Came across this today and really liked it, so posting it to share.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Wednesday, November 8, 2017
Sunday, June 25, 2017
Some Critiques of Political Viewpoints
I do believe most political positions gain the support they do because they speak to some truth, or at least a partial truth. The problem comes from applying those truths to the wrong situations, trying to make grand sweeping statements, and (of course) our tendency to confuse our own self-interest with the public good.
So I did want to discuss some of the problems with common political positions, though I've kind of cycled through which ones and where to start. One day it's the liberal side of things, the next it's the conservative. (I used a rather general term here, because critiquing the Christian conservative movement is different from critiquing the Libertarian movement, as is critiquing other more liberal positions.)
I wanted to start with a hypothetical allegory:
Imagine a 10 yr old boy learning to cook. He just loves sweets, and making brownies or cookies whenever he wants is appealing. But, like most of us, he absolutely hates doing the dishes. So after mixing up the batter, licking clean the beater, and scraping it all into a pan to bake, he decides to just throw away all the dirty dishes and buy new ones.
He can afford to do this, after all. So those dirty dishes get thrown in the trash, and perhaps wind up in a landfill. Or perhaps they get sent somewhere for recycling, and people sort through the trash and find a way to reuse these perfectly good mixing bowls, beaters, and spatulas. Sure, they're dirty...and the bits of food left on them have started to mold. But someone can take the time to clean them off and find a use for them.
Meanwhile, the boy is creating demand for new mixing bowls and beaters...since every time he decides to make a sweet he is buying new cookware. (Granted, one boy by himself might not do that...but if enough other boys do the same, it would.)
You could argue that this is good for business - it makes money for the mixer, beater, and spatula factories. It employs people to meet the demand. It may even help employ people further down the supply chain, with whoever is sorting the trash and recovering useful bits.
Though, at the same time, the resources used to create those mixers, beaters and spatulas could perhaps be used to make something else. And the people employed by that business could perhaps find jobs in a different industry. The higher demand for mixers, beaters and spatulas could lead to a price increase that makes it harder for some families to buy them (they would, of course, wash their own dishes and reuse them.) And the people at the other end, the ones who sort through waste to find useful products, could probably find a different industry as well.
And if you asked him to do the dishes (after years of throwing them away and buying new dishes instead) would throw a fit about how what you're demanding is bad for business. He can't make as many brownies or cookies if he has to wash the dishes every time!!! And what about the people who are employed making those dishes?
All of which may, superficially, be true. And, on another level, is a lie.
At the end of the day, you still have a spoiled rich kid who doesn't want to clean up after himself.
(Btw, do take a look at what happens to some of our waste when we're done with it.)
So I did want to discuss some of the problems with common political positions, though I've kind of cycled through which ones and where to start. One day it's the liberal side of things, the next it's the conservative. (I used a rather general term here, because critiquing the Christian conservative movement is different from critiquing the Libertarian movement, as is critiquing other more liberal positions.)
I wanted to start with a hypothetical allegory:
Imagine a 10 yr old boy learning to cook. He just loves sweets, and making brownies or cookies whenever he wants is appealing. But, like most of us, he absolutely hates doing the dishes. So after mixing up the batter, licking clean the beater, and scraping it all into a pan to bake, he decides to just throw away all the dirty dishes and buy new ones.
He can afford to do this, after all. So those dirty dishes get thrown in the trash, and perhaps wind up in a landfill. Or perhaps they get sent somewhere for recycling, and people sort through the trash and find a way to reuse these perfectly good mixing bowls, beaters, and spatulas. Sure, they're dirty...and the bits of food left on them have started to mold. But someone can take the time to clean them off and find a use for them.
Meanwhile, the boy is creating demand for new mixing bowls and beaters...since every time he decides to make a sweet he is buying new cookware. (Granted, one boy by himself might not do that...but if enough other boys do the same, it would.)
You could argue that this is good for business - it makes money for the mixer, beater, and spatula factories. It employs people to meet the demand. It may even help employ people further down the supply chain, with whoever is sorting the trash and recovering useful bits.
Though, at the same time, the resources used to create those mixers, beaters and spatulas could perhaps be used to make something else. And the people employed by that business could perhaps find jobs in a different industry. The higher demand for mixers, beaters and spatulas could lead to a price increase that makes it harder for some families to buy them (they would, of course, wash their own dishes and reuse them.) And the people at the other end, the ones who sort through waste to find useful products, could probably find a different industry as well.
And if you asked him to do the dishes (after years of throwing them away and buying new dishes instead) would throw a fit about how what you're demanding is bad for business. He can't make as many brownies or cookies if he has to wash the dishes every time!!! And what about the people who are employed making those dishes?
All of which may, superficially, be true. And, on another level, is a lie.
At the end of the day, you still have a spoiled rich kid who doesn't want to clean up after himself.
(Btw, do take a look at what happens to some of our waste when we're done with it.)
Sunday, November 6, 2016
Third - the Economy
I said before that I'm not an expert on the economy, and I'm not. I don't want to make it sound like I'm completely ignorant, so I'll go into a little bit more detail on what I do and don't know.
I took an undergraduate course in macroeconomics, so I know a bit about GDP, GNP, the multiplier effect of the money supply, etc. I also took a graduate course on public policy and economics, so I'm somewhat familiar with some of the debates regarding Keynesian economics and various other topics. The reason why I suggest taking what I say with a grain of salt is that I follow various economists , read various articles, and realized that I don't have a good sense for how it all fits together. In particular, I'd like to understand the relationship between finance and economics. Public finance (sovereign wealth funds, municipal bonds), private finance, international debt, and the relationship between the recent financial crisis and the economy at large. Plus foreign exchange, floating currencies, hedges, futures, derivatives, trade, etc. It's interesting that mutual funds are actually one of the biggest investors, except it's made up of a lot of little investors (i.e. people's 401Ks and retirement money)...except since most of those investors don't really know what they're doing they basically empower the people running the mutual funds to be a major part of the economy.
I follow various economists and read articles on these topics mostly because that's the only way of learning. Well, okay, it'd be better to go back to school...but short of that, all I can do is read and read and keep on reading. Eventually I'll start making connections, build sort of an internal map of the various relationships, and then I'd feel like I could come up with something more effective w/regards to economic policy. If I had to do it right now, I'd say go find an expert.
That said, there are a few points I think I can safely make. First, under the "well, duh" category - we want a strong economy. This isn't just for domestic purposes. I really do think economics is a driving force behind military strength. Sure, a nation with a weak economy can put more of their money into tanks and planes and things...but if they actually go to war, it'll be harder and harder to replace when they are inevitably destroyed. Basically any long and drawn out war will favor the nation with the economic strength to continue the fight. (This doesn't mean you can get by with poor generalship! Or that how you fight doesn't matter.) Just that a strong economy can better recover from military disasters, and there will probably be a military disaster of some sort in any prolonged fight.
