Hat tip to The NYT on the request for a two year process for environmental impact statements on solar mega watt projects (130 licences) before issuing licenses to proceed. Tax credits are due to expire this year for solar purchases.

Yet just last week, Interior Secretary Dirk Kempthorne saw fit to stand next to President Bush in the Rose Garden when he called on Congress to allow development of oil shale on public lands in the Green River Basin which straddles Colorado, Utah and Wyoming. Department of Interior web site has news on both subjects, and a photo op for shale oil. In the 2005 Congressional intitiative to explore the possibility of development, impact statements are still in process but further along closing public comment last March.

Bush complained that Congress has blocked the leasing of federal lands for oil shale development.

It is also hard for me to imagine that mountain top removal for coal mining is comaparable in impact.

I could be wrong, since such projects in solar are new…then again, so are oil shale commercial processes.

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Infrastructure – the next big deal?

The Economist reported this article on forthcoming issues gaining momentum:

For the past few years it has been hard to ignore America’s crumbling infrastructure, from the devastating breach of New Orleans’s levees after Hurricane Katrina to the collapse of a big bridge in Minneapolis last summer. In 2005 the American Society of Civil Engineers estimated that $1.6 trillion was needed over five years to bring just the existing infrastructure into good repair. This does not account for future needs. By 2020 freight volumes are projected to be 70% greater than in 1998. By 2050 America’s population is expected to reach 420m, 50% more than in 2000. Much of this growth will take place in metropolitan areas, where the infrastructure is already run down.

How can all this be fixed? In January a national commission on transport policy recommended that the government should invest at least $225 billion each year for the next 50 years. The country is spending less than 40% of that amount today. Yet more important than spending lots of money is spending it in better ways.

There is reason to hope. Beyond the campaign trail, many politicians have made infrastructure a big issue. Mr Obama’s infrastructure bank is a variation on a scheme that Chris Dodd, a Democrat, and Chuck Hagel, a Republican, introduced in the Senate last year. (The bill, is still pending.) In the House, Earl Blumenauer has proposed a commission to guide infrastructure investment. Ed Rendell, Arnold Schwarzenegger and Michael Bloomberg, the political juggernauts in Pennsylvania, California and New York City respectively, have launched a coalition to make infrastructure a national priority.

The Economist stated the John McCain has not stated a policy. A quick check on his website did not turn up a statement. If there is one, please let me know.

Mostly Economics began a definition of infrastructure from one point of view which seemed pertinent. I am sure there are better, but this is a start.

I had sometime back read an article by Vinayak Chatterjee of Feedback Ventures where he said let us define infrastructure first, before we build it.

I came across this document in Committee on Infrastructure’s website which attempts to do the same.

It first summarises definition of infrastructure from six different sources and then concludes what all is to be included:

(i) Electricity (including generation, transmission and distribution) and R&M of power stations,
(ii) Non-Conventional Energy (including wind energy and solar energy),
(iii) Water supply and sanitation (including solid waste management, drainage and sewerage) and street lighting,
(iv) Telecommunications,
(v) Road & bridges,
(vi) Ports,
(vii) Inland waterways,
(viii) Airports,
(ix) Railways (including rolling stock and mass transit system),
(x) Irrigation (including watershed development),
(xi) Storage,
(xii) Oil and gas pipeline networks.

And what all it does not include which other sources include (from the table on last page):

Housing
Urban services; as street lighting, Solid Waste Management (SWM)
Mining
Aircrafts
Vehicles, trucks, buses etc.(Road Transport System)
Industrial Park/SEZ
Educational Institutions
Hospitals
Posts

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Broken Clock Day

Yves Smith quotes Thomas Friedman accidentally telling the truth:

Since President Bush came to office, our national savings have gone from 6 percent of gross domestic product to 1 percent, and consumer debt has climbed from $8 trillion to $14 trillion.

Please explain this in the context of the “savings and investment boost” that was supposed to come from the 2001 and 2003 tax cuts.

That means you, Bob McTeer.

Bulldog to bulldog, as it were.

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Soc Sec XXVII: Robert Myers and Prefunding Social Security

Who is Robert Myers? Well prior to this morning I couldn’t have told you. But here is an abbreviated job history.

