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What We Read Today 12 February 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.

This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every day in the early am at GEI News (membership not required for access to "The Early Bird".).


Every day most of this column ("What We Read Today") is available only to GEI members.

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Stephanie Kelton comes to Washington after ruffling feathers in adviser community (Mark Schoeff Jr., Investment News)  Good summary of the impact Stephanie Kelton has had on the financial advisor community discussed in the context of her new role as chief economist for the Democratic staff of the Senate Budget Committee, where she will work for ranking member Sen. Bernie Sanders (Independent, VT).  The comments following the article are also very worthwhile, and include input from GEI contributors Roger Erickson and Derryl Hermanutz.  Stephanie Kelton has also contributed to GEI.

Articles about events, conflicts and disease around the world








Neoclassical Man and Dynamic Uncertainty Woman: A dynamic economic gaze heuristic (Cameron Murray, Inside the reform of Economics)  This is an excellent analogy of two processes in economic thinking.  Cameron compares the neoclassical thought process to one of determining the relative position of a ball within the man-ball system (instantaneous equilibrium assessment) with the dynamic uncertainty thought process of judging relative motion without knowledge of position (continuous flow assessment). 

  1. In the first case the most probable position for catching the ball is determined at the time of observation and, depending on how big the catcher's glove is a probability of catching the ball can be determined.
  2. In the second case the probability of catching the ball is determined only by the accuracy of the equations of motion for the ball and the catcher.  With sufficiently accurate descriptions of the two motions, catching the ball is a certainty without ever explicitly defining the spatial coordinates of the two bodies.

Cameron writes:

The gaze heuristic describes the behaviour of people trying to catch ball, and is useful when attempting to program robots that mimic human behaviour. Gigerenzer explains that

The gaze heuristic is the simplest one and works if the ball is already high up in the air: Fix your gaze on the ball, start running, and adjust your running speed so that the angle of gaze remains constant. A player who relies on the gaze heuristic can ignore all causal variables necessary to compute the trajectory of the ball – the initial distance, velocity, angle, air resistance, speed and direction of wind, and spin, among others. By paying attention to only one variable, the player will end up where the ball comes down without computing the exact spot.

For anyone who is confused by this essay, Econintersect will provide an interpretation.  The neoclassical man is a traditional economist using the DSGE (Dynamic Stochastic General Equilibrium) modeling process and the dynamic uncertainty woman is a heterodox economist using a true dynamic flow analysis such as would be used in an engineering process flow diagnostic.  An example of the later model is the Minsky Program developed by Steve Keen.


Not Ready for Prime Time: The Burr, Hatch and Upton Obamacare Proposal (Henry J. Aaron, Brookings Institute)  See also next article.

One should not be fooled by slogans and generalities. One has to examine details in order to know whether a plan is or is not a basis for negotiation. Make no mistake—details of Obamacare do need fixing-- but those repairs involve filling holes in coverage, not making more holes.  It requires making benefits more generous, not less. The Burr-Hatch-Upton plan proposes to move in the wrong direction. Such a plan cannot serve as a basis for negotiation.

Two Cheers for the GOP's Burr, Hatch and Upton Alternative to Obamacare (Stuart M. Butler, Brookings Institute)  See also preceding article.

[T]he GOP plan could have moved much more decisively towards state-led reform. In fact, within the ACA itself is a provision that allows states to propose radical changes in the basic provisions of the statute. Rather than seek to repeal that provision, known as Section 1332, the plan sponsors would have been much wiser to have proposed strengthening it.

To be sure, the proposal has attracted liberal criticism, with some critics raising design concerns that need to be addressed. But the Burr-Hatch-Upton plan is an important proposal from leading GOP lawmakers and includes approaches that contain the basis for agreement. If the White House and congressional Democrats are willing to look seriously at several of its central provisions, they will see opportunities for addressing the impasse over the ACA and achieving health coverage goals that are widely shared.

Oil Price Soars, Rig Count Plunges Worst Ever, But Bloodletting Just Beginning (Wolf Richter, Wolf Street)  Here is a graph that shows the apparently internally conflicting data from the EIA (U.S. Energy Information Administration):  Rig counts are going down and oil production is going up and this is projected to continue for much of 2015.  The reason is that the rigs shutting down are for very low production-high costs wells and new wells are being drilled that are high production, low cost per barrel.  See next article.


Price Collapse Hits Scavengers Who Scrape the Bottom of Big Oil's Barrel (Joe Carroll, Bloomberg Business)  Stripper wells produce trickles of crude with the aid of iconic pumping machines known as nodding donkeys.  They are old wells abandoned by the usual suspects (larger oil companies) and taken over by scavenger operators who can operate a well for $100 a day, as an example, and make money if they can collect two barrels of oil worth $100 a barrel.  But when the price they receive drops below $50 a day they are losing money and generally do not have a cash cushion to keep the well running.  According to this article there were nearly half a million such wells operating in 2012, producing 730,000 barrels a day.  This number was about 1/4 of all oil wells operating in 2012.  In the week ending 06 February the oil rig count was down by 276 year-over-year, but the number of wells closed was much higher because there were hundreds of new wells drilled during those 12 months.  We can infer that not only are many (most?) stripper wells being closed but additional low production wells which might have converted to stripper operations when abandoned by a major have instead closed for good. This the total out put of oil is still rising in the face of lower rig counts because the output per rig is increasing significantly.

Other Economics and Business Items of Note and Miscellanea

What the massive snowfall in Boston tells us about global warming (The Washington Post)  Warmer water in the North Atlantic is throwing more moisture into the winter air:  Result is more snow.

Krugman: Nobody Understands Debt (The New York Times)

Fed’s Lacker Says June ‘Attractive Option’ for Raising Rates (The Wall Street Journal)

Scottish First Minister Sturgeon slams ‘austerity economics’ (RT)

QAA debate signals fundamental change in the study of Economics (QAA)

White House Official Opposes ‘Audit the Fed’ Bill (The Wall Street Journal)

Economics students team up to educate peers about national debt (SF State University)  Will these undergraduates have any idea what they are talking about?

Pest Control Economics: Trapping the $10,000 Rat (Food Processing)

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