The problem, of course, is that we don't know as much as we think about what makes an economy strong.
So the first point - economics is mostly based on rational choice theory. There are some economists who criticize this, and I'd like to know more about them. I personally think rational choice theory doesn't match with my own personal experience. All I have to do is consider how I pick out a new wine to drink. Other than red or white, and a basic guesstimate on price (i.e. too cheap is probably not a good sign, but I'm not a wine connoisseur so it'd be a waste to spend too much), I generally wind up picking based on the packaging. Give me a pretty label, or an interesting name, and I'll give it a try. Is it a rational choice? I suppose so...if you consider 'pretty packaging' an important part of that choice. I'm definitely not researching any of the hundreds of different wine manufacturers to figure out who is rated the best for the product. I might ask a salesperson for a recommendation, but that's about it.
Since rational choice theory is the foundation for a lot of economics, you could argue that the field of economics is based on a faulty premise. Doesn't mean it's necessarily wrong, it just means that it's a good idea to be slightly skeptical.
Second point. I do, for the most part, support capitalism. Capitalism was actually one solution to a social dilemma - that is, if a village shared common pastures there was a risk that they'd overgraze the pasture. Privatizing the land made it more likely the land would be managed responsibly, since the owner has an interest in maintaining it's use over time. So the heart of capitalism - private ownership, enforcement of contracts, the invisible hand, etc - are useful. Yet there's a scenario I want to throw out there. A historical exception, and not one to base the entire economy on, but worth discussing.
If you take a castle under siege, the people being besieged have to ration their food. Otherwise they'll eat everything too soon, start to starve, and eventually lose the castle entirely. They might even beg the besiegers to enter so long as they bring bread. In a situation like this, market forces aren't justified. Since supply is constricted, prices would go through the roof. Then only the wealthy could afford to buy food, which means the people manning the defenses (who most likely aren't that wealthy) will be short on food and be weaker than they should be. Not only are the defenses less effective, a policy like this would increase the likelihood that someone would betray the castle.
So you have martial law, and food is rationed. In a similar fashion, during times of war we do understand/accept a certain amount of rationing. At least, we did during World War II.
The point of this is to show that there are situations where capitalism is not always the answer. That perhaps there are questions we need to ask, like whether we're dealing with scarcity (and the politics thereof), or whether we need to make sure our resources are going to the right places (i.e. the defenders on the wall).
A related point is that certain needs, like food and water, are so important that people will take a bad bargain if they have to. Food, water - and information assymetries. This is part of why modern slavery exists. Sure, it's a bad bargain...but you need that food. And if someone in the family gets ill, then you need that medicine.
Capitalism, for the most part, says that trade benefits both parties. After all, if I thought I was losing out on the deal I wouldn't go through with it. If I thought the price was too high for a car, I won't buy it.
The same doesn't always hold true for essentials. Or it does hold true, except it puts the person with the resources in too powerful a position.
We need a strong economy, yet the truth is it's not trade deals and outsourcing that is causing our job loss. Given the size of our economy there's incentives to manufacture material close to the point of sale. The real issue is automation. (And yes, I do work for a company that basically helps other businesses automate, so I'm part of this.) This makes me think of the Luddites, and whatever happened to the families that lost their jobs? Like, did the people too old to learn new trades fall into poverty? Did their children successfully find jobs in another field? Or did it cause certain families to fall into a permanent underclass?
That last one, to me, is one of the biggest concerns right now. With the shrinking of the middle class and the reduction in social mobility, it seems like you either need to jump to the upper class (and soon), or risk having you and your family fall into a permanent underclass. To me, that's an awful scenario, and not just morally either. It would indicate a lot of future instability.
Throughout most of our history, human structures take on a pyramid shape. A lot of people at the bottom, a smaller group in the middle, and only a few at the very top. On the one hand, we run into issues of bloat and inefficiency whenever that pyramid shape starts to look too much like ka cylinder (i.e. the military, where there seem to be more and more general officers per soldier). On the other hand, I think computing and automation will sort of force some sort of change...the duties at the bottom are more and more likely to be handled by robots. (As long as people have a way to make a living, I think this is a good idea, actually. I find some of the jobs at the lower class a bit insulting to our human potential. Not the ones that require craftsmanship and working with your hands. That's actually kind of cool, and rewarding. Unfortunately, a lot of these jobs are just sheer drudgery.)
Anyways. Point is, we're coming to a point where all of this will have to change. Manufacturing jobs are going away, and they're not coming back. We can either think ahead, and find ways to mitigate the effects...or we can pretend nothing is wrong until a candidate like Trump comes along and forces us to deal with it.
So to tie it all up - we need a strong economy. We need wise public policy choices to help navigate through the changes that are coming our way (much of which would be tied to education and efforts to break the cycle of poverty), and we also need to create an environment that encourages business. Not just in terms of tax rates, either.
I took an undergraduate course in macroeconomics, so I know a bit about GDP, GNP, the multiplier effect of the money supply, etc. I also took a graduate course on public policy and economics, so I'm somewhat familiar with some of the debates regarding Keynesian economics and various other topics. The reason why I suggest taking what I say with a grain of salt is that I follow various economists , read various articles, and realized that I don't have a good sense for how it all fits together. In particular, I'd like to understand the relationship between finance and economics. Public finance (sovereign wealth funds, municipal bonds), private finance, international debt, and the relationship between the recent financial crisis and the economy at large. Plus foreign exchange, floating currencies, hedges, futures, derivatives, trade, etc. It's interesting that mutual funds are actually one of the biggest investors, except it's made up of a lot of little investors (i.e. people's 401Ks and retirement money)...except since most of those investors don't really know what they're doing they basically empower the people running the mutual funds to be a major part of the economy.
I follow various economists and read articles on these topics mostly because that's the only way of learning. Well, okay, it'd be better to go back to school...but short of that, all I can do is read and read and keep on reading. Eventually I'll start making connections, build sort of an internal map of the various relationships, and then I'd feel like I could come up with something more effective w/regards to economic policy. If I had to do it right now, I'd say go find an expert.
That said, there are a few points I think I can safely make. First, under the "well, duh" category - we want a strong economy. This isn't just for domestic purposes. I really do think economics is a driving force behind military strength. Sure, a nation with a weak economy can put more of their money into tanks and planes and things...but if they actually go to war, it'll be harder and harder to replace when they are inevitably destroyed. Basically any long and drawn out war will favor the nation with the economic strength to continue the fight. (This doesn't mean you can get by with poor generalship! Or that how you fight doesn't matter.) Just that a strong economy can better recover from military disasters, and there will probably be a military disaster of some sort in any prolonged fight.
The problem, of course, is that we don't know as much as we think about what makes an economy strong.
