The EU is out of time.
http://brucekrasting.com/shipping-news-and-a-bit-more/
"Thursday, October 18, 2012
Shipping News – and a bit more
I spoke with a fellow who owns vessels and happens to be be Greek. Some of the business and social/economic threads of our conversation:
He discussed (with some obvious anger) a poor investment he had made two years ago. He purchased a ship for $6Mn. This was a 28 year old vessel (that still had some life) that fell into the (aptly named) category of “Handy Sized” vessels. In the good times (2000-2005), this ship might have gotten charters that earned $15,000 a day versus fixed costs of $8-10K. At that rate the cost of the vessel would be returned in about four years (includes down time and deadheading). Not a bad deal.
It didn’t work out. Cargoes for this vessel now pay a rate that no longer cover fixed costs. Layup times between cargoes has increased. Insurance companies charge more to cover shipments in older vessels; so this ship is shunned for newer ones. The final straw is that the ship needed repairs. A layup of three months, and another $1mn down a rat hole was necessary.
He cut his loss. The ship went from Singapore to India on its final voyage. There, it was run aground and chipped into pieces for scrap steel. In a month or two the ship will be converted to re-bar.
If you put this ship on a scale (empty) it would weigh 6,500 tonnes. All of this (nearly) is steel. The going rate for scrap steel is $425 a tonne; so he got $2.8Mn back on his original investment.
I bring this up as an example of how excess capacity is being worked off in commercial shipping. The story he told is being repeated daily. His loss on this ship is part of the healing process.
The good news is that freight rates are up a bit, and longer-term contracts are being written for vessels that are under twelve years old.
The bad news is that he doesn’t expect the recent improvement to last. There are more and more ships coming to market, and there are not enough cargoes to fill them all up. He reckons another down tick by June of next year.
He discussed China’s role in the shipping industry. It is the stated goal of the Chinese government to own 70% of the vessels that carry Chinese imports/exports. Today, that number is closer to 20%. This implies a huge transition in the ownership structure of the global shipping industry. It means that China, at one point, will have tremendous pricing power over global shipping costs.
China has purchased some vessels in the secondary market to achieve its goals, but the country’s strategy is to build its own vessels. This will keep the steel mills and shipyards humming. It supports dozens of other industries that provide components. Financing is available from the banks. Insurance is provided by Chinese companies that favors the Chinese vessels. Chinese crews (non-union) are much cheaper than crews from Greece.
He said that this was playing out in slow motion. It will be another decade before the Chinese economic hegemony in shipping is really felt. He also said that the trend toward Chinese dominance was irreversible, and that there would be casualties. Think of a steady stream of rusty old ships headed for the scrap-yards of India. Each one means China gets stronger.
Note: The USA is not a factor in global shipping. US flagged dry cargo ships exist because they primarily carry A.I.D. cargoes of grain. Without this subsidy, the country would have next to no fleet at all.
++
We talked about Greece. The country is
grinding to a halt. He described the situation in rural areas that have
been very hard hit. The social infrastructure is falling apart. The
young people are leaving the islands looking for work. The old people
are left. There is no money to pay bills.
Greeks with ties to these communities, who
now live outside of the country, are aware of the hardships. They have
been providing a steady stream of assistance. A family from London will
pay the heating bill for the old age home. Another, from NY, will see
that the soup kitchens have food to prepare and serve. Someone in
Australia will pay to keep the clinic going. Without this uncoordinated
support system, people would be cold, sick and hungry.
He reminded me that the Greek people are
very proud. They will accept assistance, but they will not beg. Relying
on ex-Greek nationals for essentials is not sustainable. But there is no
alternative in sight. Not a pretty picture at all.
"
EU leaders agree 'fiscal facility’ plan with eye on budget union
19 Oct 2012
| 1 Comment
Debt crisis: as it happened - October 18, 2012
18 Oct 2012
| 963 Comments
PPI provision will drive Barclays to a loss
18 Oct 2012
| 4 Comments
Man dies outside Greek parliament during clashes
A 65-year-old man has died, reportedly of a heart attack, during violent clashes in front of the Greek parliament in Athens.
18 Oct 2012
Barclays reveals shock £700m PPI provision
Barclays has warned it will make a loss for the third quarter after revealing a shock £700m provision against payment protection insurance compensation claims.
18 Oct 2012
| 62 Comments
World's oldest bank Monte dei Paschi di Siena cut to 'junk' by Moody's
The world's oldest bank has been cut to "junk" by Moody's, as the rating agency warned that there was a "material probability" that the lender may need another cash injection from the Italian government.
18 Oct 2012
| 9 Comments
Greek protests and general strike: in pictures
Police fire tear gas at Greeks on the sidelines of a violent protest against austerity held amid a general strike.
18 Oct 2012
| Comment
France to clash with Germany over eurozone bailout fund
France and Germany will clash over Berlin’s attempts to block using the eurozone bailout fund to recapitalise banks but no decision will be taken before the end of the year, say senior officials.
18 Oct 2012
| 24 Comments
Black Monday 25 years on: in pictures
Twenty five years ago on Friday, stock markets around the world collapsed, with London's FTSE 100 slumping 11pc on Black Monday. As fear gripped the market, investors, politicians and central bankers pushed the panic buttons.
