Monthly Charts with Brent vs WTI

Short Note on the Arab Spring Price Spike

Brent is a Better Reference Price than WTI

Slightly Optimistic European Stats

September Oil Production

Peak Supermajor was in 2005?

Oil Production of the Top Three IOCs

Steve Jobs

This doesn't have much to do with the theme of this blog but, Ah Shit.  I've personally been using Steve Jobs computers since I bought a NeXT Station and laster printer in 1991 with $10k of my fellowship money in grad school.  I still have it: last time I checked, it still worked. Except for a couple of brief unhappy intervals when I was obliged to use Windows systems, I've been immersed long hours every day in Steve Jobs approved environments ever since.  It's impossible not to grieve his passing, and copiously.  He has almost single-handedly stood for the idea that technological devices should also be an artistic and harmonious fit with the human psyche.  He was the world's greatest product manager.

It isn't going to be the same without him.

Eurozone Retail Spending Down Again in August

The Saudi Budgetary Constraint on Oil Prices

State of the Blog, Q3 2011

August European Unemployment

2011 Corn and Soybean Yields

Food Prices Still Elevated

Do Stock Market Declines Predict Recessions?

US Initial Claims Data

Chinese PMI

Eurozone PMI

Here's the key graph from the Markit PMI press release.  This is from their survey of Purchase Managers in September so provides a more real time indicator than official indicators.  That's certainly not an encouraging reading at all.

European Industrial Production

Per Capita Oil Consumption Around the World

Peak Oil Per Capita

Eurozone Labor Costs

Global Market Capitalization

ECB Balance Sheet Bleg

Global Trade

Global Oil Production up in August

Latest Oil Price Graphs

OPEC: Global Oil Supply Increased in August

Technology Reversal Job Creation Measures

I was thinking about the President's job creation measures this morning.  The composition and scale of the proposals sounds broadly similar to the ARRA stimulus bill of a couple of years back and it seems like the effect might be similar - mitigate the worst of the downturn while being insufficient to create much actual job growth.  However, clearly the bill runs the risk of being perceived to make the deficit worse (and very likely actually would make the deficit worse).

I also take to heart some of the critique in Do Stimulus Dollars Hire the Unemployed? that in a highly technological automated society it's not completely straightforward for stimulus dollars to flow to the people that need it (ie lower skilled and out of work individuals).

Another thing the government could do in principle to create jobs fairly quickly is ban certain labor saving technologies, thus forcing businesses to hire people to do the work instead. This has several advantages: it wouldn't cost the government anything and the results would be more controllable in terms of where the jobs went.

For example, suppose the government declared that over the next 12 months all automated phone answering systems would be banned at businesses with more than, say, a dozen employees.  No more voicemail, no more automated voice recognition systems when you call your bank or utility. Since businesses have to answer the phone, this would force them to hire people to do it instead - lots of people.  Since receptionist jobs historically went to young less-skilled individuals, we could assume that the same thing would happen now.  Since employment is particularly bad amongst the young and the unskilled, this measure would be very targeted to the demographics that need it most.

It might be objected that this would make businesses less efficient and that is undoubtedly true on an individual corporate basis.  However, in an economy where lack of aggregate demand is an issue, it's far less obvious that the overall economy would produce less as a result.

It might also be objected that this would make US corporations suffer at the hands of less constrained foreign competitors.  That is clearly also an issue in the long term.  However, perhaps we could justify such measures in the short term as emergency job responses.  And in the long term, everyone is going to have the same kinds of problems of technological unemployment so evident in the US, and perhaps there will be scope for international agreements around this kind of thing.

US vs Eurozone Growth

Irresponsible Alarmist Data Analysis at the NYT

European Inflation

Finite Commodities in a Deflationary Era

European Retail Trade

Brent Prices

Latest European Indicators

Anti-Technologists Resort to Violence

Targeting academics investigating nanotechnology apparently:

A package bomb that injured two professors at a university here this month is the latest in a string of attacks by a new terror group inspired by the Unabomber. Its violent actions have put campuses across Mexico on alert and caused nanotechnology researchers worldwide to take precautions with their mail.