So the first point - economics is mostly based on rational choice theory. There are some economists who criticize this, and I'd like to know more about them. I personally think rational choice theory doesn't match with my own personal experience. All I have to do is consider how I pick out a new wine to drink. Other than red or white, and a basic guesstimate on price (i.e. too cheap is probably not a good sign, but I'm not a wine connoisseur so it'd be a waste to spend too much), I generally wind up picking based on the packaging. Give me a pretty label, or an interesting name, and I'll give it a try. Is it a rational choice? I suppose so...if you consider 'pretty packaging' an important part of that choice. I'm definitely not researching any of the hundreds of different wine manufacturers to figure out who is rated the best for the product. I might ask a salesperson for a recommendation, but that's about it.
Since rational choice theory is the foundation for a lot of economics, you could argue that the field of economics is based on a faulty premise. Doesn't mean it's necessarily wrong, it just means that it's a good idea to be slightly skeptical.
Second point. I do, for the most part, support capitalism. Capitalism was actually one solution to a social dilemma - that is, if a village shared common pastures there was a risk that they'd overgraze the pasture. Privatizing the land made it more likely the land would be managed responsibly, since the owner has an interest in maintaining it's use over time. So the heart of capitalism - private ownership, enforcement of contracts, the invisible hand, etc - are useful. Yet there's a scenario I want to throw out there. A historical exception, and not one to base the entire economy on, but worth discussing.
If you take a castle under siege, the people being besieged have to ration their food. Otherwise they'll eat everything too soon, start to starve, and eventually lose the castle entirely. They might even beg the besiegers to enter so long as they bring bread. In a situation like this, market forces aren't justified. Since supply is constricted, prices would go through the roof. Then only the wealthy could afford to buy food, which means the people manning the defenses (who most likely aren't that wealthy) will be short on food and be weaker than they should be. Not only are the defenses less effective, a policy like this would increase the likelihood that someone would betray the castle.
So you have martial law, and food is rationed. In a similar fashion, during times of war we do understand/accept a certain amount of rationing. At least, we did during World War II.
The point of this is to show that there are situations where capitalism is not always the answer. That perhaps there are questions we need to ask, like whether we're dealing with scarcity (and the politics thereof), or whether we need to make sure our resources are going to the right places (i.e. the defenders on the wall).
A related point is that certain needs, like food and water, are so important that people will take a bad bargain if they have to. Food, water - and information assymetries. This is part of why modern slavery exists. Sure, it's a bad bargain...but you need that food. And if someone in the family gets ill, then you need that medicine.
Capitalism, for the most part, says that trade benefits both parties. After all, if I thought I was losing out on the deal I wouldn't go through with it. If I thought the price was too high for a car, I won't buy it.
The same doesn't always hold true for essentials. Or it does hold true, except it puts the person with the resources in too powerful a position.
We need a strong economy, yet the truth is it's not trade deals and outsourcing that is causing our job loss. Given the size of our economy there's incentives to manufacture material close to the point of sale. The real issue is automation. (And yes, I do work for a company that basically helps other businesses automate, so I'm part of this.) This makes me think of the Luddites, and whatever happened to the families that lost their jobs? Like, did the people too old to learn new trades fall into poverty? Did their children successfully find jobs in another field? Or did it cause certain families to fall into a permanent underclass?
That last one, to me, is one of the biggest concerns right now. With the shrinking of the middle class and the reduction in social mobility, it seems like you either need to jump to the upper class (and soon), or risk having you and your family fall into a permanent underclass. To me, that's an awful scenario, and not just morally either. It would indicate a lot of future instability.
Throughout most of our history, human structures take on a pyramid shape. A lot of people at the bottom, a smaller group in the middle, and only a few at the very top. On the one hand, we run into issues of bloat and inefficiency whenever that pyramid shape starts to look too much like ka cylinder (i.e. the military, where there seem to be more and more general officers per soldier). On the other hand, I think computing and automation will sort of force some sort of change...the duties at the bottom are more and more likely to be handled by robots. (As long as people have a way to make a living, I think this is a good idea, actually. I find some of the jobs at the lower class a bit insulting to our human potential. Not the ones that require craftsmanship and working with your hands. That's actually kind of cool, and rewarding. Unfortunately, a lot of these jobs are just sheer drudgery.)
Anyways. Point is, we're coming to a point where all of this will have to change. Manufacturing jobs are going away, and they're not coming back. We can either think ahead, and find ways to mitigate the effects...or we can pretend nothing is wrong until a candidate like Trump comes along and forces us to deal with it.
So to tie it all up - we need a strong economy. We need wise public policy choices to help navigate through the changes that are coming our way (much of which would be tied to education and efforts to break the cycle of poverty), and we also need to create an environment that encourages business. Not just in terms of tax rates, either.
Sunday, October 23, 2016
Trade, Government Policy, and Economics
https://www.minnpost.com/politics-policy/2016/10/preserving-sweet-life-minnesota
This is the first article I've ever read that really explains the issues tied to government agricultural subsidies.
Saturday, July 18, 2015
Crazy Idea of the Week
(Edited to add: This probably would work only if we were dealing with a large likelihood of default. Otherwise, why would any business take less than they could get from letting a loan continue until paid in full? Does make me wonder what happens when loans get sold from one bank to another...)
Sorry, thought I was done with it...but the ol' brain went on ticking.
Seems crazy that any business would forgive a debt. And how would they make a profit?
Except.
Except as studies of lottery winners show, it's not just about having money and being debt free. It's about changing your lifestyle. Let's say you had credit card debt and that debt was forgiven. How many people are actually going to avoid wracking up more debt on a credit card? (Probably not as many as we should hope). And mortgages? Someone would probably use the opportunity to trade up to a nicer house, and get a new mortgage. Oh...and then their old house would be on the market for someone else to trade up to. So in less than a year, creditors would probably still have plenty of loans and whatnot to profit off of.
Plus, I was thinking "who in their right mind would give up all the money owed?" Except that most people don't pay that all at once. They pay portions of it on a monthly basis...so a creditor wouldn't be losing billions of dollars all at once, they'd lose the monthly principal+interest they were expecting...income that would probably be made up quite quickly.
I'm not so sure about what debt forgiveness would do for some of the more complicated financial transactions (i.e. mortgage backed securities).
Still, I find myself wondering what would happen if we agreed to use our tax money to pay creditors a portion of some debts with the understanding that the entire debt would be forgiven. The portion of the debt would essentially cover what would have been lost in the time it would take to have new loans made and new interest to count on.
Sort of a 'the bird in the hand is worth two in the bush' kind of a deal. Take a certain amount of money now, don't worry about trying to recover the entire debt over thirty or more years, and then be back in business with new loans.
Sorry, thought I was done with it...but the ol' brain went on ticking.
