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Financial skeptic

Notes on "neoliberalism enforced" cruise to Frugality Island for 401K Lemmings

News Neoliberalism as a New Form of Corporatism Recommended Links Peak cheap Energy and Oil Price Slump Secular Stagnation under Neoliberalism Rational Fools vs. Efficient Crooks: The efficient m hypothesis Casino Capitalism
Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime Neoliberal Attacks on Social Security Unemployment Inflation vs. Deflation Coming Bond Squeeze Notes on 401K plans Vanguard
401K Investing Webliography Retirement scams Stock Market as a Ponzy scheme Financial Sector Induced Systemic Instability Neoclassical Pseudo Theories The Great Stagnation Investing in Vanguard Mutual Funds and ETFs
OIL ETNs Peak Cheap Energy and Oil Price Slump Notes on 100-your age investment strategy behavior in rigged markets Chasing a trade The Possibility Of No Mean Reversion Junk Bonds For 401K Investors Tax policies
John Kenneth Galbraith The Roads We Take Economics Bookshelf Who Rules America Financial Quotes Financial Humor Etc

“When the capital development of a country becomes a by-product
of the activities of a casino, the job is likely to be ill-done.”

John Maynard Keynes

"Life is a school of probabilities."

Walter Bagehot

Neoliberal economics (aka casino capitalism) function from one crash to another. Risk is pervasively underpriced under neoliberal system, resulting in bubbles small and large which hit the economy periodically. The problem are not strictly economical or political. They are ideological. Like a country which adopted a certain religion follows a certain path, The USA behaviour after adoption of neoliberalism somewhat correlate with the behaviour of alcoholic who decided to booze himself to death. The difference is that debt is used instead of booze.

Hypertrophied role of financial sector under neoliberalism introduces strong positive feedback look into the economic system making the whole system unstable. Any attempts to put some sand into the wheels in the form of increasing transaction costs or jailing some overzealous bankers or hedge fund managers are blocked by political power of financial oligarchy, which is the actual ruling class under neoliberalism for ordinary investor (who are dragged into stock market by his/her 401K) this in for a very bumpy ride. I managed to observe just two two financial crashed under liberalism (in 2000 and 2008) out of probably four (Savings and loan crisis was probably the first neoliberal crisis). The next crash is given, taking into account that hypertrophied role of financial sector did not changes neither after dot-com crisis of 200-2002 not after 2008 crisis (it is unclear when and if it ended; in any case it was long getting the name of "Great Recession").

Timing of the next crisis is anybody's guess but it might well be closer then we assume. As Mark Twain aptly observed: "A thing long expected takes the form of the unexpected when at last it comes" ;-):

This morning that meant a stream of thoughts triggered by Paul Krugman’s most recent op-ed, particularly this:

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

As most 401K investors are brainwashing into being "over bullish", this page is strongly bearish in "perma-bear" fashion in order to serve as an antidote to "Barrons" style cheerleading. Funny, but this page is accessed mostly during periods of economic uncertainty. At least this was the case during the last two financial crisis(2000 and 2008). No so much during good times: the number of visits drops to below 1K a month.

Still I hope it plays a small but important role: to warn about excessive risk taking by 401K investors in neoliberal economic system. It designed to serve as a warning sign and inject a skeptical note into MSM coverage. There are not many such sites, so a warning about danger of taking excessive risk in 401K accounts under neoliberalism has definite value. The following cartoon from 2008 illustrated this point nicely

As far as I know lot of 401K investors are 100% or almost 100% invested at stocks. Including many of my friends. I came across a very relevant to this situation joke which nicely illustrated the ideas of this page:

Seven habits that help produce the anything-but-efficient markets that rule the world by Paul Krugman in Fortune.

1. Think short term.
2. Be greedy.
3. Believe in the greater fool
4. Run with the herd.
5. Overgeneralize
6. Be trendy
7. Play with other people's money

I would like to stress again that it is very difficult to "guess" when the next wave of crisis stikes us: "A thing long expected takes the form of the unexpected when at last it comes".

But mispricing of risk in 401K accounts is systemic for "overbullish" 401 investors, who expect that they will be able to jusp of the train in time, before the crash. Usually such expectations are false. And to sell in the market that can lose 10% in one day is not easy psychologically. I remember my feelings in 2001-2002 and again 2008-2009. That's why many people who planned to "jump" stay put and can temporarily lose 30 to 50% of value of their 401k account in a very short period of time (and if you think that S&P500 can't return to 1000, think again; its all depends on FED). At this point some freak out and sell their holdings making paper losses permanent.

Even for those who weathered the storm and held to their stock holdings, it is important to understand that paper losses were eliminated mostly by Fed money printing. As such risks remains as at one point FED might find itself out of ammunition. The fact that S&P500 recovered very nicely it does not diminish the risk of such behavior. There is no guarantee that the third crisis will behave like previous two.

Next crash will have a new key determinant: the attitude toward the US government (and here I mean the current government of Barack Obama) and Wall Street after 2008 is the lack of trust. That means that you need to hope for the best but prepare for the worst. Injection on so much money into financial system was a novel experiment which is not ended yet. So how it will end is anybody's guess. We are now in uncharted waters. I think when Putin called Bernanke a hooligan, he meant exactly this. Since Bernanke was printing money out of thin air to buy financial paper, his action were tantamount to shoplifting. In some way this probably is more similar to running meth labs inside Fed building. The system was injected with narcotics. Everybody felt better, but the mechanism behind it was not healthy.

The complexity of modern financial system is tremendous and how all those new financial instruments will behave under a new stress is unknown. At the same time in the Internet age we, the great unwashed masses, can't be keep in complete obscurity like in good old time. Many now know ( or at least suspect ) that the neoliberal "show must goes on" after 2008 is actually going strongly at their expense. And while open rebellion is impossible, that results in lack of trust which represents a problem for financial oligarchy which rules the country. The poor working slobs are told be grateful for Walmart's low (poverty-subsidized) prices. Middle class is told that their declining standard of living is a natural result of their lack of competitiveness in the market place. Classic "bread and circuses" policy still works but for how long it will continue to work it is unclear.

But nothing is really new under the sun. To more and more people it is now clear that today the US is trying to stave off the inevitable decline by resorting to all kinds of financial manipulations like previous empires; yesterday, it was the British Empire and if you go further back, you get the USSR, Hapsburg empire, Imperial Russia, Spanish empire, Venetian empire, Byzantium and Roman empire. The current "Secretary of Imperial Wars" (aka Secretary of Defense) Ashton Baldwin Carter is pretty open about this:

“We already see countries in the region trying to carve up these markets…forging many separate trade agreements in recent years, some based on pressure and special arrangements…. Agreements that…..leave us on the sidelines. That risks America’s access to these growing markets. We must all decide if we are going to let that happen. If we’re going to help boost our exports and our economy…and cement our influence and leadership in the fastest-growing region in the world; or if, instead, we’re going to take ourselves out of the game.”

For the US elite it might be a time to rethink its neocon stance due to which the US is exposing ourselves to the enmity of the rising economic powers, and blowing serious cash to maintain it hegemony via maintaining huge military budget, financing wars and color revolutions in distant countries. In a way the US foreign policy became a financial racket, and racket can't last forever because it incite strong opposition from other countries.

Neoliberalism (aka casino capitalism) as a social system entered the state of decline after 2008. Like communism before it stopped to be attractive to people. But unlike communism it proved to have greater staying power, surviving in zombie state as finanfial institutions preserved political power and in some cases even enhanced it. It is unclear how long it will say in this state. Much depends on the availability of "cheap oil" on which neoliberal globalization is based.

But the plausible hypothesis is that this social system like socialism in xUSSR space before entered down slope and might well be on its way to the cliff. Attempts to neo-colonize other states by the West became less successful and more costly (Compare Ukraine, Libya and Iraq with previous instances of color revolutions). Some became close to XIX century colonial conquests with a lot of bloodshed (from half million to over a million of Iraqis, by different estimates, died ). As always this is mainly the blood of locals, which is cheap.