Nanotechnology was singled out as a target for the attacks in manifestos posted on the Web by the group behind the bombs, which calls itself "Individualities Tending Toward Savagery." It has been linked to attacks in France, Spain, and Chile, and to a bomb sent earlier this year to a scientist at another Mexican university who specializes in nanotech. An analyst who helped identify the Unabomber—who turned out to be a former professor—says the posts show signs of someone well-educated who could be affiliated with a college.

The online rants credit the Unabomber as an inspiration. The Unabomber, a former professor of mathematics at the University of California at Berkeley named Theodore Kaczynski, spread fear in academe for nearly 20 years with his mail-bombing campaign, which killed three professors and wounded 23 others until he was arrested, in 1996. Today he sits in a federal prison in Colorado with no chance of parole, but he continues to write articles calling for a revolution to achieve his dream of an end of technology and a return to hunter-gatherer societies.

(via Jamais Cascio).

While I have major reservations about some directions of current technological development, the use of violence to oppose it is deplorable and counterproductive. Peaceful protest and the ballot box are the ways to achieve societal change. Furthermore, the goal of returning to a hunter-gatherer society is ridiculous in a world of almost seven billion people.  Hopefully the criminal(s) will be caught and tried expeditiously.

Iowa Cropland Prices

Urban Density Around the World

Not The Best Idea

The normally savvy Matt Yglesias responds to a Kevin Drum post (which in turn was in part an elaboration of this post of mine):

Kevin Drum writes about the possibility that American growth is now constrained by the growth in the oil supply. That may be true in practice, but I would argue that there’s no reason to believe it should be true in theory.

After all, consider the gasoline tax. Right now, we levy a flat per gallon fee, and that fee is too low to meet our infrastructure needs. We ought to raise it. But instead of raising the flat per gallon fee, would could change it to a percentage tax like a regular sales tax. That way, an increase in the price of oil would lead to an increase in the price of gasoline which would lead to an increase in the gas tax. On its own, that would make the situation even worse. But the increase in tax revenue could be used to offset something else. For example, the payroll tax could be set to fall automatically any time high oil prices led to “extra” gas tax revenue. That way oil price spikes would generate an automatic subsidy to production and employment.

That’s wonky and not going to happen, but it would work!

This doesn't make sense.  One way to see this is to note that a rise in oil prices inevitably removes purchasing power from the pockets of American consumers and instead gives it to people in OPEC countries (and Texas!).  Coupling a shift in the tax burden from payroll tax to gas tax to this, doesn't change that fact one whit.  If anything it's likely to worsen the problem since the gas tax is more regressive than the payroll tax and thus will differentially hurt poor consumers who have a higher preference to consume versus save.

Or look at it another way: the real problem with an oil price spike is a physical one - there's simply less energy than is needed to power all the economic activity that would otherwise occur.  All economic activity requires some energy - and many critical ones can only be done with oil given current capital stock - and if there isn't enough then something will have to not happen that otherwise would have been done.  And again, fooling around with the tax structure won't create a single extra joule of energy supply.
That said, this part:

The technology to create less gasoline-intensive communities is available to us but right now we do very little to deploy it.

I wholeheartedly agree - with the caveat that turnover in the built infrastructure is very slow so that one cannot plausibly make large changes in it quickly. But certainly we could be doing far more than we are.

The Mind Reels

From Stephen Cecchetti's paper at the Jackson Hole conference.

For a macroeconomist working to construct a theoretical structure for understanding the economy as a whole, debt is either trivial or intractable. Trivial because (in a closed economy) it is net zero – the liabilities of all borrowers always exactly match the assets of all lenders. Intractable because a full understanding of debt means grappling with a world in which the choice between debt and equity matters in some fundamental way. That means confronting, among other things, the intrinsic differences between borrowers and lenders; non-linearities, discontinuities, and constraints in which bankruptcy and limits on borrowing are key; taxes, where interest paid to lenders is treated differently from dividends paid to shareholders; differences between types of borrowers, so household, corporate and government debt are treated separately; and externalities, since there are times when financial actors do not bear (or are able to avoid) the full costs of their actions.

As modern macroeconomics developed over the last half-century, most people either ignored or finessed the issue of debt. With few exceptions, the focus was on a real economic system in which nominal variables – prices or wages, and sometimes both – were costly to adjust. The result, brought together brilliantly by Michael Woodford in his 2003 book, is a logical framework where economic welfare depends on the ability of a central bank to stabilise inflation using its short-term nominal interest rate tool. Money, both in the form of the monetary base controlled by the central bank and as the liabilities of the banking system, is a passive by-product. With no active role for money, integrating credit in the mainstream framework has proven to be difficult.