18 Oct 2012
| 8 Comments
Black Monday taught salutary lessons all round
Twenty five years ago tomorrow stock markets around the word collapsed. Roland Gribben was The Telegraph's Business Editor at the time and tells his story.
18 Oct 2012
| 16 Comments
Guardian:
-
18 Oct 2012: Second general strike in less than a month takes place amid latest round of draconian measures
-
18 Oct 2012: François Hollande and Angela Merkel at loggerheads on first day of EU summit over demands for a "budgets tsar"
-
18 Oct 2012: Ha-Joon Chang, Alistair Darling, Costas Lapavitsas, Phillip Inman, Luis Garicano and Olaf Gersemann: France's president, François Hollande, says the end of the crisis is very close. We asked panellists if they agree
-
Gallery (21 pictures), 18 Oct 2012: Greeks march against further austerity measures during a 24-hour general strike throughout Greece
-
Poll, 18 Oct 2012: Leaders meet in Brussels to discuss the euro crisis again
-
18 Oct 2012: AkzoNobel blames a drop in sales volumes and writedown on its decorative paints business on slowdown in Europe
-
18 Oct 2012: As Europe prepares for its crisis summit, we hear how people in Poland, Spain, Italy, the UK and France are coping
-
18 Oct 2012: Europe may have stopped shopping for Chinese and Japanese goods but the crisis offers Asia a knockdown sale of assets
http://robertreich.org/post/33847356202
"How Obama Can Smoke Out Mitt: Call for Breaking Up the Biggest Banks, and Resurrecting Glass-Steagall
Thursday, October 18, 2012
President Obama should propose that the nation’s biggest banks be broken up and their size capped, and that the Glass-Steagall Act be resurrected.
It’s good policy, and it would smoke out Mitt Romney as being of, by, and for Wall Street — and not on the side of average Americans.
It would also remind America that five years ago Wall Street’s excesses almost ruined the economy. Bankers, hedge-fund managers, and private-equity traders speculated on the upside, then shorted on the downside — in a vast zero-sum game that resulted in the largest transfer of wealth from average Americans to financial elites ever witnessed in this nation’s history.
Most of us lost big — including over $7 trillion of home values, a $700-billion-dollar bailout of Wall Street, and continuing high unemployment.
But the top 1 percent have done just fine. In the first year of the recovery they reaped 93 percent of the gains. The latest data show them back with 20 to 25 percent of the nation’s total income — just where they were in 2007."
. . .
Asian markets slipped on poor US tech earnings, but losses were limited by hopes raised by China’s GDP data on Thursday, and stronger than expected US manufacturing data. Most losses were regained after news of the eurozone agreement. (Reuters)(Financial Times)(Bloomberg)
“Microsoft’s quarterly earnings dropped 22% amid weak demand for personal computers and slowing growth for its once-strong business software.” Revenue for the September quarter was down 8%. (Wall Street Journal)
“ArcelorMittal is exploring the sale of a stake in its $10bn Canadian iron ore business, as the world’s biggest steel company struggles to cope with the downturn in its key commodity. People familiar with the matter said ArcelorMittal had appointed advisers and had been sounding out potential buyers of a stake in the business, formerly known as Québec Cartier Mining.” (Financial Times)
Google panic over results bungle: Speaking to analysts after the market closed on Thursday, Larry Page, chief executive, said: “I’m sorry for the scramble earlier today. Our printers said they pressed send on the release a bit early.” The company’s results were published during the trading day instead of after close, prompting an 8% fall in its share price. Earnings of $9.03 per share were below analysts’ expectations of about $10.60. Citi estimated 40 cents of that was due to Motorola Mobility amortisation costs. (Financial Times)(Reuters)
Chipmaker AMD will cut 15% of its workforce as it struggles to cope with falling demand for PCs, a tougher economy and the growth of tablet devices. (Financial Times)
“ING Groep NV… is near an agreement to sell its Hong Kong and Thailand insurance businesses for about $2.2 billion to Richard Li, son of Asia’s richest man, said three people with knowledge of the matter.” (Bloomberg)
“Walmart, the world’s largest retailer by sales, is being investigated in India over accusations that it secretly invested in supermarkets, flouting a ban on foreign direct investment in the sector.” (Financial Times)
COMMENT AND CURIOS
- Gillian Tett: Merkel, the eurozone, and the humiliation factor. (Financial Times)
- It’s the 25th anniversary of Black Monday – and the timing is ironic… (Bloomberg)
- Lucy Kellaway meets TED vulnerability legend Brene Brown. (Financial Times)
- Failed deals are stirring up US-China tensions. (Wall Street Journal)
- Three policy choices for China’s new leaders. (Financial Times)
I am not happy about AMD. They make a better processor.
I would not mind if you wore a pixy cut. Get professional help on chemistry.
My hairline is in retreat. Lead acetate does not appeal.
A hat in public is my best choice.
Hair is optional. Wen is not a recommended brand.
I am absolutely serious.
Cohabitation now. More when you can. Sooner is better.
My car is running well. I will sign up for AAA coverage.
Sooner is better. As soon as you can is best.
Regained mobility is wonderful. Let us exploit it.
His views on money are wrong. The energy policy looks good.
"
Wednesday, October 17, 2012
The Myth of Affordable Energy — Interview with Ed Dolan
Yves here. Some readers may be concerned that economist Ed Dolan has recently published a book on the “libertarian perspective” on environmentalism.