Libya and Ukraine are two recent examples. Both countries are now destroyed (which might be the plan). In Ukraine population is thrown in object poverty with income of less that $5 a day for the majority of population. And there is no other way to expand markets but to try to "neo-colonize" new countries by putting them into ominous level of debt while exporting goods to the population on credit. That is not a long term strategy as Greece, Bulgaria, and now Spain and Portugal had shown. With shrinking markets stability of capitalism in general and neoliberalism in particular might decrease.

Several researchers points to increased importance Central banks now play in maintaining of the stability of the banking system. That's already a reversal of neoliberal dogma about free (read "unregulated") markets. Actually the tale about "free markets", as far as the USA is concerned, actually was from the very beginning mainly the product designed for export (read about Washington consensus).

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[Feb 21, 2017] Attempt to cover the nature of American neoliberal imperialism ?

Feb 21, 2017 | economistsview.typepad.com
anne : February 21, 2017 at 07:11 AM , 2017 at 07:11 AM
http://www.bradford-delong.com/2017/02/twenty-first-century-american-nationalism-needs-to-be-profoundly-cosmopoiltan.html

February 20, 2017

Twenty-First Century American Nationalism Needs to Be Profoundly Cosmopolitan

The right pose--substantive and rhetorical--is to recognize that, just as since 1620 the good American nationalism has always held that people anywhere can elect to become Americans by joining our utopian project here at home, so in the twentieth and twenty-first centuries that good American nationalism is one that puts global prosperity and being a good neighbor and benevolent hegemon first....

-- Brad DeLong

libezkova -> anne... , February 21, 2017 at 08:00 AM
Attempt to cover the nature of American neoliberal imperialism ?

[Feb 21, 2017] We need to focus not on what is happening on average - as GDP leads us to do- but on how the economy is performing for the typical citizen, reflected for instance in median disposable income.

Feb 21, 2017 | economistsview.typepad.com
RGC : , February 21, 2017 at 07:31 AM
Re: Joe Stiglitz: How to Survive the Trump Era - Joseph E. Stiglitz

Joe says: "One of the main challenges in this new era will be to remain vigilant and, whenever and wherever necessary, to resist."

I disagree. I think we need a clearly articulated alternative to Trump and I think Joe provided one in his recent comment:

Joseph Stiglitz Says Standard Economics Is Wrong. Inequality and Unearned Income Kills the Economy

The rules of the game can be changed to reverse inequality

http://evonomics.com/joseph-stiglitz-inequality-unearned-income/

In that comment Joe says:

Reversing inequality

A wide range of policies can help reduce inequality.

Policies should be aimed at reducing inequalities both in market income and in the post-tax and-transfer incomes. The rules of the game play a large role in determining market distribution- in preventing discrimination, in creating bargaining rights for workers, in curbing monopolies and the powers of CEOs to exploit firms' other stakeholders and the financial sector to exploit the rest of society. These rules were largely rewritten during the past thirty years in ways which led to more inequality and poorer overall economic performance. Now they must be rewritten once again, to reduce inequality and strengthen the economy, for instance, by discouraging the short-termism that has become rampant in the financial and corporate sector.

Reforms include more support for education, including pre-school; increasing the minimum wage; strengthening earned-income tax credits; strengthening the voice of workers in the workplace, including through unions; and more effective enforcement of anti-discrimination laws. But there are four areas in particular that could make inroads in the high level of inequality which now exists.

First, executive compensation (especially in the US) has become excessive, and it is hard to justify the design of executive compensation schemes based on stock options.

Executives should not be rewarded for improvements in a firm's stock market performance in which they play no part. If the Federal Reserve lowers interest rates, and that leads to an increase in stock market prices, CEOs should not get a bonus as a result. If oil prices fall, and so profits of airlines and the value of airline stocks increase, airline CEOs should not get a bonus. There is an easy way of taking account of these gains (or losses) which are not attributable to the efforts of executives: basing performance pay on the relative performance of firms in comparable circumstances. The design of good compensation schemes that do this has been well understood for more than a third of a century, and yet executives in major corporations have almost studiously resisted these insights. They have focused more on taking advantages of deficiencies in corporate governance and the lack of understanding of these issues by many shareholders to try to enhance their earnings- getting high pay when share prices increase, and also when share prices fall. In the long run, as we have seen, economic performance itself is hurt.

Second, macroeconomic policies are needed that maintain economic stability and full employment. High unemployment most severely penalises those at the bottom and the middle of the income distribution. Today, workers are suffering thrice over: from high unemployment, weak wages and cutbacks in public services, as government revenues are less than they would be if economies were functioning well.

As we have argued, high inequality has weakened aggregate demand. Fuelling asset price bubbles through hyper-expansive monetary policy and deregulation is not the only possible response. Higher public investment- in infrastructures, technology and education- would both revive demand and alleviate inequality, and this would boost growth in the long-run and in the short-run. According to a recent empirical study by the IMF, well-designed public infrastructure investment raises output both in the short and long term, especially when the economy is operating below potential. And it doesn't need to increase public debt in terms of GDP: well-implemented infrastructure projects would pay for themselves, as the increase in income (and thus in tax revenues) would more than offset the increase in spending.

Third, public investment in education is fundamental to address inequality. A key determinant of workers' income is the level and quality of education. If governments ensure equal access to education, then the distribution of wages will reflect the distribution of abilities (including the ability to benefit from education) and the extent to which the education system attempts to compensate for differences in abilities and backgrounds. If, as in the United States, those with rich parents usually have access to better education, then one generation's inequality will be passed on to the next, and in each generation, wage inequality will reflect the income and related inequalities of the last.

Fourth, these much-needed public investments could be financed through fair and full taxation of capital income. This would further contribute to counteracting the surge in inequality: it can help bring down the net return to capital, so that those capitalists who save much of their income won't see their wealth accumulate at a faster pace than the growth of the overall economy, resulting in growing inequality of wealth. Special provisions providing for favourable taxation of capital gains and dividends not only distort the economy, but, with the vast majority of the benefits going to the very top, increase inequality. At the same time they impose enormous budgetary costs: 2 trillion dollars from 2013 to 2023 in the US, according to the Congressional Budget Office. The elimination of the special provisions for capital gains and dividends, coupled with the taxation of capital gains on the basis of accrual, not just realisations, is the most obvious reform in the tax code that would improve inequality and raise substantial amounts of revenues. There are many others, such as a good system of inheritance and effectively enforced estate taxation.

Redefining economic performance

We used to think of there being a trade-off: we could achieve more equality, but only at the expense of overall economic performance. It is now clear that, given the extremes of inequality being reached in many rich countries and the manner in which they have been generated, greater equality and improved economic performance are complements.

This is especially true if we focus on appropriate measures of growth. If we use the wrong metrics, we will strive for the wrong things. As the international Commission on the Measurement of Economic Performance and Social Progress argued, there is a growing global consensus that GDP does not provide a good measure of overall economic performance. What matters is whether growth is sustainable, and whether most citizens see their living standards rising year after year.

Since the beginning of the new millennium, the US economy, and that of most other advanced countries, has clearly not been performing. In fact, for three decades, real median incomes have essentially stagnated. Indeed, in the case of the US, the problems are even worse and were manifest well before the recession: in the past four decades average wages have stagnated, even though productivity has drastically increased.

As this essay has emphasised, a key factor underlying the current economic difficulties of rich countries is growing inequality. We need to focus not on what is happening on average- as GDP leads us to do- but on how the economy is performing for the typical citizen, reflected for instance in median disposable income. People care about health, fairness and security, and yet GDP statistics do not reflect their decline. Once these and other aspects of societal well-being are taken into account, recent performance in rich countries looks much worse.

The economic policies required to change this are not difficult to identify. We need more investment in public goods; better corporate governance, antitrust and anti-discrimination laws; a better regulated financial system; stronger workers' rights; and more progressive tax and transfer policies. By 'rewriting the rules' governing the market economy in these ways, it is possible to achieve greater equality in both the pre- and post-tax and transfer distribution of income, and thereby stronger economic performance.


