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What We Read Today 26 January 2015

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

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Who Will Rule the Oil Market? (Daniel Tergin, The New York Times)  Saudi Arabia and OPEC (Organization of Oil Exporting Countries) have abdicated the throne and so the headline question pertains.  For 40 years Saudi Arabia's huge oil production, "backed by the Persian Gulf Emirates", placed it in a position to determine how to balance global surpluses and shortages.  Now that role has passed to the U.S., although The NYT says "changes in American production will now, along with that of Persian Gulf producers, also have a major influence on global oil prices", which implies a shared role, perhaps ultimately even shared formally, although The NYT doesn't explicitly say that.  The conclusion of Yergin's article is quite significant in that it articulates a factor discussed here before:  It is not clear at this point where the fracking and horizontal drilling technology is on its production costs learning curve.  This production may be evolving to much lower costs than those widely quoted which have been based on the past couple of years' experience.  Yergin:

Even at prices well below $100, American shale oil producers will find ways to drive down costs and output will start rising again. And the world’s new swing producer will find itself back in the swing of things.

Articles about events, conflicts and disease around the world

EU

Greece

UK

Race Relations, Cultural Problems and Related News

Ebola

Nigeria

Yemen

Egypt

Syria

Iran

Israel

Ukraine

Russia

India

Japan


The implications of $50-a-barrel oil for the world’s energy mix (Mat Hope, The Carbon Brief

wind-solar-oil-gas-costs-the-carbon-brief-2015-jan

The above is consistent with data posted at Wikipedia:  Cost of Electricity by Source ; but not with forward looking studies which has lower costs for some renewables.  See, for example:  Solar costs tipped to halve and beat wind in 5 years (Giles Parkinson, Renew Economy)


India: The next superpower? (Sanjay Sanghoee, Fortune)  No country has benefited more than India from the fall in oil prices, which has removed one of the biggest sources of inflationary pressure from the equation.  Newly elected Prime Minister Narendra Modi has plans to improve onfrstructure, remove stiffling regulations and root out government corruption which has until now dampened prospects for what is to become the world's most populated country.  This year the GDP of India will pas $2 trillion for the first time.  The potential for India is enhanced by demographics as the country has a vast youthful population:  nearly 2/3 of all Indians are under age 35.  Improving relations with the U.S. are key to the future of the Indian economy.  See Obama in India: US, India agree to a "new vision" for Asia Pacific (The Economic Times).


The Fall of the House of Samuelson (Robert Skidelsky, Project Syndicate)  Book review of The Samuelson Sampler, 1966-1973 Newsweek columns by the iconic economist.  Samuelson was the first of of the post World War II economists to lead the way from what John Maynard Keynes (JMK) actually wrote to a fusion of that writing with the orthodox economical thinking that he (JMK) intended to replace.  Skidelsky writes:

Samuelson was a convinced Keynesian, though in a limited sense. He dismissed most of Keynes’s attack on the orthodox economics of his day as unnecessary, writing “had Keynes [started] with the simple statement that he found it realistic to assume that money wages…were sticky and resistant to downward movements...most of his insights would have remained just as valid.”

Samuelson followed the illogical path that produced dismissal of Keynes' greatest achievements, namely, uncertainty about the future and the theory that aggregate demand drove economic growth in the short run but longer term no valid assumptions could be made.  Samuelson did endorse the concept that government spending could impact economic activity when there was an economic slump, but became one of the fathers of modern neoclassical economics which developed such assumptions as (1) rational expectations, (2) representative agents acting with microeconomic characteristics to represent the macroeconomy and (3) the "confidence fairy" which developed as a consequence of the belief in economic activity being driven by the level of confidence about the future by a few "rational representative agents".

Samuelson was actually standing on the shoulders of John R. Hicks who wrote an interpretation of Keynes' General Theory (1936) in a paper (Hicks, 1937) which specifically ignored all that Keynes produced which did not agree with the economics that preceded.  Hicks eventually came to the realization that he was wrong in his interpretation (Hicks, 1980)  but Samuelson never (to our knowledge) acknowledged (if he even recognized) his errors.

The ongoing problem that Samuelson did recognize was the conflict between policies to maintain full employment and those that support price stability.  Samuelson took the unfortunate path that proposed permanent price and wage controls.  This was the approach attempted by the U.S. when the inflationary adjustment occurred in the 1970s following Nixon's removal of the last vestiges of the gold standard.  Those policies failed to control inflation, in part because of the global shock of oil "rationing" by OPEC which produced a five-fold jump in the inflation adjusted price of oil between 1973 and 1980 (10x nominal price surge from 1970 to 1981).

After 1980 the influence of Samuelson was in rapid decline as the "age" of Milton Friedman became ascendant under the political leadership of Ronald Reagan and Margaret Thatcher.  But the problem remained that had led to Samuelson's downfall.  Keynesian principles have been invoked to deal with economic crisis but Skidelsky points out that the successes in that regard are fleeting:

The New Economics may be temporarily resurrected to deal with extreme situations, but policymakers no longer take precautions to prevent extreme situations from arising. How to do this, while preserving freedom and efficiency, is now the “unsolved frontier in modern economics.” 

Econintersect:  The fact that the future is unknown would seem to preclude the validity of making specific assumptions about it, the very factor which has been ignored in the development of the dominant "theories" (Econintersect suggests a better word is "beliefs") upon which second half 20th century neoclassical economics has built its foundations.  It makes us want to look at a book that we have not yet read:  Adam's Fallacy: A Guide to Economic Theology by Duncan J. Foley.


IMF can’t stop worrying about Canada’s so-called housing bubble (National Post Wire Services, Financial Post)  Canada avoided the housing market crash that accompanied the financial crisis in the United States. But a post-recession housing boom, fueled by record-low borrowing costs, has prompted some analysts to warn a bubble may be in the works.  In November the IMF (International Monetary Fund) said that although a soft landing was "likely",

authorities may need to tighten mortgage rules further to contain vulnerabilities to a crash.

home-price-income-ratio-global

The following video discusses why Canadians should be concerned about another international agency, OECD (Organization for Economic Cooperation and Development), which has called for higher mortgage interest rates in Canada.

Click, then scroll down page to watch video.
housing-canada-video

Other Economics and Business Items of Note and Miscellanea

When the lawless make the laws (Personal Liberty)

California drought could end with storms known as atmospheric rivers (LA Times)  Massive flooding and devastation could result.

7 natural wonders that humans could destroy within a generation (global post)  These wonders are among the world's most extensive eco-systems.

Life in the Sickest Town in America (The Atlantic)  The hidden dark side of coal.

Huge Asteroid To Fly Past Earth On Monday (Sky News, MSN News)  Will be visible with binoculars - now that is close, but still three time further away than the moon.

Mississippi fighting to make the bible the state book (Fox News, MSN News)  Why not the Quran?

Whose Tomb? Greece Wonders (The New York Times)  Alexander the Great’s legacy stirred up by excavation, although officials say there is no connection suspected.

Obama administration to propose new wilderness protections in Arctic refuge — Alaska Republicans declare war (The Washington Post)


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