I’m frankly a bit confused, since he very clearly advocates what he
calls “full cost pricing” for energy, which means pricing in
externalities. You’ll see below that he has an expansive view of what
should be included. But that sort of pricing could be achieved only via
government intervention, such as fees or fines imposed on producers, or
end user taxes (he admittedly has more conventional views when the
conversation moves away from energy to macroeconomics).
Interview conducted by James Stafford. Cross posted from OilPrice.com
We were fortunate enough to speak with the well known economist Ed Dolan on various energy and economic issues.
In the interview Ed talks about the following:
Ed Dolan: In my view it is a myth that cheap energy – “affordable energy” as many people like to say is vital to growth. The idea that there is a lockstep relationship between growth of GDP and use of energy is widespread, but the data simply does not bear it out. Instead, what they show is that the world’s best-performing economies have become dramatically more energy efficient over time.
The World Bank uses constant-dollar GDP per kg of oil equivalent as an energy efficiency metric. From 1980 to 2010, the high-income countries in the OECD have increased their average energy efficiency by 55 percent. The United States has done a little better than that, increasing its energy efficiency by 81 percent over that period. That’s pretty remarkable, considering that we haven’t really had a policy environment that is supportive of efficiency.
Think what we could do if we did.
Even after the efficiency gains in efficiency we have made, we still have a long way to go. The US economy is still 15 percent less energy efficient than the average for high-income OECD countries, giving it plenty of room to improve. Switzerland is almost twice as energy-efficient as the US, and the UK is 68 percent more efficient.
Some people say that the only reason the United States has been able to grow while using less energy is the deindustrialization of its economy, outsourcing heavy industry to China. However, compare the US with Germany. Germany is an export powerhouse and Europe’s best-performing economy, yet its energy efficiency has increased at almost the same rate over the last 30 years as the United States, an 80 percent gain in efficiency compared to 81 percent. Furthermore, despite being proportionately more industrialized than the US and a major exporter, Germany squeezes out 41 percent more GDP from each kg of oil equivalent.
In short, we don’t have to hypothesize about the possibility of someday breaking the lockstep relationship of growth and energy use—we and most of the rest of the advanced world are already doing it.
Oilprice.com: What effect can you see America’s Oil & Gas boom having on foreign policy?
Ed Dolan: On the whole, I see it as beneficial. Energy dependence has led us to buy a lot of oil from countries that are unstable and/or unfriendly to us. Anything we can do to reduce that dependence gives our foreign policy more room to maneuver. The beneficial effects reach beyond our actual imports and exports. The US gas revolution is having repercussions all the way to Russia, where Gazprom is seeing its market power undermined, and Russia, as a result, is losing some of the geopolitical leverage its pipeline network has given it.
Oilprice.com: From Siberia and Poland to China and Qatar – the shale revolution has politicians salivating at the thought of a cheap and abundant source of energy. But can the results seen in the U.S. be easily replicated in other parts of the world?
Ed Dolan: I think you’re going to have to ask someone with more engineering background for the technical details, but from what I read, the answer is that it won’t always be easy. It is my understanding that some countries where shale seemed just recently to have great promise have already encountered disappointments in practical exploratory work. Poland I think is an example. Furthermore, the environmentalist opposition to fracking seems even stronger in many European countries than in the United States.
Still, I am hoping that the shale revolution will pan out in at least some countries. Think how much difference it would make, say, to Ukraine’s foreign policy if they were able to break their dependence on Russian gas.
Oilprice.com: Gail Tverberg has written a recent article suggesting the world is suffering from high-priced fuel syndrome, which has the following symptoms:
Ed Dolan: I don’t buy the argument at all. Yes, when countries are hit by unexpected upward shocks in fuel prices, we do see short-run results like slower growth and layoffs, but those are short-term problems. When the proper structural adjustments are made, countries with high fuel prices manage to achieve strong growth and full employment.
Where are fuel prices lowest? If you look up the data and rank countries by retail fuel prices, you find the low-price end of the rankings crowded with countries like Egypt, Cambodia, Iran, Pakistan—not exactly economies we would like to emulate.
We’ve got big economic problems, but a lot of them don’t have much to do with energy.
What about a healthcare system that delivers mediocre results at the world’s highest cost?
Health care isn’t all that much energy driven. What about our steady move down the international rankings in education—are you going to blame that on the high cost of heating classrooms? Hardly.
Oilprice.com: Oil prices have been near to the $100 a barrel mark for some time now, and don’t look likely to drop back to previous low levels. What effect could this increased price have on oil importing economies compared to oil exporting economies?
Ed Dolan: Clearly, any oil price increase has the short-term effect of transferring wealth from using countries to producing countries. However, the long-run effects are what matter.
In the long run, high prices just accelerate the trend for using countries to become more efficient and less dependent. Meanwhile, the producing countries often don’t manage their oil riches well. They fall victim to the “curse of riches.” The curse takes the form partly of a loss of competitiveness in their non-energy sectors (the so-called “Dutch disease”). Partly it takes the form of corruption of their political systems. Russia is a poster child for both aspects of the curse of riches.
Oilprice.com: Renewable energy is more expensive than fossil fuels, so how can people be persuaded to choose the less economical option of renewables over the likes of coal and natural gas?