[Joe had it right with this essay and progressives should elaborate and emphasize this message - not just rant about Trump.]

[The whole essay is worth reading, imo.]

RGC -> RGC... , February 21, 2017 at 07:42 AM
I don't trust the Democratic party.

I fear that if they did defeat trump, they would go back to the same old policies that have given us this mess.

I want to see new leadership that commits to new policies like those articulated by Joe Stiglitz and Bernie Sanders.

I don't want to work for them until I see new policies emerge.

pgl -> RGC... , February 21, 2017 at 07:45 AM
Max Sawicky has a new blog. You might enjoy this description of what his new blog will be about:

http://thepopulist.buzz/2017/02/16/who-we-are-what-we-do/

libezkova said in reply to RGC... , February 21, 2017 at 07:56 AM
"I don't trust the Democratic party."

That's the key point of the whole discussion. Dems are just a party of neoliberals. Who are in the pocket of Wall Street.

So they are in the pocket of the same guys who bought Republicans (and both parties are also puppets of MIC -- with Dems becoming the major War party; not that different from neocons ).

Stiglitz actually is very shy to criticize neoliberal "cult of GDP":
== quote ==
As this essay has emphasised, a key factor underlying the current economic difficulties of rich countries is growing inequality. We need to focus not on what is happening on average - as GDP leads us to do- but on how the economy is performing for the typical citizen, reflected for instance in median disposable income.

People care about health, fairness and security, and yet GDP statistics do not reflect their decline.

Once these and other aspects of societal well-being are taken into account, recent performance in rich countries looks much worse.

== end of quote ==

This is why "pro growth liberals" are just crooks in disguise... With a smoke screen of mathematical nonsense and obscure terminology to cover their tracks.

[Feb 21, 2017] Designing and managing large technologies

Feb 21, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron : February 20, 2017 at 04:48 AM , 2017 at 04:48 AM
RE: Designing and managing large technologies

http://understandingsociety.blogspot.com/2017/02/designing-and-managing-large.html

[This is one of those days where the sociology is better than the economics or even the political history.]

What is involved in designing, implementing, coordinating, and managing the deployment of a large new technology system in a real social, political, and organizational environment? Here I am thinking of projects like the development of the SAGE early warning system, the Affordable Care Act, or the introduction of nuclear power into the civilian power industry.

Tom Hughes described several such projects in Rescuing Prometheus: Four Monumental Projects That Changed the Modern World. Here is how he describes his focus in that book:

Telling the story of this ongoing creation since 1945 carries us into a human-built world far more complex than that populated earlier by heroic inventors such as Thomas Edison and by firms such as the Ford Motor Company. Post-World War II cultural history of technology and science introduces us to system builders and the military-industrial-university complex. Our focus will be on massive research and development projects rather than on the invention and development of individual machines, devices, and processes. In short, we shall be dealing with collective creative endeavors that have produced the communications, information, transportation, and defense systems that structure our world and shape the way we live our lives. (3)

The emphasis here is on size, complexity, and multi-dimensionality. The projects that Hughes describes include the SAGE air defense system, the Atlas ICBM, Boston's Central Artery/Tunnel project, and the development of ARPANET...


[Of course read the full text at the link, but here is the conclusion:]


...This topic is of interest for practical reasons -- as a society we need to be confident in the effectiveness and responsiveness of the planning and development that goes into large projects like these. But it is also of interest for a deeper reason: the challenge of attributing rational planning and action to a very large and distributed organization at all. When an individual scientist or engineer leads a laboratory focused on a particular set of research problems, it is possible for that individual (with assistance from the program and lab managers hired for the effort) to keep the important scientific and logistical details in mind. It is an individual effort. But the projects described here are sufficiently complex that there is no individual leader who has the whole plan in mind. Instead, the "organizational intentionality" is embodied in the working committees, communications processes, and assessment mechanisms that have been established.

It is interesting to consider how students, both undergraduate and graduate, can come to have a better appreciation of the organizational challenges raised by large projects like these. Almost by definition, study of these problem areas in a traditional university curriculum proceeds from the point of view of a specialized discipline -- accounting, electrical engineering, environmental policy. But the view provided from a discipline is insufficient to give the student a rich understanding of the complexity of the real-world problems associated with projects like these. It is tempting to think that advanced courses for engineering and management students could be devised making extensive use of detailed case studies as well as simulation tools that would allow students to gain a more adequate understanding of what is needed to organize and implement a large new system. And interestingly enough, this is a place where the skills of humanists and social scientists are perhaps even more essential than the expertise of technology and management specialists. Historians and sociologists have a great deal to add to a student's understanding of these complex, messy processes.

[A big YEP to that.]


cm -> RC AKA Darryl, Ron... , February 20, 2017 at 12:32 PM
Another rediscovery that work is a social process. But certainly well expressed.

It (or the part you quoted) also doesn't say, but hints at the obvious "problem" - social complexity and especially the difficulty of managing large scale collaboration. Easier to do when there is a strong national or comparable large-group identity narrative, almost impossible with neoliberal YOYO. You can always compel token effort but not the "intangible" true participation.

People are taught to ask "what's in it for me", but the answer better be "the same as what's in it for everybody else" - and literally *everybody*. Any doubts there and you can forget it. The question will usually not be asked explicitly or in this clarity, but most people will still figure it out - if not today then tomorrow.

[Feb 21, 2017] Paul Krugman On Economic Arrogance

Feb 21, 2017 | economistsview.typepad.com
libezkova : , February 20, 2017 at 12:28 PM
Fumbling Towards Collapse - KUNSTLER
http://kunstler.com/clusterfuck-nation/fumbling-towards-collapse/

== quote ==
...In it, Krugman attempts to account for the no-growth economy by marshaling the stock-in-trade legerdemain of academic economics: productivity, demographics, and labor metrics. Krugman actually knows zip about what afflicts us in the present disposition of things, namely the falling energy-return-on-energy-investment in the oil industry, which is approaching the point where the immense activity of getting oil out of the ground won't be worth the cost and trouble of doing it. And since most of the things we do and produce in this economy are based on cheap oil - with no reality-based prospect of replacing it with so-called "renewables" or as yet undiscovered energy rescue remedies - we can't generate enough wealth to maintain anything close to our assumed standard of living. We can't even generate enough wealth to pay the interest on the debt we've racked up in order to hide our growing energy predicament. And that, in a nutshell, is what will blow up the financial system. And when that department of the economy goes, the rest will follow.
... ... ...
So, on one side you have Trump and his trumpets and trumpistas heralding the return of "greatness" (i.e. a booming industrial economy of happy men with lunchboxes) which is not going to happen; and on the other side you have a claque of clueless technocrats who actually believe they can "solve" the productivity problem with measures that really only boil down to different kinds of accounting fraud.


You also have an American public, and a mass media, who do not question the premise of a massive "infrastructure" spending project to re-boot the foundering economy. If you ask what they mean by that, you will learn that they uniformly see rebuilding our highways, bridges, tunnels, and airports. Some rightly suspect that the money for that is not there - or can only be summoned with more accounting fraud (borrowing from our future). But on the whole, most adults of all political stripes in this country think we can and should do this, that it would be a good thing.

And what is this infrastructure re-boot in the service of? A living arrangement with no future. A matrix of extreme car dependency that has zero chance of continuing another decade. More WalMarts, Target stores, Taco Bells, muffler shops, McHousing subdivisions, and other accoutrement of our fast-zombifying mode of existence? Isn't it obvious, even if you never heard of, or don't understand, the oil quandary, that we have shot our wad with all this? That we have to start down a different path if we intend to remain human?

It's not hard to describe that waiting world, which I've done in a bunch of recent books. We're going there whether we like it or not. But we can make the journey to it easier or harsher depending on how much we drag our heels getting on with the job.