Seems crazy that any business would forgive a debt. And how would they make a profit?
Except.
Except as studies of lottery winners show, it's not just about having money and being debt free. It's about changing your lifestyle. Let's say you had credit card debt and that debt was forgiven. How many people are actually going to avoid wracking up more debt on a credit card? (Probably not as many as we should hope). And mortgages? Someone would probably use the opportunity to trade up to a nicer house, and get a new mortgage. Oh...and then their old house would be on the market for someone else to trade up to. So in less than a year, creditors would probably still have plenty of loans and whatnot to profit off of.
Plus, I was thinking "who in their right mind would give up all the money owed?" Except that most people don't pay that all at once. They pay portions of it on a monthly basis...so a creditor wouldn't be losing billions of dollars all at once, they'd lose the monthly principal+interest they were expecting...income that would probably be made up quite quickly.
I'm not so sure about what debt forgiveness would do for some of the more complicated financial transactions (i.e. mortgage backed securities).
Still, I find myself wondering what would happen if we agreed to use our tax money to pay creditors a portion of some debts with the understanding that the entire debt would be forgiven. The portion of the debt would essentially cover what would have been lost in the time it would take to have new loans made and new interest to count on.
Sort of a 'the bird in the hand is worth two in the bush' kind of a deal. Take a certain amount of money now, don't worry about trying to recover the entire debt over thirty or more years, and then be back in business with new loans.
Passing Knowledge, Bible, Economics, etc
I remember hearing a fascinating bit on agriculture. In Leviticus 19, the Bible says - 23
" 'When you enter the land and plant any kind of fruit tree, regard its fruit as forbidden. For three years you are to consider it forbidden; it must not be eaten.
The fascinating bit of agriculture is that apparently in the first few years you want the roots to establish themselves and the tree to grow, so you're not supposed to let it fruit. Fruiting and flowering takes energy from growth, and if you prevent that then the tree will establish itself more strongly.
I may be reading into this too much. The Bible just says that the fruit is forbidden, it doesn't say you should prevent it from growing in the frist place. Yet I can't help thinking that they stumbled on a bit of agricultural knowledge (noticed that fruit trees were stronger if you didn't let them grow fruit in the first couple of years) and passed it on by making it a biblical commandment. I've heard similar arguments about pork. Someone noticed that people eating pork got sick more often (it can carry some pathogens), and passed the knowledge on in a form of biblical prohibition. When you don't have science, don't understand cells and viruses and diseased, yet you notice something important that's one way of making sure the observation sticks.
I'll come back to that in a bit. I've been thinking more about economics. This is, of course, a complicated area. It's fairly new, and hard to understand in it's entirety. Reminds me a bit of something my father said about meteorology (he has a Master's in it). He said that if you want to predict the weather you have all these tools to assess it. Barometric pressure, humidity, radar...you can sit at a computer and have it spit out an analysis. And then you still ought to go step outside, look at the clouds, and try to see if what's out there is matching what the computer is predicting.
Economics strikes me as somewhat similar, and in many ways even more difficult. We're still caught flat-footed by unexpected events. Like meteorologists who every ten years somehow fail to notice a hurricane is brewing. Worse, economics is strongly affected by human activity. And human psychology. The things we choose to do will change what the analysis should be. Plus people can get into panics, or manias, and affect economics in ways that are hard to predict in advance.
I'll probably go into that in more detail later. Right now I wanted to go into something I'm seeing a lot on Brigade. Namely - debt. Student debt, which I've been hearing for years is in some sort of bubble similar to the mortgage crisis. For the most part, this doesn't affect me. Thanks to the military I've been able to pay off every single penny on my student loans. (This, btw, is a huge advantage for me. Given the debt so many others my age are tied down with, I feel very grateful for that my monthly budget doesn't have to take into account paying back a student loan on top of everything else.)
I've seen a number of posts comment that debt - student loan debt in particular - is choking growth. The millenials who would be taking out a mortgage are instead paying back student loans, which makes it hard to do all the other things we used to expect came with adulthood.
Which brings me back to my first point. The Bible also has that fascinating bit about the jubilee year, and I have to wonder if there was an observable advantage to it...one that they couldn't quantify and didn't understand in the same way they didn't know why giving up fruit for the first few years would help a tree produce more later.
I have a hard time seeing how that would work in our modern world. So much of our society is built on property rights, legally binding contracts, etc. For good reason. The idea that any modern business would forgive debts and expect to be profitable seems...ludicrous. Even back in biblical times they didn't do this often - maybe every fifty years. Yet I can see how this would help, economically. The people freed from debt would have more resources, would be able to buy more things, and would probably stimulate the economy.
I have to wonder if there's any sort of practical, modern alternative. I know there's a charity group doing that whole Rolling Jubilee thing, but I suspect it doesn't have enough support and resources to make that much of a difference. The website says they've abolished almost $32 million of debt. Out of how much?
24
In the fourth year all its fruit will be holy, an offering of praise to the LORD.
25
But in the fifth year you may eat its fruit. In this way your harvest will be increased. The fascinating bit of agriculture is that apparently in the first few years you want the roots to establish themselves and the tree to grow, so you're not supposed to let it fruit. Fruiting and flowering takes energy from growth, and if you prevent that then the tree will establish itself more strongly.
I may be reading into this too much. The Bible just says that the fruit is forbidden, it doesn't say you should prevent it from growing in the frist place. Yet I can't help thinking that they stumbled on a bit of agricultural knowledge (noticed that fruit trees were stronger if you didn't let them grow fruit in the first couple of years) and passed it on by making it a biblical commandment. I've heard similar arguments about pork. Someone noticed that people eating pork got sick more often (it can carry some pathogens), and passed the knowledge on in a form of biblical prohibition. When you don't have science, don't understand cells and viruses and diseased, yet you notice something important that's one way of making sure the observation sticks.
I'll come back to that in a bit. I've been thinking more about economics. This is, of course, a complicated area. It's fairly new, and hard to understand in it's entirety. Reminds me a bit of something my father said about meteorology (he has a Master's in it). He said that if you want to predict the weather you have all these tools to assess it. Barometric pressure, humidity, radar...you can sit at a computer and have it spit out an analysis. And then you still ought to go step outside, look at the clouds, and try to see if what's out there is matching what the computer is predicting.
Economics strikes me as somewhat similar, and in many ways even more difficult. We're still caught flat-footed by unexpected events. Like meteorologists who every ten years somehow fail to notice a hurricane is brewing. Worse, economics is strongly affected by human activity. And human psychology. The things we choose to do will change what the analysis should be. Plus people can get into panics, or manias, and affect economics in ways that are hard to predict in advance.