Ed Dolan: There is only one right way to promote renewables, and that is to introduce full-cost pricing of all forms of energy. Full-cost pricing is a two-part program.
First, it means pricing that covers the full production costs for every form of fuel. No subsidies for anyone—not for oil, not for ethanol, not for wind or solar.
The second half of full-cost pricing is to include all of the nonmarket costs, what economists call the “external costs” or “externalities.” The most publicized of these are pollution costs, whether those take the form of local smog, oil spills, climate change, or bird kills. Some people, I am one of them, would like to count in something for the national security costs of dependence on unfriendly and unstable foreign sources of energy supply.
Full-cost pricing accomplishes two things. First, it levels the playing field so that each form of energy competes on its economic merits, not whether corn-growing states have early primaries or oil companies have big SuperPacs. Second, by raising prices to consumers to a realistic level, it accelerates the trend toward energy efficiency that is already underway.
Subsidies for renewables are just plain wrong, even if you look at them from a hard-core environmentalist point of view. With a subsidy, on the one hand, you say, “produce more green energy” and other the other hand, you turn around and tell the consumer, “waste more green energy.” We don’t want to waste energy from wind or solar any more than we want to waste oil and gas. We shouldn’t forget that even the greenest renewables can have significant environmental impacts.
The whole “affordable energy” idea is based on the myth that if we don’t include those external costs in the price—the pollution costs, the national security costs—they just go away. They don’t. Keeping prices artificially low just transfers those costs to someone else, someone unlucky enough to live downwind, someone who owns beachfront property that gets eroded away as the sea level rises, someone who has to go off to fight a war to keep the shipping routes open. There are two things wrong that. First, it’s immoral. If we believe in the market economy, the rule of law, and all that, we have to respect people’s property rights and their human rights. Second, it’s inefficient. It doesn’t strengthen our economy, it weakens it. If there’s one thing we can’t afford, it’s “affordable energy.”
Oilprice.com: Obama has made clear his desires to cut the $4 billion a year tax breaks given to oil companies. What affect do you believe this would this have on the US economy and the US oil industry?
Ed Dolan: If it is done as part of a comprehensive move toward full-cost pricing, it could only strengthen the US economy. The oil industry would whine, but if we cut subsidies and tax breaks for competing energy sources at the same time, oil will remain a competitive part of the energy mix for many years to come.
Oilprice.com: The oil industry has enjoyed decades of subsidies and grants, so do you think it is unreasonable to already start cutting the subsidies to renewable energies and expect them to survive on their own?
Ed Dolan: As I explained above, the answer is yes, provided it is done as part of a package that reforms our energy policy as a whole in the direction of full-cost pricing.
Oilprice.com: Economic growth is generally dependent on the access to energy. As the supply of energy grows, so too does the economy (more or less). Global oil supplies are pretty much stagnant, so do you predict that only nations that successfully convert to a renewable energy mix with an abundant supply of cheap energy will be able to experience continued economic growth at a similar level experienced by the developed countries of recent years?
Ed Dolan: Again, I just don’t buy the doctrine that growth is dependent on ever-increasing energy use. For sure, those countries that pursue sound policies, like full-cost pricing to rationalize their energy mix and promote efficiency, are the ones that are going to keep growing.
Oilprice.com: As the arctic ice melts at a rapid pace the world’s superpowers are jockeying for position to exploit the region’s vast oil & gas & mineral deposits. Environmental groups are rightly concerned, but is this a resource that we cannot afford to ignore?
Ed Dolan: Arctic oil, like any other source of energy, should pay full freight for any environmental impacts it has. If it can bear those costs and still be competitive, I think it should be in the mix. I am worried about Russia, though. It has a dangerous combination of an environment-be-damned attitude and low technical competence that could lead to headline-grabbing disaster worse than the Gulf blowout or Exxon Valdez.
Oilprice.com: What effect do you see the shale revolution having on investments in renewable energy?
Ed Dolan: If I were trying to make money by generating electricity with wind or solar, I’d be worried about gas. I don’t have all the relevant numbers at my disposal, but my gut feeling is that even if you price in full environmental costs for wind, solar, and gas—including environmental costs associated with fracking—gas is still going to be pretty competitive.
Oilprice.com: What are your views on Ben Bernanke’s QE3?
Ed Dolan: I’ve written repeatedly about QE over at Economonitor, so I am on record as saying we should try it. The trouble is, QE is not a magic bullet. Properly executed and properly communicated, it can help support the recovery, but it can’t do it alone.
That is one point where I agree 110 percent with Ben Bernanke Here is what he said in a speech at the Fed’s Jackson Hole conference at the end of the summer:
“It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. . . Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve.”
Oilprice.com: How do you see the EU solving its debt crisis?
Ed Dolan: I’m afraid I’m a euro pessimist. The US debt situation is hard enough to resolve, but Europe’s is worse. At the same time, whatever you say about gridlock in Washington, our political decision making is a model of streamlined efficiency compared with the EU.
Oilprice.com: Do you think the EU was doomed to fail from the start with the format that it has? Could more success be seen in a split EU, with the northern/richer nations using one currency, and the southern/poorer nations using a different currency?