History is pretty unforgiving. Right now, the dynamic I describe is propelling us toward a difficult reckoning, which is very likely to manifest this spring as the political ineptitude of Trump, and the antipathy of his enemies, leaves us in a constitutional maelstrom at the very moment when the financial system comes unglued. Look for the debt ceiling debate and another Federal Reserve interest rate hike to set off the latter. There may be yet another converging layer of tribulation when we start blaming all our problems on Russia, China, Mexico, or some other patsy nation. It's already obvious that we can depend on the Deep State to rev that up.

[Feb 21, 2017] People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed. The voters no longer believe them. Theyre like the boy who cried wolf

Feb 21, 2017 | economistsview.typepad.com
Peter K. -> Peter K.... February 20, 2017 at 08:13 AM

, 2017 at 08:13 AM
https://www.ft.com/content/cd4e8576-e934-11e6-967b-c88452263daf

Revoking trade deals will not help American middle classes

The advent of global supply chains has changed production patterns in the US

by Larry Summers
FEBRUARY 5, 2017

Trade agreements have been central to American politics for some years. The idea that renegotiating trade agreements will "make America great again" by substantially increasing job creation and economic growth swept Donald Trump into office.

More broadly, the idea that past trade agreements have damaged the American middle class and that the prospective Trans-Pacific Partnership would do further damage is now widely accepted in both major US political parties.

As Senator Daniel Patrick Moynihan once observed, participants in political debate are entitled to their own opinions but not their own facts. The reality is that the impact of trade and globalisation on wages is debatable and could be substantial. But the idea that the US trade agreements of the past generation have impoverished to any significant extent is absurd.

There is a debate to be had about the impact of globalisation on middle class wages and inequality. Increased imports have displaced jobs. Companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource. The advent of global supply chains has changed production patterns in the US.

My judgment is that these effects are considerably smaller than the impacts of technological progress. This is based on a variety of economic studies, experience in hypercompetitive Germany and the observation that the proportion of American workers in manufacturing has been steadily declining for 75 years. That said I acknowledge that global trends and new studies show that the impact of trade on wages is much more pronounced than a decade ago.

But an assessment of the impact of trade on wages is very different than an assessment of trade agreements. It is inconceivable that multilateral trade agreements, such as the North American Free Trade Agreement, have had a meaningful impact on US wages and jobs for the simple reason that the US market was almost completely open 40 years ago before entering into any of the controversial agreements.

American tariffs on Mexican goods, for example, averaged about 4 per cent before Nafta came into force. China had what was then called "most favoured nation" trading status with the US before its accession to the World Trade Organization and received the same access as other countries. Before the Korea Free Trade Agreement, US tariffs on Korea averaged a paltry 2.8 per cent.

The irrelevance of trade agreements to import competition becomes obvious when one listens to the main arguments against trade agreements. They rarely, if ever, take the form of saying we are inappropriately taking down US trade barriers.

Rather the naysayers argue that different demands should be made on other countries during negotiations - on issues including intellectual property, labour standards, dispute resolution or exchange rate manipulation. I am sympathetic to the criticisms of TPP, but even if they were all correct they do not justify the conclusion that signing the deal would increase the challenges facing the American middle class.

The reason for the rise in US imports is not reduced trade barriers. Rather it is that emerging markets are indeed emerging. They are growing in their economic potential because of successful economic reforms and greater global integration.

These developments would have occurred with or without US trade pacts, though the agreements have usually been an impetus to reform. Indeed, since the US does very little to reduce trade barriers in our agreements, the impetus to reform is most of what foreign policymakers value in them along with political connection to the US.

The truth too often denied by both sides in this debate is that incremental agreements like TPP have been largely irrelevant to the fate of middle class workers. The real strategic choice Americans face is whether the objective of their policies is to see the economies of the rest of the world grow and prosper. Or, does the US want to keep the rest of the world from threatening it by slowing global growth and walling off products and people?

Framed this way the solution appears obvious. A strategy of returning to the protectionism of the past and seeking to thwart the growth of other nations is untenable and would likely lead to a downward spiral in the global economy. The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges.

Peter K. -> Peter K.... , February 20, 2017 at 08:16 AM
" The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges."

People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed.

The voters no longer believe them. They're like the boy who cried wolf.

cm -> Peter K.... , February 20, 2017 at 01:05 PM
I would actually agree with the stance in general, if there would be an actuall intention to help the affected people/populations, but there is none. Retraining for yet another job that doesn't exist (in sufficient volume so you can realistically get it) is not help. It is just cover for victim blaming - see we forgive you for choosing an incorrect career, here is your next chance, don't blow that one too (which we know "you will" as there are not enough jobs there either).
Peter K. -> Peter K.... , February 20, 2017 at 08:14 AM
http://www.bradford-delong.com/2017/02/must-read-four-things-are-going-on-technology-globalization-macro-policy-trade-agreements-lawrence-summ.html

DeLong Feb. 20, 2017

Must-Read: Five things are going on with respect to America's blue-, pink-, and--increasingly--white lower-middle and middle-middle working classes. Three of them are real, and two of them are fake:

Technology: It has--worldwide--greatly amplified manufacturing labor productivity, accompanied by limited demand for manufactured goods: few of us want more than one full-sized refrigerator, and very very few of us want more than two. That means that if you are hoping to be relatively high up in the wage distribution by virtue of your position as a hard-to-replace cog on a manufacturing assembly line, you are increasingly out of luck. If you are hoping for high blue-collar wages to lift your own via competition, you are increasingly out of luck.

Legal and institutional bargaining power: The fact that bargaining power has flowed to finance and the executive suite and away from the shop- and assembly-floor is the second biggest deal here. It could have been otherwise--this is, primarily, a thing that has happened in English-speaking countries. It has happened much less elsewhere. It could have happened much less here.

Macro policy: Yes, the consequences of the Reagan deficits were to cream midwestern manufacturing and destroy worker bargaining power in export and import-competing industries. Yes, the low-pressure economies of Volcker, late Greenspan, and Bernanke wreaked immense damage. Any more questions?

Globalization: Globalization deepens the division of labor, and does so in a way that is not harmful to high-paying manufacturing jobs in the global north. The high-paying manufacturing jobs that require skills and expertise (as opposed to the lower-paying ones that just require being in the right place at the right time with some market power) are easier to create and hold on to if you can be part of a globalized value chain than otherwise. This is largely fake.

Trade agreements: This is a nothingburger: completely fake.

As somebody who strongly believes that supply curves slope up--are neither horizontal nor vertical--and that demand curves slope down--are neither horizontal nor vertical--I think that Larry Summers is misguided here when he talks about how "companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource." This was certainly true since the 1950s with the move of American manufacturing to the south, and the rise of deceptively-named "right-to-work" laws. But the threat to outsource is zero-sum on a national level: the balance of payments balances. Individual sectors lose--and manufacturing workers have been big losers. But that is, I think, only because of our macro policies. If we were a normal global North manufacturing power--a Germany or a Japan--exporting capital and running a currency policy that did not privilege finance, he would not be talking a out how "companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource." He would be talking about how the opportunity to participate in global value chains increases the productivity of semi-skilled and skilled manufacturing workers in the U.S.

Thus I think Larry conceded too much here. Blame macro policy. Blame technology. Blame the conflict between the market society's requirements that only property rights matter and that everything pass a profitability test against people's strong beliefs that even if they have no property rights they have rights to stable communities, stable industries, and stable occupations. But, to channel Pascal Lamy, look not at the finger but at the moon here.

However, Larry is right on his main point: NAFTA really ain't the problem:

Lawrence Summers: Revoking Trade Deals Will Not Help American Middle Classes: "There is a debate to be had about the impact of globalisation on middle class wages and inequality...

Tom aka Rusty -> Peter K.... , February 20, 2017 at 09:27 AM
For Delong to be right on trade, thousands of rust belt politicians, journalists, and business leaders and a few hundred thousand workers would have to be delusional.

He is right in the sense that it is too late to revoke NAFTA, the damage is done.

