Friday, October 17, 2008

OPEC calls emergency meeting as oil plunges below $ 70 barrel


The NY Times reported that oil prices dropped below $70 a barrel for the first time in 14 months on Thursday, causing OPEC to call for an emergency meeting next week to establish some stabilize oil prices. NY Times link  Oil prices have slid nearly $40 a barrel in three weeks because demand for energy is expected to drop as the global economy slows.  Oil traded at a record $145 a barrel during July 2008. 

OPEC might allow prices to stabilize at a relatively low level ($80-$100) in the hopes that lower oil prices will provide an economic stimulus.  According to the NY Times, consumers would have $250 billion more, over a year, to save or spend elsewhere if oil prices stayed at the current level.  Based on pessimistic predictions about the extent of global economic slow down, some analysts expect price to fall as low as $50 a barrel during the winter.  Natural gas prices have also fallen from their summer peak of $13.58/TCF to $6.81.

Volatile prices, along with the credit crisis, have created significant disincentives for large investments in long-term oil and gas projects -- which in turn could lead to oil and gas shortages when the global economy turns around and global demand for oil and gas increases.  That raises the prospect of skyrocketing prices that might moderate or interfere with recovery. The NY Times noted that growth in demand has outstripped the ability of oil producers to increase production: "Many experts have predicted a new squeeze within the next five years that could once again propel oil prices over $100 a barrel."

I'll wager that prices five years from now (based on a 3 month average) will exceed $125.

October 17, 2008 in Economics, Energy | Permalink | TrackBack (0)

Wednesday, October 15, 2008

The Market for Oil

As the Dow shed 733 points [NY Times link], crude oil dropped to below $ 75 a barrel for the first time since August 2007.  MarketWatch link   At the close in New York, the Dow Jones industrial average was down 733 points, or 7.8 %, largely erasing Monday’s 936-point gain. The broader Standard & Poor 500 index was down an even greater 9 %. The technology-heavy Nasdaq was down 8.4 percent.

Even though governments are attempting to fix the credit crisis, the stock markets understand that the economic problems on Main Street transcend those of Wall Street.  Recession, unemployment, low retail sales, foreclosures, stagnant or falling housing prices, slow housing starts and sales, higher manufacturing costs, and the likelihood that the credit crisis will continue: why would anyone be betting on the economy right now?  Not the folks who buy oil futures, for sure.

October 15, 2008 in Economics | Permalink | TrackBack (0)

Strategic Trade - An Opening for Sustainability

Yesterday the Guardian published an opinion piece by Kevin Gallagher (Washington Consensus Dead?) on Nobel Laureate Paul Krugman's work on strategic trade policy, pointing out that his Nobel Prize is the nail in the coffin of the free trade "Washington consensus."  Krugman explains why it is rational for governments to engage in strategic use of tariffs and subsidies in order to create a niche industry.  The same sort of strategic trade policy makes it rational for governments to engage in strategic use of tariffs and subsidies to support ecological sustainability and social well-being.  Perhaps the pendulum will swing against the free traders enough so that we can protect the global environment through trade and other economic sanctions against nations unwilling to act in a socially and environmentally responsible manner.

Gallagher's opinion:
Last Friday the New York Times quoted the World Bank as saying "There's no question the Washington consensus is dead," indeed it "died at the time of the $700bn bail-out." If the bail-out is death, then awarding Paul Krugman the Nobel prize for economics is the nail in the coffin.

Paul Krugman did not win the Nobel for his popular critiques of Bush-era economic policy in his New York Times column, though the column no doubt helped raise his profile outside the economics profession. The Nobel committee cited Krugman's theoretical contributions to the economics of international trade, the policy implications of which fly in the face of the Washington consensus ( where the mantra is to free up trade every chance you get).

Among Krugman's achievements in the field of international trade is "strategic trade policy". In this work Krugman (and others) showed that tariffs and subsidies to domestic industries can divert profits away from highly concentrated foreign firms and increase a nation's income. Though Krugman himself shies away from prescribing such policy, the textbook example of strategic trade theory is the choice by the Brazilian government to subsidise and develop the aircraft company Embraer. The free-trade theories espoused by the Washington consensus would warn Brazil of the high cost of subsidisation. To free traders, Brazil should focus on its advantage in agricultural products and forget about climbing the manufacturing ladder. Strategic trade theory helps explain why Brazil was willing to gamble in the short term to become one of the finest aircraft manufactures over the long term. They squeezed foreign firms out of the market and carved out a global niche for themselves.

In another classic book, Development, Geography, and Economic Theory, Krugman argued that the government should also play a role in connecting beneficiaries of strategic trade policy to the overall economy. Evoking the work of economists such as Albert O Hirschman and Paul Rosenstein Rodan, Krugman argued that developing countries often needed a "big push" of coordinated government investments to help strategic industries get off the ground and to link the growth of such industry to the economy as a whole.

Problem is, today's trading system is out of whack with these frontier issues in economic thought. In a study published by Boston University's Pardee Centre for the Study of the Longer-Range Future, trade lawyer Rachel Denae Thrasher and I examined the extent to which the World Trade Organisation (WTO) agreements, European Union trade agreements, and United States trade agreements bit into a nation's ability to deploy strategic trade and other industrial policies to benefit from the globalisation process.

