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why is gas at $4 a gallon? June 23, 2008

Posted by KG in econ, environment, foreign policy, international, politics.
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robert reich’s blog:

Conspiracy theories abound, but the soaring price of crude oil (today around $137 a barrel) is related to four more mundane forces:

(1) growing demand from developing nations, especially China and India. This is the main reason for the price rise over the last six years.

(2) the dropping dollar. As it drops, because of our trade imbalance and overall indebtedness to the rest of the world as well as our slowing economy, everything we buy from abroad — including much of the oil we import — costs more; everything we sell to foreigners — including much of the oil we produce — costs less to them. I attribute half of oil’s price rise since January to this.

(3) Global investors (including, perhaps, your own pension fund) are anxious about the American economy, and looking to hedge their bets against future declines. Oil is one of the commodities that looks like a good bet. Hence, there’s speculation in oil futures. This isn’t a nefarious plot. It’s the way the market works. A bit of a speculative bubble is forming, so beware. I attribute a big part of oil’s price rise over the last few weeks to this.

(4) Instability in the Middle East. Israel’s recent bellicose statements about Iran have generated fears about the continuing capacity and willingness of Middle Eastern oil producers to generate oil (about a third of world oil production). OPEC refuses to produce more. Some of oil’s price rise over the last week is attributable to this.

In other words, a perfect storm. Given the US recession and slowing of European economies, I expect oil to fall to around $125 a barrel but then be pushed up by speculators and the falling dollar to around $135 over the next several weeks. Wall Street investment houses are talking about $150 by July but that’s their way of stoking more speculation (in which they have a financial interest).

Bottom line: The days of cheap energy are over, folks. Gas may go down to $3.50 a gallon by this time next year, but you’d be wise to trade in your SUV for an economy car. And you’d be wise to avoid building that new addition to your home and put the money instead into better insulation.

robert reich on clinton April 23, 2008

Posted by KG in 2008 Elections, berkeley, interviews, news, politics.
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clinton and reich (1994)

nymag:

So what’s changed? I asked Reich.

“I saw the ads” — the negative man-on-street commercials that the Clinton campaign put up in Pennsylvania in the wake of Obama’s bitter/cling comments a week ago — “and I was appalled, frankly. I thought it represented the nadir of mean-spirited, negative politics. And also of the politics of distraction, of gotcha politics. It’s the worst of all worlds. We have three terrible traditions that we’ve developed in American campaigns. One is outright meanness and negativity. The second is taking out of context something your opponent said, maybe inartfully, and blowing it up into something your opponent doesn’t possibly believe and doesn’t possibly represent. And third is a kind of tradition of distraction, of getting off the big subject with sideshows that have nothing to do with what matters. And these three aspects of the old politics I’ve seen growing in Hillary’s campaign. And I’ve come to the point, after seeing those ads, where I can’t in good conscience not say out loud what I believe about who should be president. Those ads are nothing but Republicanism. They’re lending legitimacy to a Republican message that’s wrong to begin with, and they harken back to the past twenty years of demagoguery on guns and religion. It’s old politics at its worst — and old Republican politics, not even old Democratic politics. It’s just so deeply cynical.”

robert reich speaks the truth on trade March 5, 2008

Posted by KG in 2008 Elections, berkeley, econ, international, op-ed, politics, tech.
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to sum it up: trade=good, not having safety net for the short term costs=bad

yet the democrats can’t articulate this properly.  they could become the party of pro-growth/free-trade + robust safety net…add in an emphasis on “good governance”/competence/anti-corruption/anti-special interests + middle-class tax cuts, environmentalism, and they might actually win elections by more than 2% points.

that would leave the republicans with the social conservatives and military hawks.  the democrats really have an opportunity to get the fiscal conservatives and tax cutters if they’re able to articulate middle-class tax cuts and trade in a way that appeals to liberals and conservatives.

hillary and barack, afta nafta:

While the overall benefits from free trade far exceed the costs, and the winners from trade (including all of us consumers who get cheaper goods and services because of it) far exceed the losers, there’s a big problem: The costs fall disproportionately on the losers — mostly blue-collar workers who get dumped because their jobs can be done more cheaply by someone abroad who’ll do it for a fraction of the American wage. The losers usually get new jobs eventually but the new jobs are typically in the local service economy and they pay far less than the ones lost.

Even though the winners from free trade could theoretically compensate the losers and still come out ahead, they don’t. America doesn’t have a system for helping job losers find new jobs that pay about the same as the ones they’ve lost – regardless of whether the loss was because of trade or automation. There’s no national retraining system. Unemployment insurance reaches fewer than 40 percent of people who lose their jobs – a smaller percentage than when the unemployment system was designed seventy years ago. We have no national health care system to cover job losers and their families. There’s no wage insurance. Nothing. And unless or until America finds a way to help the losers, the backlash against trade is only going to grow.

Get me? The Dems shouldn’t be redebating NAFTA. They should be debating how to help Americans adapt to a new economy in which no job is safe.

the audacity of data February 26, 2008

Posted by KG in 2008 Elections, books, econ, politics.
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noam scheiber with an excellent piece about obama’s economic advisors:

But what’s really interesting is how Thaler and his fellow behaviorists responded to this fairly critical insight. Though rational self-interest was the central tenet of neoclassical (i.e., modern) economics, they didn’t take a wrecking ball to the field and replace it with some equally sweeping theory of human behavior. Instead, they labored to bring economics closer in line with how the world actually works, one small adjustment at a time. “‘Discovery commences with the awareness of anomaly,'” Thaler wrote in the introduction to The Winner’s Curse, quoting the philosopher Thomas Kuhn. “I hope to accomplish that first step–awareness of anomaly. Perhaps at that point we can start to see the development of the new, improved version of economic theory.”

As it happens, Thaler is revered by the leading wonks on Barack Obama’s presidential campaign. Though he has no formal role, Thaler presides as a kind of in-house intellectual guru, consulting regularly with Obama’s top economic adviser, a fellow University of Chicago professor named Austan Goolsbee. “My main role has been to harass Austan, who has an office down the hall from mine, ” Thaler recently told me. “I give him as much grief as possible.” You can find subtle evidence of this influence across numerous Obama proposals. For example, one key behavioral finding is that people often fail to set aside money for retirement even when their employers offer generous 401(k) plans. If, on the other hand, you automatically enroll workers in 401(k)s but allow them to opt out, most stick with it. Obama’s savings plan exploits this so-called “status quo” bias.

And, yet, it’s not just the details of Obama’s policies that suggest a behavioral approach. In some respects, the sensibility behind the behaviorist critique of economics is one shared by all the Obama wonks, whether they’re domestic policy nerds or grizzled foreign policy hands. Despite Obama’s reputation for grandiose rhetoric and utopian hope-mongering, the Obamanauts aren’t radicals–far from it. They’re pragmatists–people who, when an existing paradigm clashes with reality, opt to tweak that paradigm rather than replace it wholesale. As Thaler puts it, “Physics with friction is not as beautiful. But you need it to get rockets off the ground.” It might as well be the motto for Obama’s entire policy shop.