[Feb 21, 2017] Mainstream economists, being a stooges of financial oligarchy, have depicted capitalism as natural, as though God-given rather than as a product of institutions and/or politics.

Feb 21, 2017 | economistsview.typepad.com
Peter K. : February 20, 2017 at 12:34 PM , 2017 at 12:34 PM
"Larry sees the coming of globalization as bringing with it a sharp reduction in the market power of American blue-collar workers in mass-production industries, and thus as exerting significant downward pressure on middle class wages and upward pressure on inequality. The live question, he thinks, is how large and significant these pressures have been."

As if this was natural and ordained by God. Can't argue with economics.

And hence the populist backlash.

pgl -> Peter K.... , February 20, 2017 at 12:49 PM
Catholic economics? Lord - the troll parade continues.
RGC -> pgl... , February 20, 2017 at 01:32 PM
Peter K is exactly right.

Mainstream economists have depicted capitalism as natural, as though God-given rather than as a product of institutions and/or politics.

That's how they became mainstream and got jobs at "elite" universities and columns in major newspapers.

Peter K. -> pgl... , February 20, 2017 at 03:14 PM
They say don't feed trolls so I guess I shouldn't feed you and your constant need for attention.
libezkova -> pgl... , February 20, 2017 at 06:04 PM
Did you ever read Evangelii Gaudium ?

http://www.vatican.va/holy_father/francesco/apost_exhortations/documents/papa-francesco_esortazione-ap_20131124_evangelii-gaudium_en.html

If not, you probably can benefit from reading it.

It looks like there should strict external "moral" constrains on economic activity, like they were most of human history. For some activities which are now legal you can spend life in jail even in rather relaxed 30th ( for example, credit cards interest rates are usury rates, no question about it)

All this mathiness junk and operating with unreliable and politically fudged (as in employment numbers and GDP) statistics (as in "There are three kinds of lies: lies, damned lies, and statistics."

We already saw to what economic outcomes neoliberals have led us. While neoliberal were eating the carcass of New Deal things were not that bad.

Now it's over and they are in deep trouble. Election of Trump is just the fist sign of troubles ahead. One swallow does not a summer make.

The problem is that financial oligarchy does not want to part with their illicit gains.

In the past this dilemma, especially in case Jewish bankers, was resolved by killing some part and exiling another part. It would be nice for our Masters of the Universe to remember this historical fact.

[Feb 21, 2017] Roger Farmer's ideas are a combination of market monetarism and New Keynesianism.

Feb 21, 2017 | economistsview.typepad.com
rayward : February 20, 2017 at 05:21 AM , 2017 at 05:21 AM
Roger Farmer's ideas are a combination of market monetarism and New Keynesianism. I recommend his interview by David Beckworth. https://soundcloud.com/macro-musings/rogerfarmer

[Feb 21, 2017] The rise in income inequality was promoted by the Reagan revolution. That in many ways was its purpose. It is also the agenda of Paul Ryan and his A Better Way .

Notable quotes:
"... Democrats sold out 35 years ago. ..."
"... Yes it's more profitable to have a non-unionized workforce. ..."
"... Doesn't mean we should. Doesn't mean we should get rid of environmental or safety regulations. ..."
Feb 21, 2017 | economistsview.typepad.com
pgl : , -1

"it is never good to pass up an opportunity to remind readers that the rise in inequality since 1980 has been something that those who made the Reagan Revolution hoped to accomplish and are proud of.

Bargaining power has flowed to finance and the executive suite and away from the shop- and assembly-floor. Top tax rates have come way down. It could have been otherwise--this is, primarily, a thing that has happened in English-speaking countries. It has happened much less elsewhere. It could have happened much less here."

The rise in income inequality was promoted by the Reagan revolution. That in many ways was its purpose. It is also the agenda of Paul Ryan and his "A Better Way".

We used to know how to lower trade barriers and welcome new technology and have the benefits accrue to all. We lost our political will some 35 years ago. And electing Trump has not exactly regained our old mojo.

Peter K. -> pgl... February 20, 2017 at 12:24 PM , 2017 at 12:24 PM
"We lost our political will some 35 years ago. "

Who is this we kemosabe?

Democrats sold out 35 years ago. And you keep defending them.

libezkova -> Peter K.... , February 20, 2017 at 05:41 PM
"Democrats sold out 35 years ago."

Bill Clinton was elected in 1982. He essentially sold the Party to Wall Street, although first signs appeared under Carter/

Peter K. -> Sanjait... , February 20, 2017 at 03:39 PM
Yes it's more profitable to have a non-unionized workforce.

Doesn't mean we should. Doesn't mean we should get rid of environmental or safety regulations.

libezkova -> Peter K.... , February 20, 2017 at 05:44 PM
"it's more profitable to have a non-unionized workforce"

And that was partially accomplished by moving manufacturing South.

[Feb 21, 2017] Does the Chicago Bears quarterback really need 126 million for seven years -- up from to top NFL paid Joe Namath's 600K a couple of generations back?

Feb 21, 2017 | economistsview.typepad.com
Denis Drew : February 20, 2017 at 02:10 PM , 2017 at 02:10 PM
Manufacturing, manufacturing, manufacturing. Everybody misses the BRONTOSAURUS in the room. 4% of jobs gone from automation and trade - half and half -- true. But, 50% of employees have lost 10% of overall income -- out of the 20% of a couple of generations back.

(This reminds me of comparing EITC's 1/2 1% redistribution with 45% of workers earning less than $15 an hour.)

Could 50% of the workforce squeeze 10% of income back out of the 49% who take 70% (14% of their earnings!)? They sure could if they could collectively agree not to show up for work otherwise. Could if the 49% in turn could squeeze 10% out of the 1% (the infamous one percent) who lately take 20% of overall income -- up from 10% a couple of generations back.

(Does the Chicago Bears quarterback really need $126 million for seven years -- up from to top NFL paid Joe Namath's $600,000 [adjusted truly] a couple of generations back?)

Mechanism? Ask Germany (ask Jimmy Hoffa).

* * * * * *

In case nobody thought about it -- I never thought about until Trump -- it goes like this. The NLRA(a) was written in 1935 leaving blank the use criminal sanctions for muscling the labor market. Even if it did specify jail time for union busting it is extremely arguable that state penalties for muscling ANY persons seeking to collectively bargain (not just union organizers and joiners following fed procedure) would overlap, not violate federal preemption.

It seems inarguable -- under long established First Amendment right to organize collective bargaining -- that federal preemption cannot force employees down an organizing road that is unarguably impassable, because unenforceable.

Upshot: states may make union busting a felony -- hopefully backed by RICO for persistent violators.

6% union density is like 20/10 blood pressure. It starves every other healthy process.

RC AKA Darryl, Ron -> Denis Drew ... , February 20, 2017 at 02:14 PM
Understood. Lost manufacturing jobs was a big hit to union employment aside from the longshoremen.
ken melvin -> RC AKA Darryl, Ron... , February 20, 2017 at 02:37 PM
In 1967-68 was working the waterfront in SF. Saw the crews of Stevedores and Longshoremen load the ships; on the docks, down in the holds, using boom winches, forklifts, and muscle (dangerous work). By 1970, containerization had replaced 90% of them. And, it continues with computerization of storage and loading of containers (something I worked on in 1975). Remember the nephew in the 'Wire'? One day a week if he was lucky. David Simon knew of what he wrote.
cm -> RC AKA Darryl, Ron... , February 20, 2017 at 05:02 PM
One of the Michael Moore movies (probably but not sure whether about Flint) made the point rather explicitly - former manufacturing workers retrained as law enforcement or prison officers perhaps for employment in other states or "dealing with" their former colleagues driven to crime or at least into the arms of the law enforcement system.

[Feb 21, 2017] A big contributor to the legacy oil decline is the unrelenting physics of fluid phase behavior, with gas becoming more prevalent in the production stream.