I'll probably go into that in more detail later. Right now I wanted to go into something I'm seeing a lot on Brigade. Namely - debt. Student debt, which I've been hearing for years is in some sort of bubble similar to the mortgage crisis. For the most part, this doesn't affect me. Thanks to the military I've been able to pay off every single penny on my student loans. (This, btw, is a huge advantage for me. Given the debt so many others my age are tied down with, I feel very grateful for that my monthly budget doesn't have to take into account paying back a student loan on top of everything else.)
I've seen a number of posts comment that debt - student loan debt in particular - is choking growth. The millenials who would be taking out a mortgage are instead paying back student loans, which makes it hard to do all the other things we used to expect came with adulthood.
Which brings me back to my first point. The Bible also has that fascinating bit about the jubilee year, and I have to wonder if there was an observable advantage to it...one that they couldn't quantify and didn't understand in the same way they didn't know why giving up fruit for the first few years would help a tree produce more later.
I have a hard time seeing how that would work in our modern world. So much of our society is built on property rights, legally binding contracts, etc. For good reason. The idea that any modern business would forgive debts and expect to be profitable seems...ludicrous. Even back in biblical times they didn't do this often - maybe every fifty years. Yet I can see how this would help, economically. The people freed from debt would have more resources, would be able to buy more things, and would probably stimulate the economy.
I have to wonder if there's any sort of practical, modern alternative. I know there's a charity group doing that whole Rolling Jubilee thing, but I suspect it doesn't have enough support and resources to make that much of a difference. The website says they've abolished almost $32 million of debt. Out of how much?
Tuesday, July 14, 2015
Public Goods and Economics
I wanted to jot down a couple of thoughts.
I was thinking about my earlier example (i.e. toll roads instead of public roads) and realized that the problem is even worse than I originally described. After all, some places are just too far away to justify the expense of a road. In normal conditions.
Yet we all benefit by having those roads. Consider El Paso, Texas. El Paso is hundreds of miles away from any other city, and the roads to and from El Paso pass through mile after mile of desert. If the government didn't keep the roads up to date, how much would it cost for a private company to maintain that much roadwork? Just to get to one city - albeit a fairly large one, with direct access across the border to Ciudad Juarez.
Good roads make it easier for businesses to make money, because they don't have to worry as much about whether or not they could get their product to that location. Would Wal-mart be able to service El Paso, if the roads weren't maintained? Probably not. How much lost revenue would they see, if they lost their business from all the places that were too out of the way to justify building a road? (If we didn't take on that expense as a public good, that is.) Africa has seen an extreme version of this, where farmer's produce rots in fields because there are no roads to take it to market.
These, as I tend to repeat myself on, are examples of public goods. We all benefit, albeit indirectly sometimes, by having reliable and efficient means of transportation. And you don't get to pick and choose who benefits by them.
So when we elect officials and say "we want infrastructure", we should acknowledge that we are also saying "we give you the authority to raise funds from us in order to build better roads". They can't pick and choose who they charge for it. You can't have someone say "well, I never use the roads so I shouldn't have to pay for them". Maybe you don't personally use the roads...but do you buy groceries? I bet the groceries traveled on a road. Do you order things online? I bet they get delivered on a road. At least, until drones are more commonplace.
Everything that you own or use that did not get made by you, or by someone close by that you know doesn't use roads...all required a good method of movement to get to you.
There's a similar challenge with national defense. I remember a few years back someone said Berkeley wanted to waive off the protection the US gave them...said they didn't need it. For obvious reasons, you can't really do that. (If you don't find them obvious, let me know and I'll go into more detail.)
So anyways. I think there are other public goods that we all benefit, and that help build a strong economy. Take education. In Afghanistan the literacy rate is horrible...which is a disadvantage when you need workers who can read, or type. Most of our white collar, cubicle desk jobs? Good luck finding that.
When I talked about comparative advantage before, I think we should distinguish between the geographical ones - i.e. what's located near a particular resource - vs. what's more flexible. So many places are trying to figure out how to be the next Silicon Valley, for example, because there isn't a particular reason why the high-tech industry has to be there. That is, the reasons are more socio-cultural than having to do with good soil for growing wine, or good mineral deposits, or other reasons that are rather fixed. (Though once it's established, it can draw better quality people and maintain that distinction).
The US, btw, has a great advantage simply because so many people want to work here. And think about what it says, that certain countries have to restrict their own citizens from leaving. (That gives us a distinct comparative advantage.)
So anyways, to compete with human capital you need a good education system. It's a public good that has benefits in ways that are hard to capture.
But these are not exactly a challenging claim to make. Most Americans support education, just as most support better roads. (There is some debate over whether it has to be 'public', and whether privatization can get the job done. In certain cases I think privatization could be the way to go. But I think I've made myself clear that infrastructure is not one of those).
What is challenging is to argue that those exact same arguments can be applied to some other areas. Consider internet access. Some of my relatives had dial-up internet for years because it wasn't worth it for cable to run internet out to such a rural area. How many other places are unable to shop online, unable to participate in the digital economy...simply because it's not really profitable to build a connection?
Or think of it another way - in a digital world, how many businesses could move to a place with a lower cost of living if they could only guarantee they'd have a good internet connection?
Or consider public health. We just went through a big whole debate about this, and in some ways I'm disappointed with how the debate has gone. I know, again, that it's hard to quantify the benefits of having a healthy population. But they are there. Not just in terms of less sick days, better preventive medicine. And not just as a way to draw more human capital (who wants to live in a society where people are abandoned to die for lack of funds? Since we have laws saying hospitals have to treat people even if they can't pay, I think it's safe to say we really don't. So how can we pretend that we're not already paying for the uninsured? Hospitals make a profit basically by charging insurance companies more for their services, to make up for the ones who can't pay at all. Which then translates into higher insurance rates for the rest of us.)
The thing is, these don't come free. Some of them will make themselves up in other ways (Tim Harford had a nice bit that discussed the spending multiplier here). Yet at the end of the day we will need some way of funding these. Maybe we'll run the numbers through, figure out how much it would cost, where the money would come from, and get a big ol' dose of sticker shock and decide it's not for us. Or decide that it's worth it, who knows? It's not the sort of thing any of can truly predict unless or until we tried it, and even then it'd be pretty hard to quantify.
Some days I kind of wish it were that simple.
I was thinking about my earlier example (i.e. toll roads instead of public roads) and realized that the problem is even worse than I originally described. After all, some places are just too far away to justify the expense of a road. In normal conditions.
Yet we all benefit by having those roads. Consider El Paso, Texas. El Paso is hundreds of miles away from any other city, and the roads to and from El Paso pass through mile after mile of desert. If the government didn't keep the roads up to date, how much would it cost for a private company to maintain that much roadwork? Just to get to one city - albeit a fairly large one, with direct access across the border to Ciudad Juarez.