Yet, as the mainstream was building and embracing the New Keynesian orthodoxy, there was a nagging concern that something had been missing. On the fringe were theoretical papers in which debt played a key role, and empirical papers concluding that the quantity of debt makes a difference.

The latest crisis has revealed the deficiencies of the mainstream approach and the value of joining those once seen as inhabiting the margin.

The mind reels - they are just starting to think about how to include debt in their models now?

Returns to Education

On Keynes and Coalmines

Paul Krugman reminds us of this thought experiment from Keynes:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

It seems to me not very much of a stretch beyond current technology to imagine a fully automated digging machine that would find the bottles in the dirt (via figuring out where the soft dirt is from the machine effort feedback combined with processing sonar images say - those glass bottles with mostly air in must show up once you get close).  The machine could then crack them open and shoot the banknotes back up a pneumatic tube to the surface.

Given that, Keynes' scheme might not result in very much employment any more.

The Oil Constraint on Fiscal Stimulus

Can we Grow the Economy Any More?

Kevin Drum had an interesting post yesterday in which he collected a list of theories for why it's difficult to grow the economy any more:

1. The basic Rogoff/Reinhart observation that financial collapses due to asset bubbles just take a long time to work through. Given the size of the 2008 collapse, historical evidence suggests that it's going to take five or six years to recover, and that's that.
2. The Tyler Cowen "Great Stagnation" hypothesis. We've picked through all the low-hanging economic fruit over the past century, and like it or not, we're now entering an extended period of low productivity growth because we're not inventing lots of cool new stuff.
3. The related (I think) investment drought hypothesis. Ben Bernanke famously ascribed the housing bubble partly to a "savings glut" from overseas, and the flip side of that is an investment drought. The reason financial assets became so popular is that, even with all that money sloshing around the system, there simply weren't very many high-quality investment opportunities available in firms that make real-world goods and services, and that hasn't changed.
4. The peak oil theory. Production of oil has pretty much maxed out, which means that every time the economy gets moving it will create a spike in oil prices, which will send the global economy back into recession. We're now in a continual oil-fueled boom/bust cycle that limits our long-term growth rate.
5. The Michael Mandel contention that increased consumption simply leaks out of the economy to China and other countries. Stimulating consumption in the U.S. just won't do much for the American economy if all those extra dollars mostly get spent on overseas goods and services.
6. Various structural explanations that suggest the United States has an increasing number of workers who flatly don't have the skills to do anything useful in the modern economy — a problem that was temporarily masked by the housing bubble and was only fully exposed when the economy collapsed. This takes various forms, both weak (workers can be retrained but it will take a while) and strong (forget it, they're simply useless).
7. The self-serving group of partisan hack theories: regulatory uncertainty is the real problem, taxes are too high, the EPA is strangling America, hyperinflation is just around the corner, markets are cowering in fear of future deficits, etc. etc.

Of these, I subscribe to versions of 1, 4, 5, and 6.  But let me comment first on the ones I don't agree with.

Libyan Oil Production

Texas Drought Now Equals Worst in History

Government Austerity and Political Instability

US Deleveraging Continues Steadily in Q2

New High for Saudi Oil Production

Note on Unemployment Claims

Global Oil Supply Increases in July

I Just Can't See It

Help me out here. I keep reading scary sounding stuff like this in the NYT:

In an ominous echo of 2008, European bank stocks on Wednesday fell 10 percent or more — and banks in Europe are beginning to hoard cash, crimping the interbank loans that keep the global financial system operating smoothly. While borrowing costs for banks in the United States and Britain have crept up only slightly recently, borrowing costs for Continental banks that lend to one another have doubled since the end of July.

More optimistic market watchers point out that these rates are still well below those at the height of the financial crisis. But they nonetheless are the highest since the spring of 2009.

Because European banks trade billions of dollars daily with their American counterparts, fears of contagion have spread.