Feb 21, 2017 | peakoilbarrel.com
djtxyz says: 02/16/2017 at 1:44 pm
A big contributor to the legacy oil decline is the unrelenting physics of fluid phase behavior, with gas becoming more prevalent in the production stream. Statewide GOR increased from 1200 to 1500:1 cuft/bo in 2015. The legacy wells will be worse (i.e. the newer wells dampen the effect, which have an initial GOR of ~ 1000:1). For reference, generally a GOR> 2000:1 is considered a "gas" well or field.

Most of these LTO fields will eventually be abandoned as gas fields.

note – I tried to post a *.png graph, but the reply tool failed.

George Kaplan says: 02/16/2017 at 2:17 pm
Probably too big – convert to gif or jpeg below 45 KB.
AlexS says: 02/16/2017 at 2:43 pm
FreddyW posted a chart on Bakken GOR in the previous oil thread:

http://peakoilbarrel.com/opec-january-production-data/#comment-595923

FreddyW says: 02/19/2017 at 3:53 pm
Hi,

I missed to take into account the number of days in the month for total producing days in my last post. I wanted to investigate this more. So I did a bit of programing and adjusted each individual well for the number of days it was in production in December to see what the production would have been if it produced as many days as it did in November (adjusted for number of days in that month). I looked at wells that started production in 2014 and wells that started production in 2010. In short, both groups looked very similar and it turned out that about 86% of the increase in decline rate, for both 2014 and 2010, were because of fewer producing days and the rest for other reasons. However there is more to it than that. First of all, adjusted for number of producing days, the decline rate should stay the same or decrease a little every month, not increase. Secondly wells that are of the same age as the 2014 wells have historically had a monthly decline rate of around 3%. The decline rate in November (days adjusted) was 6,9% and in December 8,1. For the 2010 wells, monthly decline rates should have been around 1,5% but were 5,6% in November and 6,9% in December. So the decline rates are currently very very high. The huge drop in December could not have been that huge if the underlying decline rates would not have been that large.

I think the decline in GOR has something to do with it. If the reason for the increase in decline rates are that they are choking the wells, then I expect these high decline rates to be rather temporary, because I would guess that they adjust the choke only once per well. It may take some time to adjust all wells they have planned to adjust, but when that is done then decline rates should normalize. So if that is the reason then maybe it will take a few months to normalize. If the decline rates are still very high in a few months, then it doesn´t look good for Bakken..

FreddyW says: 02/20/2017 at 3:02 am
I found a bug in my code. For 2014 about 100% of the increase in decline rates from November to December was because of fewer production days and decline rate in November was 6,43% and December 6,35% (a bit conservative). For 2010 the numbers are 86%, 4,16% and 5,16%. So lower underlying decline rates, but still very high. Sorry about that.
Fernando Leanme says: 02/16/2017 at 4:20 pm
Is the 2000 GOR a North Dakota convention? There's no reservoir engineering reason to designate a depleted well as a gas well when GOR increases to 2000 scf/bo. Depleted oil wells under depletion drive do experience very high GORs, but they remain oil wells.
Boomer II says: 02/16/2017 at 4:51 pm
Here's a link that says in Texas there are tax advantages in reclassifying an oil well as a gas well.

http://fuelfix.com/blog/2016/11/22/pioneer-denied-request-to-reclassify-oil-wells/

Watcher says: 02/17/2017 at 1:11 pm
My recall is there's a regulation in Texas that classifies liquids from a gas well as condensate vs oil from an oil well. Almost certainly has some tax consequence.
GreenPeople's Media says: 02/16/2017 at 8:12 pm
Can any of you professional fellows explain the upsurge in "Legacy Oil Well" production shown in the monthly EIA Drilling Productivity Reports? The major fields, except. Permian, show that the legacy wells are rising after having been on seemingly steady downslopes for the years leading up to about early 2015. Are they reworking old wells? What's the industry practice that has reversed the declines.

for example, this page–
http://www.eia.gov/petroleum/drilling/pdf/eagleford.pdf

dclonghorn says: 02/16/2017 at 10:09 pm
The legacy well production graph represents the monthly expected change in production.

In the example you referenced monthly legacy decline was about 140,000 bopd at the beginning of 2015. This legacy decline represents the decline of wells producing in the prior month. This decline was large because there were many recently drilled legacy wells, and the recently drilled wells decline more than wells which have produced for a longer period.

By the beginning of 2017 the legacy decline had decreased to about 80,000 bopd per month because there hadn't been as many wells drilled recently.

Alex K says: 02/17/2017 at 2:08 am
To dclonghorn:
Right. Another point is that more and more wells became idle so they aren't calculated in the legacy well production.
GreenPeople's Media says: 02/18/2017 at 11:28 am
Thanks. That helps clarify things for me.
Watcher says: 02/17/2017 at 2:44 am
Some of y'all are newishcomers and cannot remember how very many times monthly production reports would report completely inconsistent with new completions totals and weather and more or less 15 gazillion other factors we'd throw in.

Point being, don't think you have why the big recent increase or why this big decrease understood. Your odds on this are poor.

Reminder from last thread:. That Enno chart color coded by year - look at how shallow the post Peak descent slope 2010, 2011, 2012 is vs 2014. Damn near vertical. That would be the last non price smash year.

This speaks to EUR, but not loudly because of . . . Wait, do we have proof these recompletions are happening? Or is this presumption.

Also suggest a read thru of the new rule making paras of the directors cut.

Watcher says: 02/17/2017 at 1:16 pm
I can remember months when new completions and new wells operating numbers completely failed to explain a change in quoted oil production that month . . . and I embarked on chasing down traffic reports and stop light failures at intersections because trucks hauling oil having been slowed down could conceivably have been the explanation for the numbers. Nada.

What we DID conclude was negative - zero explanation for oil output quotes from the number of wells completed in a month. Number of days of bad weather preventing completions also failed to explain. Bad weather slowing down trucks remained a maybe, but for trucks hauling oil, not trucks hauling proppant.

Watcher says: 02/17/2017 at 1:23 pm
A blast from those early days:

http://static1.businessinsider.com/image/4f5681fd69bedd0f60000048-1200/here-is-a-load-of-proppant-from-china-used-to-frac-a-well-sitting-at-the-rail-head.jpg

Ceramic proppant for Bakken. From China. Soon after this it was magically discovered that special sand from the US was "superior" (meaning cheaper, but didn't hold the fractures open as well).

Boomer II says: 02/17/2017 at 1:37 pm
This has been my philosophy for decades. Preserve our own resources and use up everyone else's until they run out.

Berkshire's Charlie Munger Has A Much Different Energy Plan For America Than Donald Trump | Seeking Alpha : "Munger believes that the United States should have an energy strategy that involves preserving these shale resources until some point in the future when they are much more valuable. This would be a point in time after the OPEC nations have exhausted their oil and gas reserves.

Munger would have us import oil and gas now from OPEC so that we can save our oil and gas for the future when the world is going to have major shortages."

Watcher says: 02/18/2017 at 12:59 pm
Sigh.

People Are Not Stupid.

The day comes when a firebrand is in control and dares to rock the societal systemic boat by declaring the price of oil will be non monetary. You want oil from Russia, America? Disarm. You want oil from KSA, America? Convert to Islam.

"We have enough of your dollars created from thin air. Let's have something of real value to us before we send you oil. The price is described above."

Boomer II says: 02/18/2017 at 3:59 pm
But if we haven't wasted our own oil, we'll still have it. And then if other countries want to give us terms we won't accept, then we don't use their oil.

Of course, without imports, we won't have enough to run our country business as usual. But we're going to head that way anyway, as global supplies become more scarce and/or expensive.

Oldfarmermac says: 02/19/2017 at 8:11 am
When the shit is well and truly in the fan, in terms of oil available for import to the USA, which will probably come to pass within the next couple of decades, barring the technocopians being right in predicting electricity displacing oil, well

We have both economic and military muscle enough , assuming we wise up about globalization , and don't export the rest of our industrial base, to INSIST on oil being sold to us , although getting it for dollars will be harder from year to year.

Saudia Arabia will never be self sufficient in food until the population there falls by what, eighty percent or better? If anybody will have the capacity to export food on the grand scale, it will be the USA.

