Category Archives: Economics

Peak Oil?

I don’t really believe in “peak oil,” though I’ll buy the concept of peak cheap oil. But Randall Parker does, and thinks we’re there, and is worried about the transition. Lot of good discussion in comments.

In my opinion, it will only be a problem if the government mucks with the market too much. Unfortunately, at least based on their behavior in the seventies, that’s not an unlikely possibility.

How Does That Work?

Tom Friedman thinks that if Obama gets the nomination, he should keep Dick Cheney as the VP. Well, not really, but I do agree with him that the administration’s policy toward Iran does seem confused and confusing. It’s kind of like “indecisive cop/bad cop.”

But what I really wanted to comment on was this strange sentence:

Mr. Obama would also be more effective if he not only stressed how much further he was ready to go than the Bush team to engage Iran, but also how much further he would be ready to go in bringing meaningful leverage on Iran

A True Shortage

I’ve always found it a little surprising how unthinkingly we use helium, when it really is in short supply on the planet. Party balloons are fun, but at some point I do expect the price to rise to the point at which it will only have industrial uses (including for space activities). It could certainly liven up parties if we switch over to hydrogen balloons…

There’s plenty of helium to be mined out in the solar system, but it would be an interesting challenge to import it back down into the gravity well. I suppose it would just be done in pressurized tanks.

Bad Economic News

…for those looking for bad economic news. Productivity is surging:

The Labor Department reported that productivity — the amount of output per hour of work — jumped at an annual rate of 4.9 percent in the July-September quarter. That was double the 2.2 percent rise in the second quarter and represented the fastest surge in worker efficiency since 2003.

At the same time, wage pressures eased with unit labor costs dropping at an annual rate of 0.2 percent, the best showing in more than a year.

I blame George Bush.

More on Specialization

Rand observed that “one of [his] biggest mistakes in life was not recognizing early that the most effective way to achieve my goals would have been to get wealthy first, then to apply that wealth toward them”. The basic economics point is that if you earn as much money as possible by specializing in what the economy will pay you the most for, you can often hire a specialist to do far more good with the money you made than you could have doing the good personally.

Another way to state this is doing nice things is fun; nice is an economic good. So if you want a pleasant job, other people who like pleasant jobs will compete and drive the price down until the low pay makes it unpleasant enough to clear the market.

This makes Bill Gates’s career change to spend his fortune a global tragedy worse than the monetary damage of Hurricane Katrina. He is likely to be much closer to average in his ability to make the world better by giving, compared to making the world better by making better software and operating systems.

The salary offered to you for different occupations summarizes what the economy values most from you. Accountants and lawyers may seem less useful than teachers and engineers, but that is a fallacy of confusing the average value of a teacher–which may be very high–to the market price of a teacher which will be much lower if there are lots of people who want to be teachers.

Reward the Speculators

The mortgage-backed securities price drop reflects the natural tendancy of people to be sloppy with other people’s money. In this case, it was primarily the mortgage brokers shoveling out other people’s money to borrowers and hedge funds asking not quite enough questions about who is monitoring the borrowers before shoveling their investors money to purchase the loans. These capitalist swashbucklers should be lionized, not villified. If the US economy is not utilizing all of its productive capacity, we need to find some way to nudge it to work harder. If prime borrowers have borrowed all the money they want, then the extra money to get the economy moving has to be lent to subprime borrowers or monetary policy will be pushing on a string like in Japan where the nominal interest rate has been zero for a while and the real interest rate negative.

So expect the extra money to go into irrational stocks or to risky borrowers. If it doesn’t go to them and Congress isn’t swift enough to write everyone another $300 check, then we will just have idle capacity. Without a housing boom, instead of an overhang of houses that would be in danger of being foreclosed, we would have fewer houses, more unemployment, lower wages and lower GDP. We should continue to figure out ways to get money into the hands of people who will spend it even if they are speculators, sub prime borrowers, exuberant speculators and intrepid entrepreneurs.

Personally, I am in favor of subsidizing all consumer borrowing so that the benefits of rate cuts don’t accrue disproportionately to creditworthy borrowers. But whether it’s health care, green cleanup, space settlement or defense that you think needs more money spent on it, to just leave capacity idle is in my opinion even worse than spending it on my last choice.

Fighting the Last Credit Card War

It occurred to me as a programmed payments in one month in advance into Quicken software that the credit card issuers are fighting the last war. The reason I am programming my payments one month in advance is that I have about 15 minutes from the time I receive my bill to write a check, plop it in an express mail envelope, then race after the mail carrier to send it back the same day to avoid a late fee.