Junior Actuary, Committee on Economic Security 1934-35
Various Actuarial Positions, Social Security Board 1936-46
Chief Actuary, SSA 1947-1980
Member, National Commission on Social Security 1978-81
Deputy Commissioner, SSA 1981-82
Executive Director, National Commission on Social Security Reform 1982-83

That is this guy was there before the beginning and remained through the Greenspan Commission and so is uniquely placed to tell us what was in the mind of the Commission. His Oral History is recorded here: http://www.ssa.gov/history/myersorl.html

The story of whether the Commission was solely concerned with short term vs long term or whether they thought they were prefunding is maybe not as simple as I have suggested. So I just want to give it in Myers own words and reserve my thoughts for comments. But I did bold some things for emphasis.

(BTW I have only begun to tap this resource. Myers has lots of interesting insights and I recommend reading the whole interview.)
Q: Let’s talk about some of the provisions in that final consensus package. One of the big things in there, and that eventually became a part of the ’83 amendments, was a move from pay-as-you-go financing to a partial reserve funding approach. Tell us about that.

Myers: Maybe you noticed that I winced a little as you said that, because it’s not correct. But it has often been described in that way, so I am not being critical of you.

In the ’72 amendments the system was changed to be on a pay-as-you-go basis. The ’77 amendments changed this to some extent by providing for the building up of a sizable reserve, but not in the early years unfortunately. In the mid-’80s, and particularly in the 1990s, if everything had worked out, it would have built up a very large fund. So in practice, the pay-as-you-go result would have been there for the first 5 or 10 years but the underlying financing mechanism was to build up a reserve. Now over the long run, it would have been exhausted, but it would have built a large fund in the 1990s and early 2000s. Now what was done in ’83 in essence was to continue this but to strengthen the early years so you weren’t going to have another financial crisis and it was also going to hopefully balance out over the long run, unlike the ’77 amendments. Ideally what would have happened, if the estimates had been right, the Trust Funds would build up a large fund of some $20 trillion and then at the end of the 75-year period that would have gone down to maybe 1-year’s fund.

So it was what I call temporary partial reserve financing, which is a roller-coaster in some ways. Which is not a good idea and which I didn’t think was a good idea at the time, but there wasn’t time to do anything about it. What should have been done is not to have as big a tax increase in 1990 and have tax increases in later years. The whole air of crisis in early ’83 was let’s fix this system up for the next decade. Let’s also say that we looked at the long run problem and on the average we handled it. But on average isn’t so good. I mean it’s a lot better than nothing. At least it was recognized, unlike the 1977 amendments. The thought in my mind, and I think in other peoples’ minds, was there is going to be time, let’s fix this up in the future. Let’s not have this big fund build up and then be used up. Let’s have more sensible financing. But there was also the attitude of let’s not rock the boat now. We’ve got a consensus, let’s take it and run. The consensus fixes the short-range and on the average it fixes the long-range, and that’s a pretty good step.

Unfortunately in the early 1990s when Senator Moynihan made an attempt to do this he didn’t get anywhere because of budget limitations, which I think were very artificial. But the Commission never really looked at the long range situation except wanting to be able to say we recognized it. We’ve raised the retirement age to help solve this problem and so forth. So in hindsight critics can say, “Hey, why didn’t you guys do a more thorough job?” When a house is burning down you can’t always take care of every problem. That was the situation. Obviously in an ideal world we would have done a better job. I would have done a better job, but it would have been silly for me to get up before the Commission in the closing days and say ,”Hey look guys. Sure you fixed up the short-range. Sure you recognized the long-range problem but you didn’t really thoroughly study the long-range problem.” They couldn’t be bothered with that.

Q: Do you recall who’s idea that was, who, if anybody, was pushing this financing approach?

Myers: It just developed. It wasn’t planned. Nobody said let’s do it this way. It was just the natural result of saying we’ll fix up the long-range situation in 75 years on the average. We’ll fix it up and we’ll do this in part by having a high tax rate beginning in 1990. When you have a level tax rate and increasing benefit costs, then averaging out higher benefits later you’re bound to build up a fund and you’re bound to use it up.

Q: As we look at it today, some people rationalize the financing basis by saying that it’s a way of partially having the baby boomers pay for their own retirement in advance. You’re telling me now this was not the rationale. Nobody made that argument or adopted that rationale?