And if anybody has a military umbrella under which smaller and less powerful countries can shelter at relatively low risk of the people there being treated like convicts, it will be the USA.

This is not to say we have been or are altogether NICE about the way we treat our allies, but compared to other countries, we stack up pretty well in this respect.

Nothing will move on the world ocean for quite some time if Uncle Sam finds himself in a corner where in his own interests indicate that nothing moves.

Of course considering that ninety percent of the leadership in China consists of engineers and scientists, where as ninety percent plus of western leadership consists of lawyers and other mostly parasitic types, it 's only a question of WHEN, rather than IF China will be a military superpower, and maybe the SOLE super power.

likbez says: 02/20/2017 at 4:51 pm
Shale oil is called subprime oil for a reason.

We need to account for the fact that shale oil production was supported by junk bond issuance. The loss on shale oil junk bonds is not that big: the U.S. energy companies have defaulted on ~$40 billion in high-yield bonds in 2016, more then doubling the $15 billion for 2015 according to Fitch. But they do affect future junk bond issuance

What is interesting is that MSM stopped talking about shale junk bonds in 2015 as if they got some order from above 🙂 Most warnings are from 2014, some from 2015:

http://www.econmatters.com/2014/11/subprime-crisis-in-shale-oil-junk-bonds.html
https://www.bloomberg.com/news/articles/2015-06-18/next-threat-to-u-s-shale-rising-interest-payments .

In this sense, even $ 63 might be too low, if loans became more expensive and well servicing costs continue t0 rise. Printing junk bonds is a necessary side effect of shale oil production and this is now definitely more expensive activity then before.

I think that the return to profitability for shale at oil prices below $70 bbl is very problematic.

Euan Mearns says: 02/16/2017 at 12:25 pm
BP Oil production and consumption

We have now graphed the whole of BP oil production and consumption and calculated the net export balance which is not in decline but it has been flat since 2005.

Verwimp says: 02/17/2017 at 5:00 pm
Nice, Thanks!
The net exports available on the global oil markets are some 60% of the total production. In the case of dropping global oil production it will take a while for the markets to dry out. If you make this same exercise on coal and gas, you get different numbers. Only a tiny fraction of global coal and gas production is available on the global markets. Dwindling global production will result in disappearing global markets in a very short time frame.

[Feb 21, 2017] Is The Bakken a Bust

Feb 21, 2017 | peakoilbarrel.com

Bakken production down 86,150 barrels per day to 895,330 bpd. North Dakota production down 92,029 bpd to 942,455 bpd. It was noted that this the largest decline ever in North Dakota production. But it should not be overlooked that the October in crease in production was also the largest ever increase in North Dakota production.

Guy M says: 02/16/2017 at 11:37 am
EIA wildly optimistic in Bakken, Gulf and Texas. Their current numbers have to be way high in relation to what is actually happening. Even Texas RRC site is not predicting an upturn until current permits and completions get a lot higher. At $53 oil, it is not happening, or going to happen.
Heinrich Leopold says: 02/17/2017 at 5:23 am
George Kaplan,

In my view there is simply a cost issue here. If a well goes from 100 barrels to 20 barrels per day, the mainenance, operating and transport costs go up fivefold per barrel, even if they are the same for the well. So, it might not pay off to send a crew there and pay for transport. Unless, the oil price does not go up, these wells and many more wells are likely to shut down for a while.

GreenPeople's Media says: 02/16/2017 at 8:20 pm
I saw a recent story about the rise in the cost of fracking to completion for these DUC wells. Costs are said to have risen to something like $3.2 million in some of the areas where wells need completion. I believe the Director's Cut said last month there were 86o wells awaiting completion. If the story I read was true, then it will be around $2.8 billion to frack those 860 wells. I don't know what the cost of getting a well to the DUC stage is, but it sure seems a lot of money to have sunk in the ground for wells that will be outputting just 100 barrel a day after their first 24 months.

Is my thinking fuzzy on this?

Phil Harris says: 02/16/2017 at 12:13 pm
Bruno Verwimp wrote back in 2016, September 16th, " .Hold your breath for the next winter. It might bring severe decline in oil production in ND Bakken ."

I wrote at the same time: " FWIW my 'money' is on Verwimp's observation and model for the Bakken. I for one will be interested to see your chart next spring!"

Another 3 months will be interesting. By the look of it, it might well be down to 700,000 bpd in a year if the uncanny accuracy continues. As I understand it, his chart has nothing in it derived from price.

Javier says: 02/17/2017 at 6:31 am
That is correct. Verwimp's model has no oil price input. This is a serious problem since everybody recognizes that oil price has been determinant in the current oil situation. Therefore one can only conclude that Verwimp's model is accurate due to chance, and therefore has no predicting capability. It will continue to be accurate until it doesn't. It probably represents oil production decay in the absence of sufficient economical incentive.
Dennis Coyne says: 02/20/2017 at 3:22 pm
Hi Verwimp,

Geology absolutely plays a role, especially when oil prices are relatively high it is clear which fields are constrained by geology. When oil prices fall by a factor of 3 or 4 fields that are not constrained by geology will decline due to economic constraints (poor profitability.) The Bakken only increased in output due to high oil prices and a high well completion rate. Eventually geology will be the reason for Bakken decline, low oil prices clearly are the reason at present.

In Jan 2018 your model predicts about 680 kb/d for ND Bakken/TF output. My 61 well model predicts about 818 kb/d in Jan 2018 and the 85 well model predicts 900 kb/d in Jan 2018, I expect ND Bakken/Three Forks output will be around 825 to 900 kb/d in Jan 2018, with a best guess of 866 kb/d (847 kb/d in Dec 2018). This corresponds to a 75 well model, chart below.

djtxyz says: 02/16/2017 at 1:44 pm
A big contributor to the legacy oil decline is the unrelenting physics of fluid phase behavior, with gas becoming more prevalent in the production stream. Statewide GOR increased from 1200 to 1500:1 cuft/bo in 2015. The legacy wells will be worse (i.e. the newer wells dampen the effect, which have an initial GOR of ~ 1000:1). For reference, generally a GOR> 2000:1 is considered a "gas" well or field.

Most of these LTO fields will eventually be abandoned as gas fields.

note – I tried to post a *.png graph, but the reply tool failed.

Fernando Leanme says: 02/16/2017 at 4:20 pm
Is the 2000 GOR a North Dakota convention? There's no reservoir engineering reason to designate a depleted well as a gas well when GOR increases to 2000 scf/bo. Depleted oil wells under depletion drive do experience very high GORs, but they remain oil wells.
Boomer II says: 02/16/2017 at 4:51 pm
Here's a link that says in Texas there are tax advantages in reclassifying an oil well as a gas well.

http://fuelfix.com/blog/2016/11/22/pioneer-denied-request-to-reclassify-oil-wells/

Watcher says: 02/17/2017 at 1:11 pm
My recall is there's a regulation in Texas that classifies liquids from a gas well as condensate vs oil from an oil well. Almost certainly has some tax consequence.
Boomer II says: 02/17/2017 at 1:37 pm
This has been my philosophy for decades. Preserve our own resources and use up everyone else's until they run out.

Berkshire's Charlie Munger Has A Much Different Energy Plan For America Than Donald Trump | Seeking Alpha : "Munger believes that the United States should have an energy strategy that involves preserving these shale resources until some point in the future when they are much more valuable. This would be a point in time after the OPEC nations have exhausted their oil and gas reserves.

Munger would have us import oil and gas now from OPEC so that we can save our oil and gas for the future when the world is going to have major shortages."

Watcher says: 02/18/2017 at 12:59 pm
Sigh.

People Are Not Stupid.

The day comes when a firebrand is in control and dares to rock the societal systemic boat by declaring the price of oil will be non monetary. You want oil from Russia, America? Disarm. You want oil from KSA, America? Convert to Islam.

"We have enough of your dollars created from thin air. Let's have something of real value to us before we send you oil. The price is described above."