Good roads make it easier for businesses to make money, because they don't have to worry as much about whether or not they could get their product to that location. Would Wal-mart be able to service El Paso, if the roads weren't maintained? Probably not. How much lost revenue would they see, if they lost their business from all the places that were too out of the way to justify building a road? (If we didn't take on that expense as a public good, that is.) Africa has seen an extreme version of this, where farmer's produce rots in fields because there are no roads to take it to market.
These, as I tend to repeat myself on, are examples of public goods. We all benefit, albeit indirectly sometimes, by having reliable and efficient means of transportation. And you don't get to pick and choose who benefits by them.
So when we elect officials and say "we want infrastructure", we should acknowledge that we are also saying "we give you the authority to raise funds from us in order to build better roads". They can't pick and choose who they charge for it. You can't have someone say "well, I never use the roads so I shouldn't have to pay for them". Maybe you don't personally use the roads...but do you buy groceries? I bet the groceries traveled on a road. Do you order things online? I bet they get delivered on a road. At least, until drones are more commonplace.
Everything that you own or use that did not get made by you, or by someone close by that you know doesn't use roads...all required a good method of movement to get to you.
There's a similar challenge with national defense. I remember a few years back someone said Berkeley wanted to waive off the protection the US gave them...said they didn't need it. For obvious reasons, you can't really do that. (If you don't find them obvious, let me know and I'll go into more detail.)
So anyways. I think there are other public goods that we all benefit, and that help build a strong economy. Take education. In Afghanistan the literacy rate is horrible...which is a disadvantage when you need workers who can read, or type. Most of our white collar, cubicle desk jobs? Good luck finding that.
When I talked about comparative advantage before, I think we should distinguish between the geographical ones - i.e. what's located near a particular resource - vs. what's more flexible. So many places are trying to figure out how to be the next Silicon Valley, for example, because there isn't a particular reason why the high-tech industry has to be there. That is, the reasons are more socio-cultural than having to do with good soil for growing wine, or good mineral deposits, or other reasons that are rather fixed. (Though once it's established, it can draw better quality people and maintain that distinction).
The US, btw, has a great advantage simply because so many people want to work here. And think about what it says, that certain countries have to restrict their own citizens from leaving. (That gives us a distinct comparative advantage.)
So anyways, to compete with human capital you need a good education system. It's a public good that has benefits in ways that are hard to capture.
But these are not exactly a challenging claim to make. Most Americans support education, just as most support better roads. (There is some debate over whether it has to be 'public', and whether privatization can get the job done. In certain cases I think privatization could be the way to go. But I think I've made myself clear that infrastructure is not one of those).
What is challenging is to argue that those exact same arguments can be applied to some other areas. Consider internet access. Some of my relatives had dial-up internet for years because it wasn't worth it for cable to run internet out to such a rural area. How many other places are unable to shop online, unable to participate in the digital economy...simply because it's not really profitable to build a connection?
Or think of it another way - in a digital world, how many businesses could move to a place with a lower cost of living if they could only guarantee they'd have a good internet connection?
Or consider public health. We just went through a big whole debate about this, and in some ways I'm disappointed with how the debate has gone. I know, again, that it's hard to quantify the benefits of having a healthy population. But they are there. Not just in terms of less sick days, better preventive medicine. And not just as a way to draw more human capital (who wants to live in a society where people are abandoned to die for lack of funds? Since we have laws saying hospitals have to treat people even if they can't pay, I think it's safe to say we really don't. So how can we pretend that we're not already paying for the uninsured? Hospitals make a profit basically by charging insurance companies more for their services, to make up for the ones who can't pay at all. Which then translates into higher insurance rates for the rest of us.)
The thing is, these don't come free. Some of them will make themselves up in other ways (Tim Harford had a nice bit that discussed the spending multiplier here). Yet at the end of the day we will need some way of funding these. Maybe we'll run the numbers through, figure out how much it would cost, where the money would come from, and get a big ol' dose of sticker shock and decide it's not for us. Or decide that it's worth it, who knows? It's not the sort of thing any of can truly predict unless or until we tried it, and even then it'd be pretty hard to quantify.
Some days I kind of wish it were that simple.
Sunday, July 12, 2015
Thinking Outside the Box
I like to think of myself as an original thinker. Creative. Outside the box. As I dig a bit into economics, I found myself thinking a bit more about that as well. See, economics is a complicated field. There's a lot of research going on, and math. PhD's trying to study issues. So why add my own thoughts to the mix?
I will say, first off, that creativity sometimes comes from unusual areas. And, perhaps, the interactions between people as well. Ideas sparking ideas. In college my ROTC class suggested we read Gates of Fire, a book about the 300 Spartans at Thermopylae. One of the things that struck me was a decision they made about which Spartans would go.
Yes, they picked experienced men. They also picked some newbies. At first that seemed odd - wouldn't you want the best of the best? But if you think about human dynamics, it makes sense. If you're confident everyone around you knows what to do, you can get complacent. Keeping an eye out for someone inexperienced can also help keep you more alert and aware. Plus, as they say, you really learn something when you have to teach it to someone else. The very act of going over the basics, explaining to someone what you've learned over the years...distilling the lessons of your hard won experience into something they can use...all of that helps you as well.
And there's a third element to it. New people means new ideas. Different perspectives. New people don't accept something 'because that's the way it is'. They may ask 'why' on things everyone else has been taking for granted.
I talk a lot about groupthink, and about why you need diversity of backgrounds as much as anything else. A meeting of economists who all have a PhD is a meeting of people who were all trained to think the same way, and probably won't even think about asking certain questions. How often in the last century have our 'best and brightest' wound up making bad decisions? Maybe we need to mix up our 'best and brightest' with a few people who have different experiences to draw on. This holds true for more than just economics. When I was in training for the human terrain system, most of our trainees were also militry. Some were not. It made me realize how much my military experience shaped my perspective, in the exact same way as so many of my fellow veterans. There are things we would all see through the lens of our experience. The same way, regardless of who was white or black, male or female. And we didn't even think about them, didn't have to think about them, until we had to explain some of those underlying assumptions to the pure civilians that were with us.
Thinking outside the box isn't magic. Or, well, it sort of is...but you can create the circumstances that make it more likely. And you can create circumstances that make it LESS likely.
I think part of what is required is sharing ideas, perspectives. (That's the benefit of a liberal arts education. You've got a broader spectrum of ideas to draw on. That's also the real concern about intellectual property rights. Yes...people should benefit from their ideas. But if we limit it too much we risk short-circuiting the flow of creativity.)
I also think you need a blend of experiences and backgrounds. Knowledgable people, yes. Experts in their fields. But you also need people who aren't expert at all.
I thought about qualifying that a bit. I do think critical thinking is important, particularly for those non-experts. But truthfully you can get the question that sparks an idea from anyone. Any time.