Ed Dolan: Doomed, I don’t know, but flawed, certainly. Just recently, I was looking back at what economists were writing about the prospects for the euro back in the early 1990s, when it was still just a project. They were telling us, for one thing, that Europe is too diverse to be ideal for a currency union—and that was when there were only 15 EU countries. Second, they said that you can’t run a monetary union without a central government, a fiscal union, and a banking union. You still don’t have any of those.
I am not sold on the idea of a northern euro and a southern euro. If the currency union doesn’t work, it doesn’t work. Break it up. Sure, some countries will find it works for their special circumstances to tie their currencies to a large, stable neighbour. I could see the Danes or the Latvians keeping a link to the German currency, for example, and I’m sure the Vatican will continue to use whatever currency Italy uses. But a formal, north-south divide doesn’t make much sense to me.
Oilprice.com: In terms of tackling the current economic situation in the US, of the two main presidential candidates, who do you suggest is the best man, and why?
Ed Dolan: I do not think we can tackle the current economic situation without a thorough-going fiscal policy reform that includes three key elements: Spending cuts, revenue increases, and a rewrite of the whole tax system to eliminate loopholes and cut marginal rates. Furthermore, the package can’t be heavily front-loaded like George Osborne’s austerity program in the UK, which has sent their economy back into recession. Ours should be back-loaded, with an element of stimulus now and an ironclad commitment to move the budget toward surplus as the economy improves. It’s a lot to ask for.
We are not going to get good budget policy out of the GOP unless members of that party make a clean break with mantra that they will not accept a dime of new revenue, not even if it comes from eliminating the most loathsome tax loopholes. Personally, I am never going to vote for a candidate for President, the Senate, the House, or any office who has signed that nonsensical Grover Norquist tax pledge.
At the same time, I have been very disappointed at the lukewarm support Obama has given to the kind of program I would like to see. During the first debate, Romney said that when Obama didn’t “grab” Simpson-Bowles—that was his word, and a good one—it was a failure of leadership. That was one point where I agreed with Mitt.
Then, you also have to take into account the vote for Congress. I’m afraid there is going to be continued gridlock as long as the GOP controls the House. In the Senate, there are at least a few people in both parties who are willing to meet behind the scenes and talk compromise, but not in the House, not right now, anyway. Maybe what we need in the White House is someone who is a real politician, a negotiator and dealmaker in the mould of a Clinton or an LBJ. Instead, we have the choice between a manager and a law professor. I’m not optimistic that either of them will be able to do what needs to be done."
Interview conducted by James Stafford. Cross posted from OilPrice.com
We were fortunate enough to speak with the well known economist Ed Dolan on various energy and economic issues.
In the interview Ed talks about the following:
• Why cheap energy is not vital to economic growthOilprice.com: Access to cheap energy is vital to economic growth. What do you see happening with the economy over the coming years as the time of cheap oil comes to an end?
• Why high oil prices aren’t necessarily a bad thing
• Why the U.S. Oil and gas boom is hurting Russia’s global influence
• Why Obama’s desire to cut oil industry tax breaks could be a great idea
• Why energy policy needs to be completely reformed
• Why Russia’s Arctic Exploration could cause the worst environmental disaster to date
• Why renewable energy investors should be very worried about the Natural gas boom
• Why the EU was flawed from the start
• Why subsidies for renewables are just plain wrong.
• Why we should give QE3 a chance
• Why abundant natural resources can bring a curse of riches
Ed Dolan: In my view it is a myth that cheap energy – “affordable energy” as many people like to say is vital to growth. The idea that there is a lockstep relationship between growth of GDP and use of energy is widespread, but the data simply does not bear it out. Instead, what they show is that the world’s best-performing economies have become dramatically more energy efficient over time.
The World Bank uses constant-dollar GDP per kg of oil equivalent as an energy efficiency metric. From 1980 to 2010, the high-income countries in the OECD have increased their average energy efficiency by 55 percent. The United States has done a little better than that, increasing its energy efficiency by 81 percent over that period. That’s pretty remarkable, considering that we haven’t really had a policy environment that is supportive of efficiency.
Think what we could do if we did.
Even after the efficiency gains in efficiency we have made, we still have a long way to go. The US economy is still 15 percent less energy efficient than the average for high-income OECD countries, giving it plenty of room to improve. Switzerland is almost twice as energy-efficient as the US, and the UK is 68 percent more efficient.
Some people say that the only reason the United States has been able to grow while using less energy is the deindustrialization of its economy, outsourcing heavy industry to China. However, compare the US with Germany. Germany is an export powerhouse and Europe’s best-performing economy, yet its energy efficiency has increased at almost the same rate over the last 30 years as the United States, an 80 percent gain in efficiency compared to 81 percent. Furthermore, despite being proportionately more industrialized than the US and a major exporter, Germany squeezes out 41 percent more GDP from each kg of oil equivalent.
In short, we don’t have to hypothesize about the possibility of someday breaking the lockstep relationship of growth and energy use—we and most of the rest of the advanced world are already doing it.
Oilprice.com: What effect can you see America’s Oil & Gas boom having on foreign policy?
Ed Dolan: On the whole, I see it as beneficial. Energy dependence has led us to buy a lot of oil from countries that are unstable and/or unfriendly to us. Anything we can do to reduce that dependence gives our foreign policy more room to maneuver. The beneficial effects reach beyond our actual imports and exports. The US gas revolution is having repercussions all the way to Russia, where Gazprom is seeing its market power undermined, and Russia, as a result, is losing some of the geopolitical leverage its pipeline network has given it.