Myers: That’s correct. The statement you made is widely quoted, it is widely used, but it just isn’t true. It didn’t happen that way, it was mostly happenstance that the Commission adopted this approach to financing Social Security. The way they thought about it was that in order to achieve long-range balance we have to have this high tax rate in 1990, instead of putting it in steps. We could have fixed it up with a series of steps, lower in 1990, about the same in 2010, higher in 2015, that could have fixed it up just as easily, but there wasn’t time. It was not intentional. It has the effect of baby boomers paying for their own retirement, which in a sense is good, but it wasn’t a controlling element and it was not talked about. The main thing that was talked about was how do we fix up the short-range problem. Are you sure we aren’t going to have another crisis in 2 or 4 years? And can you say that we have looked at the long-range problem and have done something about it?

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Ethanol and food prices

It is my understanding that the major byproduct of ethanol is distillers grains that are used as feed for cattle, hogs and chicken with essentially the same nutritional value as feed grains that have not had ethanol distilled out of them. All distilling ethanol does is remove the starch from the food grains and leaves the protein, etc, that animals need to grow.

This means that the use of corn or other feed grains being used to produce ethanol does not divert feed grains out of the food chain.

A bushel of corn can be used to generate x pounds of beef or it can be used to generate z gallons of ethanol and almost the same x pounds of beef.

Doesn’t this imply the argument I see on economic blog after economic blog that ethanol production is playing a significant role in higher food prices is incorrect.

Rather the Department of Agriculture and/or Bush Administration argument that ethanol production plays an insignificant role in the current run up in food prices is correct.

Does somebody have reasonable evidence that this analysis is incorrect?

UPDATE !!!!

The beauty of the new world of the internet.

while I was looking into this question I ran across a very good article by Richard Perrin at the University of Nebraska on Ethanol and Food Prices

http://digitalcommons.unl.edu/ageconfacpub/49/

ABSTRACT:
Food prices in the U.S. rose dramatically in 2007 and early 2008. Given the integration of the world markets for foodstuffs, prices increased around the world as well, leading to riots in a number of countries in early 2008. The popular press has tended to attribute these food price increases to demand for corn by the ethanol industry. Grain prices are one determinant of food prices, but they constitute less than 5% of food costs in the U.S.(a higher percentage elsewhere.) This paper focuses on the likely relationship between ethanol and food prices, ignoring the potential role of other important contributors. It finds that ethanol is responsible for no more than 30-40% of the grain price increases of the last 18 months. Food prices in the US increased about 16% over the last five years,7% over the past 18 months, but rising grain prices have contributed only about a 3% cost increase over these periods. It is reasonable to conclude that ethanol is responsible for increases in US food prices about 1% in the last two years – a relatively small proportion of actual of U.S. food price increases. In food-insecure areas of the world,however, the impact of ethanol on food prices has been higher, perhaps as much as a 15% increase, simply because the typical food basket in those areas contains more direct grain consumption.

so I sent him an email with my question and he was nice enough to respond with this:

You are right. One-third of the corn processed for ethanol is expelled as distillers grains and solubles (DGS.) (One third is ethanol, one-third CO2.) DGS has slightly higher feed value than corn when it’s fed to ruminants (I have a publication with an animal scientist on this issue, if you become deeply interested, and could direct you to some others.) Since DGS can be directly substituted for corn, putting a ton of corn into an ethanol plant really only extracts 2/3 ton from the animal feed supply, so it would have been reasonable for me to assert that ethanol has accounted for only 30% of new net withdrawals of the world’s coarse grains since 2000 (rather than 40%.) China, Sub Saharan Africa, and South America are each responsible for about 15%.

So the standard treatment of ethanol in the press and blog is significantly misleading.


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Northwest Passage

THIS LINK to NSDIC will update you on the state of the Northwest Passage.

What does this online analysis provide?

The online information we offer in this section includes:

Daily images of near-real-time Arctic sea ice conditions (above right)
Monthly scientific analysis year-round, with more frequent updates during the melt season or as conditions warrant
Previous news and analysis and general information about sea ice (right navigation)
RSS feed for automatic notification of new analyses.
Please credit the National Snow and Ice Data Center for image or content use unless otherwise noted beneath each image. Sign up for the Arctic Sea Ice News RSS feed for automatic notification of analysis updates.

Update: Hat tip to reader Jim Sattersfield for this link to Geology.com.

There is also a short history of three trips through the Passage.

Update 2: Tx1 sends this chart on temp and CO2:

Update 3: Long term CO2 and temperature

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