Footnote: In figuring out what to read on economics, I used my own critical thinking to rule out certain types of books. The funny thing about the one I'm currently reading - silly as I think the title is, and hokey as the writing style gets - is that the author captured almost perfectly what I was looking for. The book is called The Undercover Economist Strikes Back. The author says the book "is not a strident call for action, nor a searing list of people to blame for the crisis. (You can find plent of those elsewhere.) Nor is it the kind of popular economics book that offers practical ideas you can apply in your personal or business life. (You can find plenty of those elsewhere, too - including my previous books.) If it's insights into the workings of life at human scale that you're after, then quantitative easing will prove to be of about as much use to you as quantum physics.
...What I have to offer in the coming pages instead is a determined and practical minded poke-around under the hood of our economic system."
Here's my personal rule of thumb - proposed solutions are good tools to keep in your kitbag. They were developed for a reason, and in the right circumstances they will work. The trick is identifying those 'right circumstances', and determining whether the current situation fits that criteria. In certain circumstances, deregulation works. Lowering taxes works. In other circumstances? Not so much.
I want to know more about what tools are available, and how to know when to apply them.
I will say, first off, that creativity sometimes comes from unusual areas. And, perhaps, the interactions between people as well. Ideas sparking ideas. In college my ROTC class suggested we read Gates of Fire, a book about the 300 Spartans at Thermopylae. One of the things that struck me was a decision they made about which Spartans would go.
Yes, they picked experienced men. They also picked some newbies. At first that seemed odd - wouldn't you want the best of the best? But if you think about human dynamics, it makes sense. If you're confident everyone around you knows what to do, you can get complacent. Keeping an eye out for someone inexperienced can also help keep you more alert and aware. Plus, as they say, you really learn something when you have to teach it to someone else. The very act of going over the basics, explaining to someone what you've learned over the years...distilling the lessons of your hard won experience into something they can use...all of that helps you as well.
And there's a third element to it. New people means new ideas. Different perspectives. New people don't accept something 'because that's the way it is'. They may ask 'why' on things everyone else has been taking for granted.
I talk a lot about groupthink, and about why you need diversity of backgrounds as much as anything else. A meeting of economists who all have a PhD is a meeting of people who were all trained to think the same way, and probably won't even think about asking certain questions. How often in the last century have our 'best and brightest' wound up making bad decisions? Maybe we need to mix up our 'best and brightest' with a few people who have different experiences to draw on. This holds true for more than just economics. When I was in training for the human terrain system, most of our trainees were also militry. Some were not. It made me realize how much my military experience shaped my perspective, in the exact same way as so many of my fellow veterans. There are things we would all see through the lens of our experience. The same way, regardless of who was white or black, male or female. And we didn't even think about them, didn't have to think about them, until we had to explain some of those underlying assumptions to the pure civilians that were with us.
Thinking outside the box isn't magic. Or, well, it sort of is...but you can create the circumstances that make it more likely. And you can create circumstances that make it LESS likely.
I think part of what is required is sharing ideas, perspectives. (That's the benefit of a liberal arts education. You've got a broader spectrum of ideas to draw on. That's also the real concern about intellectual property rights. Yes...people should benefit from their ideas. But if we limit it too much we risk short-circuiting the flow of creativity.)
I also think you need a blend of experiences and backgrounds. Knowledgable people, yes. Experts in their fields. But you also need people who aren't expert at all.
I thought about qualifying that a bit. I do think critical thinking is important, particularly for those non-experts. But truthfully you can get the question that sparks an idea from anyone. Any time.
Footnote: In figuring out what to read on economics, I used my own critical thinking to rule out certain types of books. The funny thing about the one I'm currently reading - silly as I think the title is, and hokey as the writing style gets - is that the author captured almost perfectly what I was looking for. The book is called The Undercover Economist Strikes Back. The author says the book "is not a strident call for action, nor a searing list of people to blame for the crisis. (You can find plent of those elsewhere.) Nor is it the kind of popular economics book that offers practical ideas you can apply in your personal or business life. (You can find plenty of those elsewhere, too - including my previous books.) If it's insights into the workings of life at human scale that you're after, then quantitative easing will prove to be of about as much use to you as quantum physics.
...What I have to offer in the coming pages instead is a determined and practical minded poke-around under the hood of our economic system."
Here's my personal rule of thumb - proposed solutions are good tools to keep in your kitbag. They were developed for a reason, and in the right circumstances they will work. The trick is identifying those 'right circumstances', and determining whether the current situation fits that criteria. In certain circumstances, deregulation works. Lowering taxes works. In other circumstances? Not so much.
I want to know more about what tools are available, and how to know when to apply them.
Sunday, February 22, 2015
The Prize, Thoughts
I wanted to take some time before posting my thoughts on my recent reading material, partly because there's so much to it. Once I start, I think whatever topic I begin with will crowd out all the rest. As I mentioned yesterday, breaking up the reading for this book by mixing it with Destiny Disrupted also changes the perspective a bit, and offers some interesting insights. Yet if I start discussing that, I will miss some basic points I wanted to make about this book, in and of itself.
So. Reading this book was a bit like working on a complicated 'connect the dot' pictures. I already had connected the dots for individual areas, but this book provided a much larger context and scope that helped create a more coherent picture. In some ways, that meant I was aware of how much was glossed over. It's over 700 pages of reading material already, so of course they had to gloss over some history.
What I found most interesting was the way he tied the oil industry to economic recession (and boom). I had heard the term "oil choke collar" already, and knew it embodied this notion that high oil prices choked off growth because people had to pay more for gas. What's interesting, to me at least, was that the book made it sound like this was known and widely accepted economics...yet even today news articles make it sound like this is a new and untested concept. (Or perhaps that's my take on it).
The thing of it is, I remember hearing about 'stagflation' and what it did to Jimmy Carter's presidency. And I know all about the Reagan years, and the belief in trickle down economics and that deregulation boosted the economy. Yet, if this book is to be believed, none of that mattered. Nothing Jimmy Carter did hurt the economy, nothing Reagan did really helped the economy. It was all about the oil market.
I want to emphasize this a bit more, because so much of our political debate is tied in with the belief that it DID matter. We hardly touch on the oil price at all (other than to grumble as consumers, of course.) Sure, I heard about the 'oil choke collar'. In one place. Maybe I'm just not reading enough economic news? If this was widely known and accepted, I would expect an entirely different national discourse on the state of our economy.
But perhaps that's also because of the strange history here in the States. We produce oil. Yet we consume more. So the independents of the oil industry have a larger say in what we do. Sometimes to odd affect - given how crucial oil is to national security (can't fight a war if your tanks and planes are out of gas) you would think conserving the secure supplies in our own nation would be important. Instead, for a period of time, we actually had tariffs to encourage domestic consumption. And said it was for national security reasons!!!