We find that in general the world's trading system makes it much more difficult for nations to craft strategic trade and industrial policies for growth and development. Indeed, enshrined in virtually all trade agreements is the "national treatment" idea that says a nation may not treat its domestic industries any differently than foreign ones. That may make sense when rich nations compete against each other, but in a world where 57.6% of the population lives on less than $2.50 per day, one size can't fit all. This restriction is accentuated in provisions for foreign investment, intellectual property, and subsidies.

Interestingly however, we find that there is more "policy space" for innovative growth strategies under the WTO than under most regional trade agreements – especially those pushed by the US. In fact, we find that US-style trade agreements are the most severe in constraining the ability of developing countries to deploy such policy. EU agreements, interestingly, tend to have the same policy space as the WTO.

It doesn't make sense that the World Bank and (implicitly) the Nobel committee are declaring the death of the Washington consensus when the US is choking the ability of nations to use policies that are gaining increasing legitimacy in theory and practice. Change is in the air. As we know in the aftermath of the financial crisis, the US has justified – like never before – a strong role for government in economic affairs. And, of the two presidential candidates, Obama has expressed concern over the direction of US trade policy and has pledged to rethink it. Perhaps these events will make strategic trade and industrial policy rise again.

October 15, 2008 in Africa, Agriculture, Air Quality, Asia, Australia, Biodiversity, Climate Change, Economics, Energy, Environmental Assessment, EU, Forests/Timber, Governance/Management, International, Land Use, Law, Mining, North America, Social Science, South America, Sustainability, Toxic and Hazardous Substances, US, Water Quality, Water Resources | Permalink | TrackBack (0)

Monday, October 13, 2008

Money Does Not Equal Happiness....But Poverty Sure Doesn't Help

Take a look at the world happiness map.  The richest countries do not have the highest degree of satisfaction with life.  But the poorest countries certainly have a far lower level of happiness.  Apparently, according to researchers at the University of Leicester, the happiest nations have moderate wealth and lower expectations.  Imagine if the wealthiest nations lowered their expectations and redistributed a bit of that wealth -- it might truly be a win-win situation.happiness_map.pdf

October 13, 2008 in Economics | Permalink | TrackBack (0)

Community-based Water Development

I just returned from an International Water Training Conference hosted by EDGE Outreach in Indiana. 

It was a bit different from your standard conference: I actually learned to do something.  I can build and install a community water purification system.  I can build and install a community water treatment system.  I can do a community water, sanitation, and hygiene assessment.  I can lead community hygiene education.   I even learned a bit about how to do all of this in a cross-cultural situation!

The training was aimed at people who are actively doing community-based water development work.  The development community itself appears to be broken into three parts: (1) the official development organizations, funding projects through official development aid and international financing from the World Bank, IMF, regional development banks and such; (2) the non-governmental organizations run by professional water management types -- who provide water and sanitation in developed countries and who do charitable work in developing countries -- WaterAid and Water for People; and (3) the missionaries who work on lots of issues throughout the developing world.  This conference was organized and aimed at the third group.

I spent time talking to people who work in Ghana, Guyana, Kenya, Haiti, Costa Rica, and dozens of other places.  The need is immense and unrelenting.   1.5 million people are dying of preventable water borne diseases every year -- a child every 15 seconds.  You really can install a village water purification system for a bit more than $ 1000; you really can develop new water supplies for a village for $ 5000 - $15,000.  You can really make a difference.

One of the best parts of the conference was Bill Deutsch from Auburn discussing watershed management and the need to look upstream to prevent some of the water contamination problems.  The light bulbs going on in people's minds were almost visible -- there will be some sustainable water systems developed throughout the world thanks to the wisdom he shared.  The other concept he shared was that most of the work being done is first and second "generation" development work -- aimed at disasters and individual communities.  The work that isn't being done and needs to be done is third and fourth "generation" development work -- the regional, national, and international policy levels.  That's really my work in the area.  We need to secure the human right to clean drinking water.  We need to assure that the community-based water development work is sustainable in terms of being coordinated with integrated water resources development and with climate change adaptation planning.  We need to find ways to increase the funding available for community-based water development -- beyond official aid and international financial institutions.  This is the challenge.  Let me know if you want to help.

October 13, 2008 in Africa, Agriculture, Asia, Biodiversity, Climate Change, Economics, Energy, Governance/Management, International, Land Use, Physical Science, South America, Sustainability, Toxic and Hazardous Substances, US, Water Quality, Water Resources | Permalink | Comments (1) | TrackBack (0)

End of the Mid October Panic

Finally folks are calming down.  The Dow gained almost a thousand points today.  It needed to.  While I was away in Indiana, learning how to build and install community water purification and treatment plants, the stock markets were going nuts.  Fortunately, I didn't have to watch, but here's what it looked like over the last 5 days.  The beginning was around 10,000, the low point was down near 7500, as of today its back to about 5% down over a week.  Not the right direction, but....

October 13, 2008 in Economics | Permalink | TrackBack (0)