Oilprice.com: From Siberia and Poland to China and Qatar – the shale revolution has politicians salivating at the thought of a cheap and abundant source of energy. But can the results seen in the U.S. be easily replicated in other parts of the world?
Ed Dolan: I think you’re going to have to ask someone with more engineering background for the technical details, but from what I read, the answer is that it won’t always be easy. It is my understanding that some countries where shale seemed just recently to have great promise have already encountered disappointments in practical exploratory work. Poland I think is an example. Furthermore, the environmentalist opposition to fracking seems even stronger in many European countries than in the United States.
Still, I am hoping that the shale revolution will pan out in at least some countries. Think how much difference it would make, say, to Ukraine’s foreign policy if they were able to break their dependence on Russian gas.
Oilprice.com: Gail Tverberg has written a recent article suggesting the world is suffering from high-priced fuel syndrome, which has the following symptoms:
• Slow economic growth, or contractionDo you think this is too convenient and an oversimplification of the problems facing world economies at the moment? What would you blame for the plethora of economic woes being experienced at the moment?
• People in discretionary industries laid off from work
• High unemployment rates
• Debt defaults (or huge government intervention to prevent debt defaults)
• Governments in increasingly poor financial condition
• Declining home and business property values
• Rising food prices
• Lower tolerance for immigrants
• Huge difficulty in funding retirement programs, programs for disabled, and regular pension plans
• Rising international tensions related to energy supply
Ed Dolan: I don’t buy the argument at all. Yes, when countries are hit by unexpected upward shocks in fuel prices, we do see short-run results like slower growth and layoffs, but those are short-term problems. When the proper structural adjustments are made, countries with high fuel prices manage to achieve strong growth and full employment.
Where are fuel prices lowest? If you look up the data and rank countries by retail fuel prices, you find the low-price end of the rankings crowded with countries like Egypt, Cambodia, Iran, Pakistan—not exactly economies we would like to emulate.
We’ve got big economic problems, but a lot of them don’t have much to do with energy.
What about a healthcare system that delivers mediocre results at the world’s highest cost?
Health care isn’t all that much energy driven. What about our steady move down the international rankings in education—are you going to blame that on the high cost of heating classrooms? Hardly.
Oilprice.com: Oil prices have been near to the $100 a barrel mark for some time now, and don’t look likely to drop back to previous low levels. What effect could this increased price have on oil importing economies compared to oil exporting economies?
Ed Dolan: Clearly, any oil price increase has the short-term effect of transferring wealth from using countries to producing countries. However, the long-run effects are what matter.
In the long run, high prices just accelerate the trend for using countries to become more efficient and less dependent. Meanwhile, the producing countries often don’t manage their oil riches well. They fall victim to the “curse of riches.” The curse takes the form partly of a loss of competitiveness in their non-energy sectors (the so-called “Dutch disease”). Partly it takes the form of corruption of their political systems. Russia is a poster child for both aspects of the curse of riches.
Oilprice.com: Renewable energy is more expensive than fossil fuels, so how can people be persuaded to choose the less economical option of renewables over the likes of coal and natural gas?
Ed Dolan: There is only one right way to promote renewables, and that is to introduce full-cost pricing of all forms of energy. Full-cost pricing is a two-part program.
First, it means pricing that covers the full production costs for every form of fuel. No subsidies for anyone—not for oil, not for ethanol, not for wind or solar.
The second half of full-cost pricing is to include all of the nonmarket costs, what economists call the “external costs” or “externalities.” The most publicized of these are pollution costs, whether those take the form of local smog, oil spills, climate change, or bird kills. Some people, I am one of them, would like to count in something for the national security costs of dependence on unfriendly and unstable foreign sources of energy supply.
Full-cost pricing accomplishes two things. First, it levels the playing field so that each form of energy competes on its economic merits, not whether corn-growing states have early primaries or oil companies have big SuperPacs. Second, by raising prices to consumers to a realistic level, it accelerates the trend toward energy efficiency that is already underway.
Subsidies for renewables are just plain wrong, even if you look at them from a hard-core environmentalist point of view. With a subsidy, on the one hand, you say, “produce more green energy” and other the other hand, you turn around and tell the consumer, “waste more green energy.” We don’t want to waste energy from wind or solar any more than we want to waste oil and gas. We shouldn’t forget that even the greenest renewables can have significant environmental impacts.
The whole “affordable energy” idea is based on the myth that if we don’t include those external costs in the price—the pollution costs, the national security costs—they just go away. They don’t. Keeping prices artificially low just transfers those costs to someone else, someone unlucky enough to live downwind, someone who owns beachfront property that gets eroded away as the sea level rises, someone who has to go off to fight a war to keep the shipping routes open. There are two things wrong that. First, it’s immoral. If we believe in the market economy, the rule of law, and all that, we have to respect people’s property rights and their human rights. Second, it’s inefficient. It doesn’t strengthen our economy, it weakens it. If there’s one thing we can’t afford, it’s “affordable energy.”
Oilprice.com: Obama has made clear his desires to cut the $4 billion a year tax breaks given to oil companies. What affect do you believe this would this have on the US economy and the US oil industry?
