Paul Krugman and libertarian economist agree–speculation isn’t the cause the high oil prices

High oil prices has caused some strange alliances. Both Republican and Democrats seem to agree that speculators are to blame for the high oil prices. John McCain for example recently said, “While a few reckless speculators are counting their paper profits, most Americans are coming up on the short end — using more and more of their hard-earned paychecks to buy gas.” Barack Obama, not to be outdone by McCain’s, has called for “abuses in oil speculation.”

But more interestingly Paul Krugman, who is much more sympathetic to the Democrats, and libertarian economists believe that speculation isn’t to blame. Krugman writes:

O.K., let’s talk about the reality.

Is speculation playing a role in high oil prices? It’s not out of the question. Economists were right to scoff at Mr. Masters — buying a futures contract doesn’t directly reduce the supply of oil to consumers — but under some circumstances, speculation in the oil futures market can indirectly raise prices, encouraging producers and other players to hoard oil rather than making it available for use.

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What about those who argue that speculative excess is the only way to explain the speed with which oil prices have risen? Well, I have two words for them: iron ore.

You see, iron ore isn’t traded on a global exchange; its price is set in direct deals between producers and consumers. So there’s no easy way to speculate on ore prices. Yet the price of iron ore, like that of oil, has surged over the past year. In particular, the price Chinese steel makers pay to Australian mines has just jumped 96 percent. This suggests that growing demand from emerging economies, not speculation, is the real story behind rising prices of raw materials, oil included.

Libertarian economist Robert Murphy reaches the same conclusion. He writes:

• Record-high oil prices demand a target, and some politicians are increasingly pointing the finger at speculators in the commodities futures markets. But high oil prices are due to restricted supply, booming demand, and a weakening dollar.
• There is no hard evidence that speculators are responsible for high oil prices. If the price of oil truly were above the level that the fundamentals could support, we would see growing inventories of crude. But inventory levels show no such pattern.
• Speculators provide a vital function. By buying when prices are low and selling when prices are high, they actually make oil prices less volatile. Large investment funds provide liquidity to the commodities futures markets, and allow producers and consumers to concentrate on their core businesses.

It’s a weird world when libertarians and Krugman agree. Stranger still when the Republicans and Democrats agree. But when Republicans and Democrats agree, you know that it must be politically expedient. Too bad that politicially expediency doesn’t help the people.

How to fight global warming more efficiently than using cap-and-trade

Bjorn Lomborg writes in the Washington Post today:

Sen. Barbara Boxer (D-Calif.), a co-sponsor of the bill, has called it “the world’s most far-reaching program to fight global warming.” It is indeed policy on a grand scale. It would slow American economic growth by trillions of dollars over the next half-century. But in terms of temperature, the result will be negligible if China and India don’t also commit to reducing their emissions, and it will be only slightly more significant if they do. By itself, Lieberman-Warner would postpone the temperature increase projected for 2050 by about two years.

Politicians favor the cap-and-trade system because it is an indirect tax that disguises the true costs of reducing carbon emissions. It also gives lawmakers an opportunity to control the number and distribution of emissions allowances, and the flow of billions of dollars of subsidies and sweeteners.

Many people believe that everyone has a moral obligation to ask how we can best combat climate change. Attempts to curb carbon emissions along the lines of the bill now pending are a poor answer compared with other options.

Consider that today, solar panels are one-tenth as efficient as the cheapest fossil fuels. Only the very wealthy can afford them. Many “green” approaches do little more than make rich people feel they are helping the planet. We can’t avoid climate change by forcing a few more inefficient solar panels onto rooftops.

The answer is to dramatically increase research and development so that solar panels become cheaper than fossil fuels sooner rather than later. Imagine if solar panels became cheaper than fossil fuels by 2050: We would have solved the problem of global warming, because switching to the environmentally friendly option wouldn’t be the preserve of rich Westerners.

Green Thinking Run Amuck

This WSJ article is great. There’s nothing wrong with conserving, recycling, etc, but this just might be going too far:

The host committee for the Democratic National Convention wanted 15,000 fanny packs for volunteers. But they had to be made of organic cotton. By unionized labor. In the USA.

Official merchandiser Bob DeMasse scoured the country. His weary conclusion: “That just doesn’t exist.”

Ditto for the baseball caps. “We have a union cap or an organic cap,” Mr. DeMasse says. “But we don’t have a union-organic offering.”

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Convention organizers hired the first-ever Director of Greening, longtime environmental activist Andrea Robinson.

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To police the four-day event Aug. 25-28, she’s assembling (via paperless online signup) a trash brigade. Decked out in green shirts, 900 volunteers will hover at waste-disposal stations to make sure delegates put each scrap of trash in the proper bin. Lest a fork slip into the wrong container unnoticed, volunteers will paw through every bag before it is hauled away.

“That’s the only way to make sure it’s pure,” Ms. Robinson says.

Republicans are pushing conservation, too, as they gear up for their convention in Minneapolis-St. Paul. Like the Democrats, they’re cutting down on printing by doing as much work as possible by email; using recycled office furniture; and urging employees to walk or take public transportation to work. The Republicans also encourage vendors to be as environmentally friendly as possible.

But Matt Burns, a spokesman for the Republican convention, looks on with undisguised glee at some of the Democrats’ efforts — such as the “lean ‘n’ green” catering guidelines.

Among them: No fried food. And, on the theory that nutritious food is more vibrant, each meal should include “at least three of the following colors: red, green, yellow, blue/purple, and white.” (Garnishes don’t count.) At least 70% of ingredients should be organic or grown locally, to minimize emissions from fuel burned during transportation. “One would think,” says Mr. Burns, “that the Democrats in Denver have bigger fish to bake — they have ruled out frying already — than mandating color-coordinated pretzel platters.”

Drew Carey Exposes the Evil Robot Threat to American Jobs

Obama Energy Promises–Cheap Magic Energy for Everyone!

Barak Obama, and to only a slightly lesser extent, John McCain, are on the campaign trail promising cheap, magic energy for all. From the National Post:

Barack Obama on Tuesday vowed he would break America’s addiction to “dirty, dwindling, and dangerously expensive” oil if he is elected U.S. president — and one of his first targets might well be Canada’s oil sands.

A senior adviser to Mr. Obama’s campaign told reporters it’s an “open question” whether oil produced from northern Alberta’s oilsands fits with the Democratic candidate’s plan to shift the U.S. sharply away from consumption of carbon-intensive fossil fuels.

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“The possibilities of renewable energy are limitless,” Mr. Obama said in an energy policy speech Tuesday in Las Vegas. “We’ve heard promises about it in every State of the Union [speech] for the last three decades. But each and every year, we become more, not less, addicted to oil — a 19th-century fossil fuel that is dirty, dwindling, and dangerously expensive.”

While it’s true that there is less oil today than yesterday, it is not dwindling. There are more oil resources in North America, in the form of oil sands and oil shale, than there is in Saudi Arabia. We also have vast supplies of oil and natural gas on the outer continental shelf, but Mr. Obama and his friends have fought to restrict access to those domestic resources. Unsurprisingly after years of constraining our supply, we now have tight supply and high prices. Thank you Mr. Obama. The policies you support are the very ones driving up the price of energy.

Oil might be dirtier than natural gas, but it is also less expensive for personal transportation. Does Obama not support personal transportation? Oil emits less greenhouse gases than current biofuel technology, so you can argue that it is cleaner than biofuel. And oil is cheaper than biofuel, allowing lower income people to afford to buy and use it.

In opposition to oil, but does Obama support?  Biofuel of course. Unsurprisingly the NY Times reports that Obama is in the pocket of Big Ethanol. If Obama were thoughtful, if Obama were for real change, he would be concerned about the outcomes of the policies he supports. Some people rightly call biofuel a “crime against humanity.” Others say that it is increasing poverty.

The possibilities of renewable energy, like the possibilities of absolutely anything are limitless. When I want to drive my car I don’t want it to be a mere possibility the the station will have gas. I want there to be a high probability the station will have gas.

Someday renewables might make sense, but today we are throwing money away and making people poorer as a result. When will Obama support real change and end this tragic waste?

The National Archives

The National Archives, originally uploaded by dr5.

I walk past the National Archives every day. It’s a pretty cool building. I’ll have some more pictures of it in a few days.

The fear of Al-Qaeda is still killing people

I listened to the latest Econtalk podcast today and Richard McKenzie, a economic professor had an interesting claim-Al-Qaeda and the TSA have killed more people after September 11th than on September 11th. Here’s his a synopsis of his reasoning:

Terrorists have probably killed more Americans since 9/11. When they flew the planes into the towers people feared flying; wait times have gone up with inspections. So more people drive; and since highways are more deadly than flying you anticipate more deaths. Three Cornell economists found that highway travel went up and estimated that 1250 adults died in first 12 months after 9/11 who wouldn’t have.

Here’s a study which argues that additional driving, caused by less flying has led to more deaths. TSA gets invovled in the addtional deaths because they make flying more burdonsome, leading to more people driving.

Yesterday it took me 13 hours to get from Orlando, Florida back to DC–flying. As I was hanging out in the airport I realized that if I would have driven it would have taken me less time. It also would have been far more dangerous.

Wonky, Knobbly, and Curvy Veg

One of the strange regulations in the US and in the EU is that vegetables (or veg as they apparently like to say in the UK) have to be pretty. If they aren’t pretty, they can’t be sold in store and are frequently thrown away. But the EU Commission is working to make a common sense change in the regulation to allow perfect healthy, but mis-happen fruit and vegetables to be sold alongside the beauty-contest winning veg and fruit. Here’s a BBC story on the regs. The best part is the video embedded in the story.

Would you pay $600 a month to lease a Honda?

That’s what it costs to lease Honda’s new hydrogen-powered FCX Clarity. Honda only is leasing the car to people who live near Torrance, Santa Monica, and Irvine, California where there are hydrogen filling stations.

It seems like a cool car, but it’s a bit silly to call it a zero-emission vehicle. The burning of hydrogen doesn’t release greenhouse gas emissions (other than water vapor which quickly precipitates out of the air), but making the hydrogen is energy intensive and releases a good amount of greenhouse gases.

Oh my goodness, McCain actually talks sense on energy

Today, John McCain actually called for lifting the federal moratorium on oil exploration and development on the outer continental shelf. This is a shock that McCain can be so reasonable. If he is going to call for more domestic energy, it makes sense to call for energy that exists instead of trying on future technologies to lower energy prices.

Obama on the other hand only spouts nonsense about energy.

Tommy Vietor, a spokesman for the Obama campaign said that Mr. McCain’s plan amounted to “the same misguided approach backed by President Bush that has failed our families for too long and only serves to benefit the big oil companies.”

Apparently there’s no problem with $4 a gallon gasoline and the American people should stop whining.

If McCain can protray Obama as being out of touch with the average American, McCain will win. Obama’s problem is that he and his handlers are apparently out of touch on energy issues.