The late fees were rolling in bulking up bottom lines at Chase and others. The reason they implemented these fees was that interest rates were low so they jerked customers on late fees to raise revenues. The interest rate far exceeds the paycheck loan rates. $40 on a one-day late $400 payment is 128 quadrillion percent annual interest.

But now they are faced with an anxious set of commercial paper buyers and collateralized debt obligation buyers demanding to know the credit quality of the borrowers. Well, it sucks. Because it has become impossible to pay a credit card bill on time without a flow of quantum entangled photons becoming disentangled selectively at the instant you get your bill so you can pay it faster than the speed of light. Credit card issuers, do you feel that petard? It’s going to get hoisted a lot higher.

A Grim Forecast

There are a lot of comments on Sam’s post earlier about China and India, but Gerald Hibbs has some cold water to splash on the Chinese’ problem, that I thought I’d move up to post level:

Right, every inch of China is covered with them growing something. Terraced hillsides are standard. As we whisk by on the train you can see them farming the way their grandparents did. Often you see the cliff dotted with caves. What are those? They live there. It is fascinating to watch and incredibly sad.

Meanwhile, government officials talk about how they are lifting a million people a year out of poverty. A million people a year! That is staggering. Even more so when you realize that they are over 1000 years away from lifting everyone in China out of poverty at that rate.

Kids on the farm on making their way to the city and finding it a hard row to hoe — especially since it is technically illegal to move like that without permission. We watched a documentary that followed one kid. Someone else in the village had gone to the city for a year and came home with enough money to get married and buy a house for his new wife. Off this young man — an only son — went where he worked illegally on a high rise construction project and slept in a worker’s dorm with no heat. He eventually went home because he couldn’t take the bitter winter cold.

We already hear of riots everywhere in China. Well, some details and statistics/conjecture leak out from foreign websites. Chinese government officals admitted to about 74,000 in 2004. Many rural people have television and they watch it filled with commercials for stuff they can’t afford (like pretty much everything as the average peasant makes about $150 a year) and modern TV soaps showing spoiled rich young people fighting over the prettiest girl. At the same time there is such a disparity between boy/girl births — especially in rural areas reaching sometimes 120 boys to 80 girls — that a poor (and heaven forbid stupid or ugly) village boy has little chance of marriage. It is made even worse by the fact that women are now getting into college and excelling. Why worse? Well, those boys are even more out in the cold then they were before. The women in China are going to experience a power shift in this generation like no other in history. I hope they live through it. I’ve seen any number of stories about girls kidnapped and sold as “wives.” My own wife was almost kidnapped off the street when she was younger.

How much longer can the condition continue? Especially when the people see the endless corruption. Guanxi, or relationships, are everything. I know one guy whose group paid a $10,000 bribe to be allowed to exploit an oil well his group owned. Someone else paid more, and had better relationship, and they were forced to sell for almost for pennies on the dollar. Now the people with more money and guanxi are running the oil well and getting richer. He lost much of his family’s life savings in that debacle.

I want to be optimistic but the situation is so inherently unstable. Imagine the gleaming cities of 20 years from now with hundreds upon hundreds of millions of peasants knowing they and their children are shut out. Or even worse know that they will know the shame of being a “branchless tree” (Chinese description of a man without a family.) Interesting times indeed. If anyone can give me a reasonable explanation of how this can end well short of a singularity — and molecular manufacturing to instantly provide economic parity — I’d love to hear it.

Fortunately, some kind of singularity-like event is likely to bail them (and the rest of us) out. Unfortunately, given the history of technological solutions, it will bring new problems of its own. The future is likely to be (in the words of the ancient Chinese curse) interesting times.

China and India Agricultural Revolution

‘Industrial Revolution’ is a misnomer. Industry was just a thing to do after agriculture became easier. China and India are about half way through their ‘Agricultural Revolution’. According to the CIA World Factbook, a 45% of the 800 million labor force out of China’s 1.3 billion and 60% of India’s 500 million labor force out of 1.1 billion still work in agriculture. In the US, France and Poland the comparable numbers are 0.7%, 4.1%, and 16.1%. In the next couple of decades, we can expect Chinese and Indian algricultural sectors to achieve 100% labor efficiency improvements putting a total of 350 million people into manufacturing and services which will be a 50% rise. Over the next 100 years, we can expect them to catch up to France and put 96% of their labor forces away from agriculture. These are conservative predictions.

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