Ed Dolan: If it is done as part of a comprehensive move toward full-cost pricing, it could only strengthen the US economy. The oil industry would whine, but if we cut subsidies and tax breaks for competing energy sources at the same time, oil will remain a competitive part of the energy mix for many years to come.
Oilprice.com: The oil industry has enjoyed decades of subsidies and grants, so do you think it is unreasonable to already start cutting the subsidies to renewable energies and expect them to survive on their own?
Ed Dolan: As I explained above, the answer is yes, provided it is done as part of a package that reforms our energy policy as a whole in the direction of full-cost pricing.
Oilprice.com: Economic growth is generally dependent on the access to energy. As the supply of energy grows, so too does the economy (more or less). Global oil supplies are pretty much stagnant, so do you predict that only nations that successfully convert to a renewable energy mix with an abundant supply of cheap energy will be able to experience continued economic growth at a similar level experienced by the developed countries of recent years?
Ed Dolan: Again, I just don’t buy the doctrine that growth is dependent on ever-increasing energy use. For sure, those countries that pursue sound policies, like full-cost pricing to rationalize their energy mix and promote efficiency, are the ones that are going to keep growing.
Oilprice.com: As the arctic ice melts at a rapid pace the world’s superpowers are jockeying for position to exploit the region’s vast oil & gas & mineral deposits. Environmental groups are rightly concerned, but is this a resource that we cannot afford to ignore?
Ed Dolan: Arctic oil, like any other source of energy, should pay full freight for any environmental impacts it has. If it can bear those costs and still be competitive, I think it should be in the mix. I am worried about Russia, though. It has a dangerous combination of an environment-be-damned attitude and low technical competence that could lead to headline-grabbing disaster worse than the Gulf blowout or Exxon Valdez.
Oilprice.com: What effect do you see the shale revolution having on investments in renewable energy?
Ed Dolan: If I were trying to make money by generating electricity with wind or solar, I’d be worried about gas. I don’t have all the relevant numbers at my disposal, but my gut feeling is that even if you price in full environmental costs for wind, solar, and gas—including environmental costs associated with fracking—gas is still going to be pretty competitive.
Oilprice.com: What are your views on Ben Bernanke’s QE3?
Ed Dolan: I’ve written repeatedly about QE over at Economonitor, so I am on record as saying we should try it. The trouble is, QE is not a magic bullet. Properly executed and properly communicated, it can help support the recovery, but it can’t do it alone.
That is one point where I agree 110 percent with Ben Bernanke Here is what he said in a speech at the Fed’s Jackson Hole conference at the end of the summer:
“It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. . . Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve.”
Oilprice.com: How do you see the EU solving its debt crisis?
Ed Dolan: I’m afraid I’m a euro pessimist. The US debt situation is hard enough to resolve, but Europe’s is worse. At the same time, whatever you say about gridlock in Washington, our political decision making is a model of streamlined efficiency compared with the EU.
Oilprice.com: Do you think the EU was doomed to fail from the start with the format that it has? Could more success be seen in a split EU, with the northern/richer nations using one currency, and the southern/poorer nations using a different currency?
Ed Dolan: Doomed, I don’t know, but flawed, certainly. Just recently, I was looking back at what economists were writing about the prospects for the euro back in the early 1990s, when it was still just a project. They were telling us, for one thing, that Europe is too diverse to be ideal for a currency union—and that was when there were only 15 EU countries. Second, they said that you can’t run a monetary union without a central government, a fiscal union, and a banking union. You still don’t have any of those.
I am not sold on the idea of a northern euro and a southern euro. If the currency union doesn’t work, it doesn’t work. Break it up. Sure, some countries will find it works for their special circumstances to tie their currencies to a large, stable neighbour. I could see the Danes or the Latvians keeping a link to the German currency, for example, and I’m sure the Vatican will continue to use whatever currency Italy uses. But a formal, north-south divide doesn’t make much sense to me.
Oilprice.com: In terms of tackling the current economic situation in the US, of the two main presidential candidates, who do you suggest is the best man, and why?
Ed Dolan: I do not think we can tackle the current economic situation without a thorough-going fiscal policy reform that includes three key elements: Spending cuts, revenue increases, and a rewrite of the whole tax system to eliminate loopholes and cut marginal rates. Furthermore, the package can’t be heavily front-loaded like George Osborne’s austerity program in the UK, which has sent their economy back into recession. Ours should be back-loaded, with an element of stimulus now and an ironclad commitment to move the budget toward surplus as the economy improves. It’s a lot to ask for.
We are not going to get good budget policy out of the GOP unless members of that party make a clean break with mantra that they will not accept a dime of new revenue, not even if it comes from eliminating the most loathsome tax loopholes. Personally, I am never going to vote for a candidate for President, the Senate, the House, or any office who has signed that nonsensical Grover Norquist tax pledge.
At the same time, I have been very disappointed at the lukewarm support Obama has given to the kind of program I would like to see. During the first debate, Romney said that when Obama didn’t “grab” Simpson-Bowles—that was his word, and a good one—it was a failure of leadership. That was one point where I agreed with Mitt.