I also am pondering this whole concept of 'rents'. That is, the price of oil (more than any other commodity, perhaps) is so market driven that the difference between the cost of producing a gallon and the retail value of that gallon can be huge. Can, not necessarily is. I'd heard before that the oil industry has to spend a lot more to invest in developing new sources, etc. I know they waste a lot of money drilling dry holes, trying to discover oil. Plus there's the upkeep to the infrastructure, and labor costs, etc. I've heard that's part of why state-run oil industries don't stay competitive over the long run.
Yet it's a funny type of expense, because it's the kind of thing that matters in the long run. In the short run, if you don't want to spend the money on those sorts of things, the difference between the cost of producing a gallon and the cost it sells at can be pretty large. So the book focuses a lot on what happens to these 'rents'. How the oil producing countries wanted to take a larger and larger share of those rents. How tariffs and taxes in the importing countries can transfer the 'rents' to the pockets of their own governments.
The book did an excellent job of explaining how expensive it is to search for oil. The argument over who should get what (the essence of politics, according to at least one of my classes) is eerily similar to the arguments over intellectual property rights. The industries that took on the costs of finding and developing oil should get some profit off it, sure. Just as one would hope the creators and artists who make something new should benefit and get credit for it.
Yet at some point, it's reasonable to believe that they have earned 'enough'. That the risks and challenges they faced were well compensated, to the point where they are not entitled to more. (In intellectual property, there's reason to believe that too stringent a policy will destroy creativity and stifle innovation. That's why a limit is sometimes set for when those rights will expire.)
If you apply that to the concessions given oil companies, at least at the beginning, you can see why the exporting countries felt like they didn't owe the oil companies anything when they nationalized the industry. Now you're getting into the murky history of colonialism, nationalism, and whether the country where natural resources are found should benefit directly from the resources within. There are entire books on this topic, so I don't want to get sidetracked too far.
Another dot connected - I had heard Osama bin Laden was mad at Saudi Arabian leadership partly over how oil was used. I think he wanted to drive prices up? Anyways...this book connected a few dots there, as well, as it discussed the "oil weapon" and attempts by oil producing countries to use it.
So oil 'rents' seem to be a key concept here, and one well worth considering when looking at international politics. Yet there are consequences, too, to gaining too much from the rents. I recall reading about 'Dutch disease' in some of my economic classes, and though this book never mentioned it by name it did touch on it when discussing the effects of oil on national economies. (Again, this is where the United States would be an interesting comparison study, as a producer as well as consumer.)
All in all, a good book to read with plenty of food for thought. And it's only part of the story.
So. Reading this book was a bit like working on a complicated 'connect the dot' pictures. I already had connected the dots for individual areas, but this book provided a much larger context and scope that helped create a more coherent picture. In some ways, that meant I was aware of how much was glossed over. It's over 700 pages of reading material already, so of course they had to gloss over some history.
What I found most interesting was the way he tied the oil industry to economic recession (and boom). I had heard the term "oil choke collar" already, and knew it embodied this notion that high oil prices choked off growth because people had to pay more for gas. What's interesting, to me at least, was that the book made it sound like this was known and widely accepted economics...yet even today news articles make it sound like this is a new and untested concept. (Or perhaps that's my take on it).
The thing of it is, I remember hearing about 'stagflation' and what it did to Jimmy Carter's presidency. And I know all about the Reagan years, and the belief in trickle down economics and that deregulation boosted the economy. Yet, if this book is to be believed, none of that mattered. Nothing Jimmy Carter did hurt the economy, nothing Reagan did really helped the economy. It was all about the oil market.
I want to emphasize this a bit more, because so much of our political debate is tied in with the belief that it DID matter. We hardly touch on the oil price at all (other than to grumble as consumers, of course.) Sure, I heard about the 'oil choke collar'. In one place. Maybe I'm just not reading enough economic news? If this was widely known and accepted, I would expect an entirely different national discourse on the state of our economy.
But perhaps that's also because of the strange history here in the States. We produce oil. Yet we consume more. So the independents of the oil industry have a larger say in what we do. Sometimes to odd affect - given how crucial oil is to national security (can't fight a war if your tanks and planes are out of gas) you would think conserving the secure supplies in our own nation would be important. Instead, for a period of time, we actually had tariffs to encourage domestic consumption. And said it was for national security reasons!!!
I also am pondering this whole concept of 'rents'. That is, the price of oil (more than any other commodity, perhaps) is so market driven that the difference between the cost of producing a gallon and the retail value of that gallon can be huge. Can, not necessarily is. I'd heard before that the oil industry has to spend a lot more to invest in developing new sources, etc. I know they waste a lot of money drilling dry holes, trying to discover oil. Plus there's the upkeep to the infrastructure, and labor costs, etc. I've heard that's part of why state-run oil industries don't stay competitive over the long run.
Yet it's a funny type of expense, because it's the kind of thing that matters in the long run. In the short run, if you don't want to spend the money on those sorts of things, the difference between the cost of producing a gallon and the cost it sells at can be pretty large. So the book focuses a lot on what happens to these 'rents'. How the oil producing countries wanted to take a larger and larger share of those rents. How tariffs and taxes in the importing countries can transfer the 'rents' to the pockets of their own governments.
The book did an excellent job of explaining how expensive it is to search for oil. The argument over who should get what (the essence of politics, according to at least one of my classes) is eerily similar to the arguments over intellectual property rights. The industries that took on the costs of finding and developing oil should get some profit off it, sure. Just as one would hope the creators and artists who make something new should benefit and get credit for it.
Yet at some point, it's reasonable to believe that they have earned 'enough'. That the risks and challenges they faced were well compensated, to the point where they are not entitled to more. (In intellectual property, there's reason to believe that too stringent a policy will destroy creativity and stifle innovation. That's why a limit is sometimes set for when those rights will expire.)
If you apply that to the concessions given oil companies, at least at the beginning, you can see why the exporting countries felt like they didn't owe the oil companies anything when they nationalized the industry. Now you're getting into the murky history of colonialism, nationalism, and whether the country where natural resources are found should benefit directly from the resources within. There are entire books on this topic, so I don't want to get sidetracked too far.
Another dot connected - I had heard Osama bin Laden was mad at Saudi Arabian leadership partly over how oil was used. I think he wanted to drive prices up? Anyways...this book connected a few dots there, as well, as it discussed the "oil weapon" and attempts by oil producing countries to use it.
So oil 'rents' seem to be a key concept here, and one well worth considering when looking at international politics. Yet there are consequences, too, to gaining too much from the rents. I recall reading about 'Dutch disease' in some of my economic classes, and though this book never mentioned it by name it did touch on it when discussing the effects of oil on national economies. (Again, this is where the United States would be an interesting comparison study, as a producer as well as consumer.)
All in all, a good book to read with plenty of food for thought. And it's only part of the story.
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