The actual Euribor interbank loan rate data are here:

As you can see - rates are not back to the heady levels of 2004-2005, never mind 2008-2009.  And they've dropped in the last few days.  I just am unable to look at this data and summon any fear of an imminent problem*. So is this just a case that the NYT reporter is not numerate enough to actually look at the graph before writing about the subject?  Or am I missing something?

* Not to say there couldn't be a major problem down the road - the ECB has calmed the Italian/Spanish bond markets for the moment, but it's critical that that calm holds.

Oil/Gas Prices

Banking Stress Indicators Still All Green

Euro Area Industrial Production

Euro Area Retail Trade Stats

Economic Crisis Humor

If you haven't seen this, it's hilarious.

Congress Defunds Flying Pig Research

Robin Harding in the FT echoes my thoughts, only he says it much better:

As the economy grows each year the caps are supposed to stop Congress from increasing spending in line with it. Two-thirds of the planned savings are supposed to happen between 2017 and 2021; only a third is scheduled for the next five years.

That is implausible for two reasons. First, it assumes that future Congresses will abide by today’s promise to limit their spending and that representatives elected in 2016, 2018 and 2020 will happily slice ever deeper into the federal budget to fulfil it.

Second, because the deficit cuts build over time, by 2021 federal discretionary spending is supposed to fall to 5.4 per cent of gross domestic product. Pigs may also fly – but not if the research project to give them wings has to be funded from a federal budget of that size. Since 1971, with little variation depending on which party held power, discretionary spending has averaged 8.7 per cent of GDP.

The lowest level federal spending has hit in the past four decades was 6.2 per cent of output in 1999, as a decade-long economic boom headed towards its dotcom apogee and the peace dividend from cold war victory paid out in full.

Morning Tealeaf Reading

Reading the state of the global economy is only getting harder.  However, here's my read this morning (subject to change without notice):

• I think that the US economy is likely to improve a bit in the second half (absent new and unforeseen shocks).  I think the slowdown in the last few month's data was primarily a function of the high energy prices in the spring.  Those in turn were caused by turmoil in the Arab world and actual loss of Libyan production.  I expect global oil production will resume growing now (perhaps slowly and fitfully) at least for a bit.
• I think the Republican ploy over the debt limit has probably caused a significant hit to confidence and aggregate demand in July/August.  However, people will forget after a short while.  The actual agreement seems to be only very mildly contractionary in the near term and in the medium and long term it is all subject to renegotiation anyway.  There's probably some lasting damage to investor confidence that might cause some relative shifts in the prices of different asset classes but not have a big impact on the real economy.
• The US fiscal picture continues to be very unsustainable in the medium term, but I don't think we are close enough to the edge of the precipice for it to cause serious economic damage this year or next.
• Large US banks seem broadly sound.
• In the absence of specific reasons to contract, the economy will tend to revert to its natural tendency given enough resources - to grow.  I would be surprised to see an out-and-out recession in the US now.
• However, I think the US recovery will continue to be basically jobless as companies continue to invest in more technology as a substitute for hiring.  I don't expect to see much if any improvement in the employment/population ratios.  I don't expect the highly polarized political system to be able to come up with anything that has any impact on this.
• Europe still seems to be in a world of trouble to me.  Now that Spain and Italy have lost bond market confidence to the degree that they have, I don't see how this can get better without getting a lot worse first.  It's going to take heroic efforts to avoid a complete break-up of the Eurozone, and the current political leadership has certainly not shown any sign of the necessary courage and ability - at every stage, they've shown an uncanny knack for doing too little, too late.  It's hard to see how the worsening crisis doesn't eventually lead to an outright Eurozone recession.
• The implications for the rest of the world are complex, however.  A loss of European demand will tend to be a drag on other economies.  On the other hand, in a resource constrained world it may tend to moderate resource prices (particularly oil) and in turn allow a little more room for everyone else to grow before triggering the next energy price shock.

Your thoughts welcome in comments...

German Exports

Italian bond yields are flashing red again. In thinking about the long term future of the Eurozone, much obviously depends on the willingness of Germany to accept changes in the structure of the Euro such that the situation will work better for other countries than it does at present. Accordingly, it's helpful to think about where Germany's actual interests lie.

Clearly, as a major exporter, its interests are strongly bound up with who is buying its exports and what they are buying.  I found some statistics on this at the United Nations International Merchandise Trade Statistics website.  Firstly, here is what Germany is mainly exporting: