Decline of the Empire

Remedy du Jour -- March 31, 2012

When I lived in Boulder, Colorado, I went to the Conference On World Affairs every year. The conference was always held during the second week of April at the University of Colorado. Roger Ebert participated each year starting in the late 60s until health issues finally forced him to miss it. Award winning jazz pianist and film music magician Dave Grusin attended CU, and each year he brought some of his musical pals with him. The concerts they would do during the week were always a highlight for me. So today I am featuring some of Dave's music.  You might want to poke around the Dave Grusin Archive to find out just how many fine musical scores and albums he has done. Sometimes the best part of a movie he did was the score. Here's the playlist.

• She Could Be Mine (with Nelson Rangell, Don Grusin, and other LA guys)
  
• Playera
• Modaji (by Harvey Mason, a very Grusin-like tune which Dave has covered)
• Theme from St. Elsewhere (live, with Lee Ritnour)
• Theme from 3 Days Of The Condor

 

 

 

 

 

Saturday Oil Report -- March 31, 2012

Oil prices have started to fall from their elevated levels, albeit slowly. Nymex WTI goes for $103.02 per barrel, down about 4 dollars since the previous report. A barrel of Brent will cost you $123.81, which is about $2.50 below its price two weeks ago. The oil markets are still volatile and with prices  still this high, it would be premature to change the alarm level. We're still in the red.

Oil Alarm Level — Red

The focus lately has been on supply disruptions, or what is often referred to in the industry as shut-in oil. Producing oil is a tricky, complicated business. Consequently there is always some oil shut-in somewhere, a situation which is only made worse by geopolitical conflicts. A year ago the rebellion in Libya caused a small supply shock on global markets, which pushed up prices. The good news is that most of Libya's crude oil is back in production (1.4 of their 1.6 million barrels-per-day capacity). The bad news is that there are lots of small supply outages elsewhere.

Reuters, March 23 — Global oil supply outages are running at more than a million barrels a day, a Reuters survey has found, helping provide justification for the United States and Britain should they release strategic reserves in a bid to cut oil prices...

Civil unrest, adverse weather and technical glitches disrupted 1.2 million barrels per day (bpd) of global oil output in March on the 90 million bpd world market, according to a Reuters calculation from information provided by companies, government agencies and traders.

[My note: 90 million barrels-per-day (bpd) is an all liquids number, which includes natural gas liquids and biofuels. Global crude oil production capacity is about 76-77 million bpd.]

Following is the breakdown of global oil production outages by region and country as of mid-March.

MIDDLE EAST AND NORTH AFRICA - 490,000 bpd

Syria - Export outage totals about 150,000 bpd. Syrian oil output has been severely reduced since last year and its exports suspended since September due to international sanctions.

Before the conflict, Syria exported about 150,000 bpd of mostly heavy Souedie crude.

Yemen - About 140,000 bpd of Yemen's oil output has been reduced by months of political unrest over the last year. Output came to a near standstill in mid-February during a week-long worker strike at its largest oilfield.

Libya - Libya's crude output as of late March was about 1.4 million bpd, or 200,000 bpd below the full production level of 1.6 million bpd before the 2011 civil war. An official with Libya's National Oil Corporation said its exports are likely to increase to 1.4 million bpd in April, including some deliveries from tanks following some loading delays from March due to bad weather.

AFRICA - 350,000 bpd

South Sudan - South Sudan shut its crude oil output of roughly 350,000 bpd - about three quarters of the combined total from Sudan and South Sudan - in January after Sudan took some of the crude to make up for what Khartoum said were unpaid transit fees.

AMERICAS - 320,000 bpd

Canada - Oil output has been cut by about 320,000 bpd as production of Suncor Energy Inc's and Syncrude Canada has been cut by 220,000 bpd and 100,000 bpd, respectively, for unplanned outages. Both will be back online in April.

ASIA PACIFIC - 65,700 bpd

Australia - Cyclone Luna forced Apache and Woodside Petroleum to shut Stag, Enfield and North West Shelf oilfields last week. Woodside said on Monday it had restarted production at Enfield. After the restart, the production shut-ins total about 65,700 bpd. The figure includes the 8,800 bpd Stag field, which Apache said is expected to restart soon

Some of this oil will be back online in April, but the Sudan situation will not be resolved quickly. And then there is Iran.

And Iran's 4 million b/d is a bigger deal than all of those put together. Petrologistics [Reuters] estimates that boycott efforts have succeeded in reducing Iranian oil exports by 300,000 b/d. Whether that turns out to be the end of the story on curtailment of Iranian shipments, or is only the beginning, remains to be seen.

[And from Reuters, March 23]

"This is fundamentally very bullish," said Mike Wittner, head of commodities research at Societe Generale in the United States. "I think Iranian exports are going to go down much more, as the sanctions bite. It's a logical reaction for the market to go up on this."

According to Petrologistics, a Geneva-based oil industry consultant, Iranian exports may amount to 1.9 million bpd in March, down from about 2.2 million bpd in February.

A source at an oil company, which still deals in Iranian crude, said the evidence pointed to an overall drop in shipments in March, seeing a decline of at least 300,000 bpd mainly because European customers are taking less.

European buyers of Iranian crude including France's Total have already stopped buying the oil, which is subject to European Union sanctions from July 1. Royal Dutch Shell, is scaling back.

"We are taking less and less - very few barrels," said an official with a European oil company, until earlier this year one of the larger EU buyers of Iranian crude.

That's sufficient reason to keep the alarm level in the red. Iran is enriching uranium, but the irony here is that they are years away from building The Bomb, and everybody knows it, including the Israelis, who want to make a pre-emptive strike to further delay Iran's plans and score political points at home. We can therefore conclude that these new sanctions against Iran amount to little more than warmongering bullshit. In this context, we care about this nonsense because it is keeping the oil price high, which drives gasoline prices. President Obama is running around talking about the decline in U.S. crude imports, but he has pushed the sanctions which are primarily responsible for these high prices.  Here's Martin Wolf on the subject.

Responding to his critics, Mr Obama said: “We are drilling more. We are producing more. But the fact is, producing more oil at home isn’t enough to bring gas prices down overnight.”

These remarks are correct, except for the last word. Producing more oil would have next to no effect on oil prices.

Moreover, if there is a specific cause for the rise in oil prices, it is the tightening of sanctions on Iran, which Republicans support. If, as many desire, military action is taken, the impact on oil prices and the world economy will be far greater.

In the longer run, a big reduction in U.S. demand, still 20 percent of the world’s total, might make an appreciable difference to prices. Moreover, the relative wastefulness of U.S. oil use, compared with other high-income countries, would make such a reduction quite easy to achieve. The best way to make this happen would be to raise prices, via higher taxation. But that policy is deemed un-American. It is a policy fit only for European wimps.

Yet, despite the absurd politicking, we should be concerned about the economic impact of high oil prices: A rise of $10 in the price of oil shifts $320 billion a year from higher-spending consumers to lower-spending producers, within and across countries. The 15 percent rise since December 2011 would shift close to $500 billion. The real price of oil is also very high, by historical standards. Further rises would take the world into uncharted territory.

Also see my recent post Hyping American Energy Independence if you haven't already read it. Could the oil world be any more absurd at this point? It seems not, but maybe the "best" is yet to come.

Where will oil prices stand in two week? Your guess is as good as mine.

We Don't Consume Resources, We Create Them

It's not the despair, Laura. I can take the despair. It's the hope I can't stand
   — John Cleese, from the movie Clockwise (1986)

In a recent column for Forbes, Tim Worstall makes as succinct a statement of the standard human view of natural resources as you will ever read. It's called We Don't Consume Resources, We Create Them. Tim gets right to the point, so I'll take the liberty of re-printing the entire column. I'll make my remarks afterwards. A quote within a quote is shaded.

One of the points that economists have a really hard time getting over, probably because it is so counter-intuitive, is that we human beings don’t really consume resources, we create them. This has implications for huge swathes of the environmental movement and also for certain parts of the Peak Oil theory.

Please note that I’m not trying to state, as no economist is, that we do not live on a finite Earth. That there isn’t some limit to the number of copper atoms available to us, or that oil or natural gas are out there in truly unlimited quantities.

The argument is, rather, that while there are indeed such hard limits to availability they are so far away from our current situation that they’re irrelevant (for example, the hard limit for tellurium is 120 million tonnes and we use 125 tonnes a year). Thus an entirely different dynamic comes into play, one in which we humans create resources by developing the technologies that make them available to us.

For instance, when the Apache Corporation began drilling in the 100,000-acre Deadwood field in the West Texas Permian basin in 2010, there had only been a trickle of production there. The deep shale, limestone and other hard rocks had potential, but for years they had not been considered economically viable. The rocks were so hard, they would have likely sheared off the usual diamond cutters on the blade of any drill bit attempting to cut through.

But new adhesives and harder alloys have made diamond cutters and drill bits tougher in recent years. Meanwhile, Apache experimented with powerful underground motors to rotate drilling bits at a faster rate. Now, a well that might have taken 30 days to drill can be drilled in just 10, for a savings of $500,000 a well.

This is a good example. A mere decade ago we would have said that those rocks are simply dead rocks: nothing useful or interesting about them other than the fact that they provide a bit of stability to the ground above. Now they’re a source of oil and gas because we have developed the technology to turn them into such a resource.

Or, as I say, we really do create resources through the advance of technology.

A beautiful statement! Almost completely misguided, of course, but beautiful nonetheless. Congratulations, Tim.

Allow me to retort, focusing on crude oil. I will not argue against the main premise—technological advances increase recoverable reserves—because it is manifestly true. We've seen that rule at work over the last 10 years. Technological advances allowed us to exploit deepwater (and then ultra-deepwater) oil in the Gulf of Mexico (GOM), and in the waters off West Africa and Brazil. More recently advances in "fracking" have allowed us to exploit oil (and natural gas) in "tight" shale rock reservoirs. So there's no doubt about the truth of Tim's premise. Climate activists ("environmentalists" for Tim) who regard the Earth's hydrocarbons as one giant pile of carbon which we will exploit in the (near) future make much the same assumption. For example, it will take many centuries to fully exploit the tar sands of Alberta, Canada, but we very likely don't have many centuries in which to do so.

The more thoughtful among us who have been affiliated with the "peak oil community" have thought deeply about this standard counter-argument, and that thinking boils down to this—new reserves do indeed become available, but the quality of those reserves does not compare favorably with that of the original reserves, meaning that the "best" crude oil reserves were exploited first. How does one measure quality?

There are a couple ways to measure quality. The first and most obvious views quality in terms of flows instead of reserves (stocks). One simply does not get anything close to the original flow rates (measured in barrels-per-day) we got from Spindletop in Texas or Ghawar in Saudi Arabia from shale rock reservoirs and ultra-deepwater wells. Looking at the latter, the typical production profile (curve) for a GOM well peaks quickly and then falls off fairly rapidly (over years). Flow rates are increasing in the Bakken shale, but only because considerable effort has been expended (e.g. look at the large and growing number of drilling rigs). All of these considerations capture the commonsense insight that the "best" resources are always exploited and depleted first.

Thus a second way to measure quality requires us to look at the amount of work required to exploit a new resource, and the return on investment (i.e. the EROI for crude oil). As the original "best" reserves are depleted and production declines, new reserves (opened up by technological advances) do not replace the original flows lost over time, let alone increase them, because these new reserves are very expensive to exploit in terms of work and associated costs, even when the return on investment is positive enough to justify the effort. Just this week in Hyping American Energy Independence, I took note of a case in point.

We were producing about 850,000 barrels-per-day in the Permian Basin two years ago, and after deploying 475 drilling rigs, we are now producing about 1 million barrels-per-day.

[My note: Although flows in the Permian Basin have increased in the short-term, over the long run depletion of the original resource there (causing weaker flows) will undoubtedly outpace flows from new developments.]

Thus in the 21st century we are in a race against time, running faster and faster on the production treadmill to keep up with growing populations and human economies. It is a race we can not win.

These quality arguments apply not only to crude oil, but to all but the most abundant natural resources on Earth (e.g. iron ore). Tim Worstall is an expert in Rare Earth Elements (REE), and perhaps he is loathe to admit that these quality arguments apply to those as well. What will eventually replace the newly exploited, large Chinese REE reserves? Nothing so far, despite the frantic efforts of the U.S. and other developed nations to find another source.

It is Friday, and I've rambled on too long, far longer than Tim Worstall did, but I hope you've learned something today. It is often more complicated to refute a wrong-headed, simplistic argument than it is to state that argument.

Have a good weekend. I'll post my biweekly Saturday Oil Report tomorrow.

The Coming Health Care Debacle

Health care has been in the news because the Supreme Court is considering the constitutionality of what is now universally called Obamacare. The current debate will fade away until the court makes their decision in June, but the daunting future costs curve of government health care spending is still with us.

When write about health care costs, I always feel as though I've jumped into the middle of a political brawl. So I'll quote from Slower Growth in Medicare Spending — Is This the New Normal? This article appeared in the New England Journal of Medicine on March 22.

For many years, policymakers have appropriately singled out federal spending on health care — especially Medicare — as the most serious long-term threat to the nation's fiscal health. Over the past four decades, the average growth in Medicare spending per enrollee has exceeded the growth in per capita gross domestic product by 2.6 percentage points per year. This trend is unsustainable: if it continued, Medicare would consume all federal revenues by 2060.

And let me quote from Andrew Leonard, who cited the New England Journal article in The Obamacare Tragedy.

If there is one point on which budget wonks on both the left and right agree, it is that the long-term growth in Medicare costs poses by far the greatest threat to the finances of the U.S. government and the health of the American economy.

Mish recently published this graph from Paul Ryan's Path To Prosperity. The Congressional Budget Office (CBO) is the source of this data.

These quotes should put to rest the notion that future government health care spending is a political issue. Broke is broke. Bankrupt, destitute, insolvent, ruined—call it what you will. Broke doesn't care if you are a Democrat or a Republican.

No one knows the true cost of Obamacare over the next decade if the bill remains intact and is not repealed by a future Congress and President. Obamacare is said to slow the growth rate of Medicare and Medicaid spending. Indeed, that's what the New England Journal article is about.

But there are indications that Medicare spending growth has slowed. One highly visible gauge of Medicare spending trends is the standard monthly Part B premium, which is set by the Medicare actuary to cover one quarter of total Part B spending. In August 2011, the actuary projected that the Part B premium for 2012 would be $106.60, but the actual premium was set in November at only $99.90. A much broader indicator of a slowing trend is the fact that growth in Medicare outlays per enrollee in 2010 and 2011 was roughly in line with growth in the economy

See this graph  

[My note: I can't duplicate that graph here, so click on the link to see it.]

Excess Medicare Spending Growth.). And in January 2012, the Congressional Budget Office (CBO) made a $69 billion downward revision to its 10-year Medicare spending projection — a technical correction that reflects emerging data showing surprisingly slow growth in outlays. Similar slowing trends have led to positive earnings surprises for publicly traded insurers.

Can we dismiss the recent slower growth in Medicare spending as a fluke? There are temporary factors in play, most obviously the recent economic downturn. Between 2007 and 2010, the nonelderly population of the United States had massive losses in income, assets, and coverage through employer-sponsored insurance, as well as reduced access to consumer credit; it is reasonable to conclude that the demand for medical services among the nonelderly contracted as a result...

Both Andrew Leonard and the New England Journal authors argue that the slowing in the growth rate of Medicare expenditures is due (in part) to health care providers anticipating that they won't be able to raise prices willy-nilly in the future (as they have in the past) after Obamacare is implemented. And that may be so.

My response to this argument can be summed up as follows—

Blah, blah blah.

And furthermore—

Blah blah. Blah, blah, blah blah, blah!

There is no question that Obamacare spending is net positive over time, which means that expenditures will increase over time more than they would have, even if the growth rate is not as steep as it has been. Taking another look at that first chart, these arguments about this or that aspect of the bill are akin to rearranging the deck chairs on the Titanic. And here's another chart.

Projected federal spending as a percentage of GDP under one very optimistic fiscal scenario from the CBO. Cited in my post It's Health Care Weekend!

I hope you are aware that deficits arising from future health care expenditures as projected by the CBO are based on fantasy GDP growth rates.

Do you remember when Obamacare was passed? And the Democrats walked down the street proudly proclaiming victory? With that big smile on Nancy Pelosi's face? And that big gavel in her hand? Let me remind you.

 From my post A Rounding Error In The Right Direction

So when we think about future health care expenditures, and the deficits arising from them, I still think the best strategy is to bend over as far as you can, put your head between knees, and kiss your ass goodbye.

It helps if you practice yoga.

What Is The Economic Value Of Healthy Oceans?

I suppose if you live long enough, and you know what you're looking at, you will see every conceivable folly the human species has to offer. Longevity is one of the consequences of living in a technologically advanced global civilization, but so is environmental catastrophe. So I was not shocked when I read Science Daily's What Is The Monetary Value of a Healthy Ocean?

Professor Robert Diaz of the Virginia Institute of Marine Science is a co-editor of Valuing The Ocean, a major new study by an international team of scientists and economists that attempts to measure the ocean's monetary value and to tally the costs and savings associated with human decisions affecting ocean health.

The study estimates that if human impacts on the ocean continue unabated, declines in ocean health and services will cost the global economy $428 billion per year by 2050, and $1.979 trillion per year by 2100. Alternatively, steps to reduce these impacts could save more than a trillion dollars per year by 2100, reducing the cost of human impacts to $612 billion.

Diaz says the study report "describes the state of the science for 6 threats to the global ocean, what can happen if all these threats act together, and the economic consequences of taking or not taking action." He notes that the study is unique in stressing the interactions between and among multiple threats, which include

• acidification
• low-oxygen "dead zones"
• overfishing
• pollution
• sea-level rise
• warming

... A release from the Stockholm Environment Institute — the agency that coordinated the international study — states "The ocean is the victim of a massive market failure. The true worth of its ecosystems, services, and functions is persistently ignored by policy makers and largely excluded from wider economic and development strategies… This collaborative book presents an unequivocal argument in favor of placing the ocean at the centre of plans to build a sustainable future, while for the first time calculating the actual monetary value of the critical ocean services that we stand to lose."

Regarding overfishing, the draft executive summary has this to say—

The world’s marine capture fisheries are in a severely troubled state. The FAO estimates that 85 percent of fish stocks are fully exploited, overexploited, depleted or recovering from depletion.

Harmful subsidies continue to contribute to the overcapacity of the global fishing fleet, inconsistencies in regional fisheries management organisations (RFMOs) lead to poor regulation, and illegal and unreported fishing — estimated to drain USD 50 billion from the sector every year — remains largely unabated; all threaten the long-term sustainability of these key resources.

The loss of marine biodiversity will be further exacerbated by global environmental change (GEC) impacts...

The goal of this study—to get people to pay attention to the value of healthy oceans—is laudable. It is truly unfortunate that it is necessary to frame the "value" of healthy oceans in economic terms. Thus we never escape the mode of thinking & behavior—striving for limitless economic growth—which is leading toward the extinction of marine life and wholesale destruction of ocean ecosystems.

I was interested in the assessed "costs" by 2100, and got more insight from the Stockholm Environment Institute's press release.

A key part of the study is a groundbreaking analysis on ocean economics, designed to quantify the costs of ocean degradation, which are often invisible in the cost-benefit analyses that guide policy. The analysis calculates the cost over the next 50 and 100 years respectively in terms of five categories of lost ocean value (fisheries, tourism, sea-level rise, storms, and the ocean carbon sink) under high- and low-emissions scenarios [table below from the executive summary].

By 2100, the annual cost of the damages from ‘business as usual’ emissions, projected to lead to an average temperature rise of 4°C, is estimated to be 1.98 trillion USD, equivalent to 0.37 per cent of future global GDP. A rapid emission reduction pathway that limited temperatures increases to 2.2°C would ‘save’ (i.e. avoid) almost 1.4 trillion USD of those damages...

Let's stop right there. The "annual cost" of the damage to the oceans from "business as usual" is estimated to be 1.98 trillion dollars in the year 2100, which is 0.37% of future global GDP. I took the liberty of calculating the estimated size of the global economy (in dollar terms) 88 years from now. In the year 2100, the estimated size of the global economy (GDP) in dollar terms will be

• $535,135,000,000,000, which can be stated as
• a little over 535 trillion dollars (10¹²)

Yes, you read that correctly. By way of comparison, it helps to know that the size of global GDP in 2010 was merely $61,963,429,000,000 (61.963 trillion dollars, 10¹²) according to the IMF. I don't know what the assumed annual growth rate was, although it was probably around 2.2%/year. (In a comment reader Practician calculated it as 2.4%.) Nor do I know what the assumed inflation rate was. Frankly, I don't give a damn how these researchers modeled business-as-usual for the next 88 years. In short, they assumed the global economy will be roughly 10 times the size it is now in 2100.

The point is that if the cost of neglecting the health of the oceans in all the years leading up to 2100 is merely 1.98 trillion dollars per year, and your global GDP is assumed to be 535 trillion dollars by that time, why in hell would anyone give damn about taking care of the oceans? I hope you see the glaring contradiction. These researchers might as well have said that the health of the oceans doesn't matter at all. Regardless of how human actions affect the oceans, human economies will grow and grow...

So we must regard this study as yet another manifestation of the usual delusional fantasy which pervades human thinking about the future. Let us quote these researchers one more time, continuing from above.

“These figures are just part of the story, but they provide [an] indication of the price of the avoidable portion of future environmental damage on the ocean – in effect the distance between our hopes and our fears,” says Frank Ackerman, director of the Climate Economics Group at SEI-US. “The cost of inaction increases greatly with time, a factor which must be fully recognised in climate change accounting.”

Let me repeat two quotes from my previous posts on the oceans.

If the ocean goes down, it's game over
   — Alex Rogers, from stateoftheocean.org

Man is not going to change, and the sea is going to be dead
   — quote from the movie The End of The Line

The economic value of healthy oceans can be summed up in one word.

Incalculable

The distance between Frank Ackerman's hopes and fears is 0.37% of global GDP in the year 2100. The distance between my hopes and fears regarding the oceans is as great as the breadth of the Pacific Ocean itself. If the oceans go down, it's game over for the human species. And that's all there is to say about that.

This Google query will give you a complete list of my previous work on the oceans on DOTE.

Hyping American Energy Independence

It's hard to avoid political nonsense in 2012 unless you've decided to live like a monk and shut off all the noise. I can't do that because I write this blog. Oil prices are on everyone's mind because gasoline prices are very high too early in the spring. (The national average for regular unleaded now sits at $3.898/gallon.) Following the mindless rules of political partisanship, Republicans blame the President for these high gas prices. And then there is Barack Obama fighting back, chart in hand, touting the fact that during his admininstration oil imports have declined steadily.

From whitehouse.gov's Our Dependence on Foreign Oil Is Declining by Megan Slack (if that really is her name)

My former writing colleague Robert Rapier, tongue planted firmly in cheek, made a domestic production graph which seems to strengthen Obama's case. It only seems that way.

From Robert Rapier's Are President Obama’s Policies Causing U.S. Oil Production to Rise?  Rapier's point is that the oil policies of the sitting president have nothing to do with current oil production. The U.S. is producing as much crude oil today as we were in 2001. Whoop-ti-do!

Now, a total fool could put 2 + 2 together and get 5 by concluding that Barack Obama is fueling America's drive toward energy independence. And it is that kind of "thinking" that the Republicans and Democrats are counting on. On their side of the idiot fence, the Republicans use the "drill, baby, drill" mantra to discount Obama's alleged seriousness, stressing that he is a liberal after all, and that means he's an environmentalist, and that means he's anti-growth (and a socialist besides). Of course nothing could be further from the truth, but never mind.

The New York Times weighed in with a recent article U.S Inches Toward Goal Of Energy Independence by Clifford Krause and Eric Lipton. Krause visited Midland, Texas to do the article, which must have been a rare foray outside of New York City for him. It's almost impossible to find any real data in this article, so this passage stood out.

“One day we were rolling in oil,” recalled Jim Foreman, the general manager of the Midland BMW dealership, “and the next day geologists were flipping burgers at McDonald’s.”

The burger-flipping days are definitely over. Today, more than 475 rigs — roughly a quarter of all rigs operating in the United States — are smashing through tight rocks across the Permian in West Texas and southeastern New Mexico.

Those areas are already producing nearly a million barrels a day, or 17 percent more than two years ago. By decade’s end, that daily total could easily double, oil executives say, roughly equaling the total output of Nigeria.

“We’re having a revolution,” said G. Steven Farris, chief executive of Apache Corporation, one of the basin’s most active producers. “And we’re just scratching the surface.”

Wow, I am impressed! We were producing about 850,000 barrels-per-day in the Permian Basin two years ago, and after deploying 475 drilling rigs, we are now producing about 1 million barrels-per-day. And Krause and Lipton managed to put this article together without mentioning the Eagle Ford and Bakken shales. Those are the places where the bulk of America's new oil production is coming from.

But the intent of the New York Times is not to analyze of America's future domestic crude oil production. That article, and Obama's chart, and all the rest of this nonsense is political in nature. My intention today is not to carry out such an analysis because I already did one in January. Look at Where Is U.S. Oil Production Going?

The simple point I want to make today comes from this chart from the Energy Information Administration (EIA). Read the caption carefully.

This data shows U.S. oil consumption since 1990. The EIA recently changed its chart tool, and in this graph it is difficult to see the decline in American demand because they've screwed around with the Y-axis (thousands of barrels per day), seemingly to hide the the decline. So I've drawn a helpful blue arrow to indicate that decline. Before the economic meltdown in late 2008, U.S. demand was typically in the 20-22 million barrels-per-day range. Today demand is typically in the 18-19 million barrels-per-day range (4-week averages).

Once you understand that U.S. oil demand is down significantly because the economy sucks, you can see why the White House imports graph is largely meaningless, though domestic crude oil production has indeed risen to its "lofty"  2001 level over the last few years.

Hyping American energy independence is just so much election year nonsense. As long as gasoline prices are high and rising, this hyperbole will continue. If you want to maintain what little sanity you've got left after prolonged exposure to all this mind-fucking propaganda, I recommend you ignore this drivel until it finally goes away on Tuesday November 6th.

Are The Good Times Coming Back?

Allow me to repeat something I wrote in Saturday's post It Would Make You Feel You Uncomfortable. I was talking about the mounting public debt.

Let me tell you some things I hope you already know. One day this irresponsible (and mounting) government debt accrual and the current low borrowing rates are going to come to an end. The longer the government waits to do something about future bills it can't pay, the greater the reversal will be. The government will have to run, not walk, in the other direction, making dramatic cuts to this program or that program. All of this budget slashing will undoubtedly decimate programs ordinary Americans count on to get by. It will be a massacre.

It used to be the case—it is still the working assumption—that future growth would pay for current borrowing. This has been likened to a Ponzi Scheme. All such schemes must eventually end. Future growth somewhere close to the magnitude required will not be forthcoming. Don't look for it, it's not going to happen.

As far as I can see, and bearing in mind that the nobody knows the future, what I wrote on Saturday is God's Honest Truth. You would be hard-pressed to dig up any evidence suggesting that our economic future looks bright, not only here in the United States but also in the global economy. Consider this text and graph from The Economist (hat tip Tim Iacono).

The world’s economic growth continued to slow in the final quarter of 2011, according to The Economist’s measure of global GDP, based on 52 countries. Year-on-year growth fell by just under one percentage point to 2.5%. Developed countries’ average growth slumped to less than half a percent despite a small uptick in the third quarter. The BRIC economies saw declining growth for a seventh successive quarter. In Europe heavy austerity measures have stifled growth; the economies of the Netherlands, Greece and Italy all contracted in the fourth quarter. Oil prices, which recently rose over $128 per barrel, are placing new pressure on the global economy.

The news is not all bad, however; America's job market has started to pick up speed again. The latest quarterly results show the biggest increase in employment added since April 2006—a good start to the new year.

[My note: The "BRIC" economies are Brazil, Russia, India and China, in that order.]

Tim sarcastically asked Can you spot the trend? We sure can!

If you are looking to the official, statistically manipulated jobs numbers to give you an emotional lift, you are obviously grasping at straws. See my recent post Our Phenomenal Jobs Growth Makes No Sense.

Now, even mainstream (i.e. clueless) economists are asking the hard questions about future growth. In the New York Times Economix blog, Binyamin Applebaum asks Are the Good Times Never Coming Back? He was reporting on an academic study called Disentangling the Channels of the 2007-2009 Recession.

The authors use a complex model —"a high-dimensional dynamic factor, linear time series model (DFM)"—as they struggle to sort out their own considerable confusion. For those not initiated into the economic mysteries, reading the study is a lot like reading ancient Greek. For your edification, I simply note that the words "debt" and "bubble" appear nowhere in the document, although the word "oil" does. Kudos to them! Here's Applebaum—

There is growing chatter in economics circles about the unsettling possibility that the nation may never recover completely from the recent recession.

Recessions are generally regarded as abnormal disruptions and recoveries as inevitable returns to normalcy — in large part because that is how the economy has behaved for more than a century. Even after the Great Depression, growth returned to its long-term trend; it just took a while.

The bleaker view — which remains, to be sure, the view of a distinct minority — is that the years before the recession were abnormally good, and that while the recession was abnormally bad, reality lies halfway in between.

The present situation, in other words, is about as good as it gets...

Yes, there's no reason to worry. After all, only a "distinct" minority holds the "bleaker" view.

The authors argue that the slow pace of recovery reflects a long-term deterioration in economic prospects. Specifically, they estimate that the trend growth rate of gross domestic product fell by 1.2 percentage points between 1965 and 2005...

The economists who wrote the new paper, James Stock of Harvard and Mark Watson of Princeton, contend that the key reason for the faltering pace of growth is that the work force is expanding more slowly.  

Population growth has slowed, and so has the pace at which women are entering the labor market.

“These demographic changes imply continued low or even declining trend growth rates in employment, which in turn imply that future recessions will be deeper, and will have slower recoveries, than historically has been the case."

Say what? Our economic problems are due to slowing population growth? Because fewer women entering the work force? If that's really their argument, that's easily the most ridiculous thing I've ever read. Well, OK, maybe not, but it's right up there.

... Indeed, recent growth has actually outpaced their expectations.

“The current recovery in employment is actually faster than predicted,” they write. “The puzzle, if there is one, is why the recovery was as strong as it has been.”

This general theory about the power of women has been propounded before, notably by the economist Tyler Cowen in his recent book The Great Stagnation.

In the current context, however, [this study] is also deployed as a rebuttal to the many economists who regard the slow recovery as a consequence of the unusual nature of the recession. One such view holds that financial crises are particularly traumatic. Another common theory holds that high levels of debt are restraining growth.

Both of these views carry the implication that the good times will return...

I refuted the view that the good times will return in This Time Really Is Different (and also see Part II). I am not going to argue with clueless economists other than to say that their view of the economy takes place in an historical vacuum. In this sense, it is ahistorical. The business cycle is timeless and inevitable, but only if the working population (including more women) continues to grow as well. Wow!

• It doesn't matter to these economists that wealth & income inequality has been rising precipitously for 30 years now, that America has been hemorrhaging good paying jobs (mostly in manufacturing) for decades now.


• It doesn't matter to them that college and health care costs have significantly outpaced the "official" inflation rate all that time.


• Astonishing levels of household, private (corporate) and government debt don't matter to them. (Only a very tiny minority of economists think debt matters.)


• Neither does it matter to them that most of the so-called "growth" we enjoyed between 1995 and 2007 was due to two massive economic bubbles.


• It doesn't matter to them that crude oil prices started rising in 2003 and that high oil prices are never going away unless the global economy crashes as it did in late 2008.


• And it also doesn't matter to them that our changing climate is going to disrupt human economies more and more as time goes on.

None of this matters to economists. And this list is seriously incomplete. Why didn't I see it? (Smacks self on the forehead.) Our problems are demographic! (But not the way you might think.) The working population isn't growing fast enough and fewer women are entering the labor force. And Boomers are retiring. Alternatively, we're screwed (temporarily) because financial crises are always really bad and it takes a while to recover from them, but eventually it will all work out.

Of course we could easily solve this demographics problem. We could simply repeal the child labor laws. No more video games for you!

Unbelievable. Some people actually get offended when I refer to the human world as Planet Stupid.

Bonus Video — Antony Davies, Associate Professor of Economics at Duquesne University, talks about government debt (thanks again, Tim).

 

Are We Alone In The Milky Way?

When facts are few, speculations are most likely to represent individual psychology
   — Carl Jung

Let's go big or go home. Today I will talk about astrobiology, which is the study of the possibility of  life outside the Earth. This has been a preoccupation of mine for a long time now, for whenever I tire of human life on Earth, which is often, it is fun to speculate about the existence of technologically advanced alien (extra-terrestrial) civilizations. Astrobiology has been jokingly referred to as the only science without a subject because there is no observational evidence of any kind which suggests that we share the Milky Way (or the observable Universe) with other "intelligent" species. Even the question of whether single-celled bacteria exist on other worlds remains unanswered.

I intend to do a series of articles on astrobiology, and relate it to some of my other writing, so today's post serves as an all-too-brief introduction.

Let's get right to the heart of the matter and focus on Fermi's Paradox (and watch the video below)

The story goes that, one day back on the 1940's, a group of atomic scientists, including the famous Enrico Fermi, were sitting around talking, when the subject turned to extraterrestrial life. Fermi is supposed to have then asked, "So? Where is everybody?" What he meant was: If there are all these billions of planets in the universe that are capable of supporting life, and millions of intelligent species out there, then how come none has visited earth? This has come to be known as The Fermi Paradox.

And from here—

The drive to place humanity at the center of the universe has led to a stream of assumptions that, as facts have been collected, are shown to be ill founded. The Ptolemaic Earth-centered view was replaced by Copernican Sun-centered view which in its time was also replaced. The assumption that we are alone in the universe is also under threat of replacement. One of the more interesting aspects of our apparent aloneness was pointed out by Enrico Fermi and is know as Fermi's Paradox.

Fermi's Paradox may be succinctly stated as: Extraterrestrials should have colonized Earth long ago, but they have not. So where are they? Whether you agree with the point that Earth was colonized or not the fact remains that no concrete evidence has ever been found indicating a visitation of Earth by extraterrestrials. This is in itself is a very significant point...

Let me explain. The Milky Way is almost as old as the Universe itself, with a measured age of roughly 13.6 billion years (with a wide margin of error, 0.8 gya). By some estimates there were enough"metals" (elements more complex than hydrogen and helium) being generated by exploding stars to allow complex life to form by 7 billion years ago. Our solar system and the Earth are 4.6 billion years old. Propagation models suggest that it would only take between 5 to 50 million years for an alien species to colonize the entire galaxy, so there has been ample time for them to do so. These are the sort of calculations Fermi must have roughed out in his head right before he asked his famous question.

There is no positive evidence that aliens have ever visited Earth, nor is there any observational evidence (coming from the Hubble or other instruments) that suggests artificial (non-natural) heat sources or large-scale structures elsewhere in the Milky Way. Outside of old I Love Lucy TV shows, which have propagated to about 60 light years from our location, Earth's human civlization is effectively invisible to aliens who would thus have no reason to look for us. That was the premise of Carl Sagan's book (and the movie) Contact.

We can forestall some objections immediately. As the ever-optimistic SETI people (Jill Tarter, Seth Shostak) are fond of saying, absence of evidence is not evidence of absence. Therefore we can not prove that aliens have never visited the Earth, nor can we infer that they don't exist because of our failure to detect them with our instruments. We can't even prove they aren't watching re-runs of Battlestar Galactica right now from some unknown location in the asteroid belt. (They can't stop laughing.) In fact, you can never demonstrate that aliens don't exist. That's a logical fallacy (a faulty inductive conclusion based on a poor data sample). Just because all the swans you've seen are white doesn't entitle you to conclude that there are no black swans (as we have recently learned).

Even with these objections the existence problem suggested by Fermi's question still stands until some positive data falsifies it. Maybe some genuine evidence will turn up which shows aliens really have visited the Earth. There wouldn't been much to see until about 542 million years ago at the end of the Precambrian. Maybe we'll dig up a monolith on the Moon. Maybe E.T. will call in from his undisclosed Lagrangian orbital point in our solar system. Maybe some nasty aliens are actually on a rampage and they're due to arrive next week so they can blow up the White House. Maybe those illusive UFOs are definitive evidence of a massive government conspiracy (and cover-up) to deploy super-secret technology from outer space.

Who can say for sure?

There are lots and lots of solutions to Fermi's Paradox, and I've heard and considered them all. But I've taken so long to lay out the basics that I'm going to have to discuss them next time. To whet your appetite, I should note that the default (null) hypothesis is that Homo sapiens is alone in the Milky Way, which implies that the evolution of "intelligent" life is extremely improbable. Occam's razor alone tells us this, for that's the simplest explanation for the lack of evidence for extraterrestrial civilizations. Any other explanation requires further elaboration based on guesswork and assumptions which may turn out to be bogus. However, it is still possible to do some highly informed guesswork while making what appear to be reasonable assumptions, which is what makes astrobiology so much fun for oddballs like me. We must of course work with a small, inadequate data sample (of size = 1, us).

Suppose we are alone in the galaxy. If we could somehow prove this conclusion, which we can't, how would that affect the way our species conducts itself? Or what if other "intelligent" extraterrestrial civilizations once existed—this is the teaser—but all of these were extremely short-lived because these aliens ended up destroying themselves or losing their advanced technology—just as we appear to be doing. In short, one solution to Fermi's paradox says that all intelligent species self-destruct, coming into being and then disappearing in far less than the blink of an eye on cosmological time scales.

For the more ambitious among you, watch The Eerie Silence, an hour-long lecture by Paul Davies, Director of the Beyond Center and Co-Director of the Cosmology Initiative at Arizona State University. The best book on the Fermi Paradox is Stephen Webb's If the universe if teeming with aliens—where is everybody? (fifty solutions to the Fermi paradox and the problem of extraterrestrial life). Also see my post Will The Human Species Grow Up?

So stay tuned. I have far more to say about astrobiology.

Bonus Video — Nick Bostrom talks about Fermi's Paradox

 

Remedy du Jour -- March 24, 2012

Today we pay tribute to the peerless American jazz singer Billie Holiday, born Eleanora Fagan in 1915, probably in Phildelphia. Dubbed "Lady Day" by Lester Young, Holiday's career started in the 1930s and ended with her death in 1959 at the age of 44. Billie struggled with drug addiction throughout her too short life, but her singing reminds us whenever we hear it what true musical greatness is. In contemporary times someone will say so-and-so reminds us of Billie Holiday, or she has a voice like Billie Holiday. These comparisons are always meant as great praise. Thus Lady Day set the standard by which others can be judged, though all great singers are outstanding in their own way.

Here's the playlist.

• Stormy Weather
• Lover Man
• Lady Sings The Blues (an excerpt from the documentary)
• Fine And Mellow (live from CBS studios, 1957)

Enjoy.

 

 

Sorry about the advertising

 

It Would Make You Feel Uncomfortable

Trey Gowdy (R-SC) asked Treasury Secretary Tim Geithner a question at a Capitol Hill hearing last Wednesday. The story comes from Real Clear Politics. Gowdy was obviously screwing with Geithner, who hemmed and hawed for almost 3 minutes before answering the question (sort of).

"If this were the last debt ceiling increase you could ask for, the final one, and you had to make it large enough for all current and future obligations, what would the request need to be?" Congressman Trey Gowdy (R-SC) asked Treasury Secretary Tim Geithner at a Capitol Hill hearing on Wednesday.

"I don’t know how to answer that question," Geithner said to Gowdy.

After being prodded by the Congressman, Geithner eventually told him, "it would be a lot."

“It would be a lot,” Geithner finally said. “It would make you uncomfortable," he added.

Let me tell you some things I hope you already know. One day this irresponsible (and mounting) government debt accrual and the current low borrowing rates are going to come to an end. The longer the government waits to do something about future bills it can't pay, the greater the reversal will be. The government will have to run, not walk, in the other direction, making dramatic cuts to this program or that program. All of this budget slashing will undoubtedly decimate programs ordinary Americans count on to get by. It will be a massacre.

It used to be the case—it is still the working assumption—that future growth would pay for current borrowing. This has been likened to a Ponzi Scheme. All such schemes must eventually end. Future growth somewhere close to the magnitude required will not be forthcoming. Don't look for it, it's not going to happen.

Alternatively, the government will print money to cover its bills. This will turn the dollar into toilet paper. Actually, toilet paper will be more valuable because it has been specifically designed to make it easy to wipe your ass. Anyone who has looked at the Fed's balance sheet knows we are already traveling down this road.

One day this fiscal house of cards is going to come crashing down. And Heaven Help Us when it does.