Then, you also have to take into account the vote for Congress. I’m afraid there is going to be continued gridlock as long as the GOP controls the House. In the Senate, there are at least a few people in both parties who are willing to meet behind the scenes and talk compromise, but not in the House, not right now, anyway. Maybe what we need in the White House is someone who is a real politician, a negotiator and dealmaker in the mould of a Clinton or an LBJ. Instead, we have the choice between a manager and a law professor. I’m not optimistic that either of them will be able to do what needs to be done."
Thursday, October 18, 2012
Links 10/18/12
Police arrest man armed with sawfish bill ABC (YY). Only in Australia.
Daddy Longlegs Discovered In Laos Has 13-Inch Leg Span Huffington Post (Carol B)
Chinese growth slows to 7.4% in Q3 Financial Times
Merkel criticises ‘snail’s pace’ of Greek reforms Telegraph
Euro Exit by Southern Nations Could Cost 17 Trillion Euros Der Spiegel. So Greece will not be permitted to exit, and will be pounded into something that bears no resemblance to a civilized society.
Turkey-Syria on the Brink of War OilPrice. This is a workmanlike overview; I’m sure NC readers can add to the discussion in comments.
El-Erian Cautions Romney on China Stance Bloomberg. I’m surprised there wasn’t more reaction to this in the media commentary. But I assume most political observers see this an empty promise. Plus as many commentators have pointed out, the renminbi just isn’t that undervalued any more, see Against a Sea of Enemies: China as Currency Manipulator, Menzie Chinn, Econbrowser
NYT Decides to Start Blaming Medicare and Social Security for Bad Weather Dean Baker
Congressman and Chairman of the House’s Homeland Security Committee: Terrorist Threat Worse Now than Before 9/11 George Washington. Well, of course security threats are worse! We are within weeks of an election!
The libertarian/marijuana conspiracy to swing the election David Sirota, Salon (Mark Ames)
Mind The Binder ThePhoenix. The real backstory of those binders.
Former Sen. George McGovern ‘no longer responsive’ NBC (Lambert)
Bloomberg Starts ‘Super PAC,’ Seeking National Influence New York Times (furzy mouse)
Ahead of gay marriage votes, advocates skeptical of polling Reuters (Carol B). Not sure I buy this. The people that I’ve run into who oppose gay marriage are awfully unabashed in saying so. Bigger point is survey results of any kind are very sensitive to how the question is phrased, so “Do you favor/oppose gay marriage?” is most assuredly NOT the same question as “Will you vote for/against Proposition XYZ [which legalizes gay marriage]?”.
Scott’s Story and the Election Nicholas Kristof, New York Times (furzy mouse). What is going on in our society? Is this just more organized trolling, the Internet version of brownshirts, or is there a real decay in the zeitgeist? Boy, do I wish I’d been able to get permanent residence in Oz….
Volcker criticises UK banking reforms Financial Times
Poor Market Conditions will See 180 Solar Manufacturers Fail by 2015 OilPrice
Foreclosure-Suit Funds Shifted Wall Street Journal
Daddy Longlegs Discovered In Laos Has 13-Inch Leg Span Huffington Post (Carol B)
Chinese growth slows to 7.4% in Q3 Financial Times
Merkel criticises ‘snail’s pace’ of Greek reforms Telegraph
Euro Exit by Southern Nations Could Cost 17 Trillion Euros Der Spiegel. So Greece will not be permitted to exit, and will be pounded into something that bears no resemblance to a civilized society.
Turkey-Syria on the Brink of War OilPrice. This is a workmanlike overview; I’m sure NC readers can add to the discussion in comments.
El-Erian Cautions Romney on China Stance Bloomberg. I’m surprised there wasn’t more reaction to this in the media commentary. But I assume most political observers see this an empty promise. Plus as many commentators have pointed out, the renminbi just isn’t that undervalued any more, see Against a Sea of Enemies: China as Currency Manipulator, Menzie Chinn, Econbrowser
NYT Decides to Start Blaming Medicare and Social Security for Bad Weather Dean Baker
Congressman and Chairman of the House’s Homeland Security Committee: Terrorist Threat Worse Now than Before 9/11 George Washington. Well, of course security threats are worse! We are within weeks of an election!
The libertarian/marijuana conspiracy to swing the election David Sirota, Salon (Mark Ames)
Mind The Binder ThePhoenix. The real backstory of those binders.
Former Sen. George McGovern ‘no longer responsive’ NBC (Lambert)
Bloomberg Starts ‘Super PAC,’ Seeking National Influence New York Times (furzy mouse)
Ahead of gay marriage votes, advocates skeptical of polling Reuters (Carol B). Not sure I buy this. The people that I’ve run into who oppose gay marriage are awfully unabashed in saying so. Bigger point is survey results of any kind are very sensitive to how the question is phrased, so “Do you favor/oppose gay marriage?” is most assuredly NOT the same question as “Will you vote for/against Proposition XYZ [which legalizes gay marriage]?”.
Scott’s Story and the Election Nicholas Kristof, New York Times (furzy mouse). What is going on in our society? Is this just more organized trolling, the Internet version of brownshirts, or is there a real decay in the zeitgeist? Boy, do I wish I’d been able to get permanent residence in Oz….
Volcker criticises UK banking reforms Financial Times
Poor Market Conditions will See 180 Solar Manufacturers Fail by 2015 OilPrice
Foreclosure-Suit Funds Shifted Wall Street Journal
Obama:
Doing better.
http://polltracker.talkingpointsmemo.com/
Much better.
.
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