[Feb 21, 2017] To reach pay out for the wells started in 2009-2016 requires an estimated oil price of 65 dollars bbl WTI starting Jan-17. To get a return of 2.5% which can be called an inflation hedge) on the $36B requires an estimated oil price of $77 dollars bbl WTI

Notable quotes:
"... Looking at Bakken(ND) as one big project, it has now spent an estimated total of about $36Billion more than generated from net operational cash flows (Jan-09 – Dec-16). To reach pay out for the wells started in 2009-2016 requires an estimated oil price of $65/bo (WTI) starting Jan-17. To get a return of 2.5% (which is, call it, an inflation hedge) on the $36B requires an estimated oil price of $77/bo (WTI). ..."
"... To enable a debt reduction requires a net positive cash flow from operations and the longer it takes before positive cash flow happens, the higher the required oil price becomes to earn some return. ..."
"... Some of this $36B debt has already been written down (also through bankruptcies (Chapter 11s), the business model is not sustainable with low oil prices!), which means that the companies now needs to recover less than the $36B. ..."
"... Write downs/impairments shrinks the affected companies' assets/equities and thus debt carrying capacities. Some make forecasts about future developments without considering the companies' balance sheets. ..."
"... At present oil pries (low/mid 50's) the companies may add an average of 60-70 wells/month from cash from operations, this will likely be a mixture of DUCs and "new" wells. ..."
"... For 2017 I expect companies in Bakken(ND) will continue to spend above what is generated from operations. ..."
Feb 21, 2017 | peakoilbarrel.com
Rune Likvern says: 02/19/2017 at 1:04 pm
To keep the Dec-15 output level from Bakken(ND) through 2016, I estimated this would require the addition of an average of about 95 wells/month (61 wells/month were added through 2016).

In 2016 an estimated $2.0 – $2.5Billion more than (net) cash flow from operations was spent. This is about 300 – 350 new wells (spud to flow).
Without this external capital infusion fewer wells would have been brought to flow and thus a steeper decline in production.

Looking at Bakken(ND) as one big project, it has now spent an estimated total of about $36Billion more than generated from net operational cash flows (Jan-09 – Dec-16). To reach pay out for the wells started in 2009-2016 requires an estimated oil price of $65/bo (WTI) starting Jan-17. To get a return of 2.5% (which is, call it, an inflation hedge) on the $36B requires an estimated oil price of $77/bo (WTI).

To enable a debt reduction requires a net positive cash flow from operations and the longer it takes before positive cash flow happens, the higher the required oil price becomes to earn some return.

Some of this $36B debt has already been written down (also through bankruptcies (Chapter 11s), the business model is not sustainable with low oil prices!), which means that the companies now needs to recover less than the $36B.

Write downs/impairments shrinks the affected companies' assets/equities and thus debt carrying capacities. Some make forecasts about future developments without considering the companies' balance sheets.

At present oil pries (low/mid 50's) the companies may add an average of 60-70 wells/month from cash from operations, this will likely be a mixture of DUCs and "new" wells.

For 2017 I expect companies in Bakken(ND) will continue to spend above what is generated from operations.

shallow sand says: 02/19/2017 at 4:33 pm
Rune, thank you for this post.

[Feb 21, 2017] Oil price will go above 50 dollar per barrel this year

Feb 21, 2017 | peakoilbarrel.com
Boomer II says: 02/16/2017 at 12:22 pm
Frenzied Betting, Sleeping Market: Something Must Give in Oil – Bloomberg : "Unfortunately for the bulls, the oil market itself has fallen asleep after an initial surge. As Standard Chartered analysts including Paul Horsnell pointed out this week, prices have been stuck around a dollar a barrel above or below $55.50 since mid-December. Meanwhile U.S. crude closed above $54 a barrel only once since OPEC's Nov. 30 meeting, despite crossing that price level 14 times. 'If crude prices are to break out of their recent range in the next few weeks, the risk is to the downside,' JBC Energy GmbH in Vienna said Thursday."
Fernando Leanme says: 02/19/2017 at 5:17 pm
It's going to go up to around $63.

[Feb 21, 2017] Canadian oil sand per barrel break even cost is around 60 dollars per barrel for SAGD project and around $75 for a standalone mine.

Feb 21, 2017 | peakoilbarrel.com
Energy News says: 02/17/2017 at 7:47 am
In their 11th annual review of oil sands supply costs, the Canadian Energy Research Institute (CERI) concludes all new oil sands projects unprofitable (at current oil prices) . . .

The plant gate supply costs, which exclude transportation and blending costs, are C$43.31/bbl for a SAGD project and C$70.08/bbl for a stand-alone mine.

After adjusting for blending and transportation, the WTI equivalent supply costs at Cushing for SAGD projects is US$60.52/bbl, and US$75.73/bbl for a stand-alone mine. In comparison to last year's update, the WTI equivalent costs for a greenfield SAGD project are 25 percent lower and 16 percent lower for a stand-alone mine based on lower operating costs, changes in US/CDN exchange rate assumption and a lack of premium on diluent costs. At current WTI prices of just above US$50/bbl, one can assume that these greenfield projects are not economic or have to accept a lower rate of return.
http://resources.ceri.ca/PDF/Pubs/Studies/Study_163_Executive_Summary.pdf

Suncor Energy announced a scope change, construction delay and capital cost increase for its upcoming Fort Hills Oil Sands Mine. The revisions were blamed on the Alberta wildfires and design changes made to the plant's Froth Treatment facility. Despite the cost increase, Suncor says the project's capital intensity remains in-line with its sanction guidance of CAD$80,000 to $83,000 per flowing barrel, excluding foreign exchange impacts.

Partner Teck Resources put out a more cautious forecast and estimates the plant will produce 186,000 bbl/day over the life of the project. Factoring in a lower Canadian dollar (which has declined over 20% since the project was sanctioned in 2013), capital intensity could be as high as C$91,000/bbl.

As a point of comparison, capital costs for Imperial Oil's Kearl Oil Sands project (which has a comparable process and product), were estimated at $22 billion for 220,000 bbl/day of bitumen production, or C$100,000 per flowing barrel.
http://www.oilsandsmagazine.com/oilsands-weekly/2017/2/10

Western Canadian Select (WCS), Jan 2017: CAD$52.3 and USD$39.6

aws. says: 02/15/2017 at 10:55 pm
Alberta's Growing $30-Billion Liability: Inactive Wells

Compared to other jurisdictions, province lets oil firms off the hook when it comes to cleaning up.

By Andrew Nikiforuk 13 Feb 2017 | TheTyee.ca

aws. says: 02/15/2017 at 10:53 pm
No more profits to be capitalized, time to socialize the costs.

Alberta orphan oil well tally jumps as Lexin licenses suspended

By Nia Williams | Reuters | CALGARY, Alberta Wed Feb 15, 2017 | 2:41pm EST

The provincial regulator ordered privately-held Lexin to cease all production, saying it failed to comply with multiple orders and lacked enough staff to manage its more than 1,600 sites.

Calgary-based Lexin also owes more than C$1 million to Alberta's orphan fund and more than C$70 million in security for its obligations to clean up its oil and gas facilities at the end of their producing life.
--
Alberta's Orphan Well Association (OWA) is responsible for cleaning up wells that have no owners financially able to deal with abandonment and decommissioning costs. It is overseen by the AER and funded by levies from the oil and gas industry.

The enforcement action by the regulator means the 1,380 wells belonging to Lexin are now in the care and custody of the OWA, taking the total numbers of ownerless wells in Alberta to 2,970.

[Feb 21, 2017] Chinese oil demand growth

Feb 21, 2017 | peakoilbarrel.com

Reuters calculated Chinese oil demand growth of 2.5% in 2016, based on official data-a three-year low-down from 3.1% in 2015."

[Feb 21, 2017] The low-pressure economies of Volcker, late Greenspan, and Bernanke wreaked immense damage

Notable quotes:
"... There is no need to assume nefarious motives under neoliberalism. They are the essence of the system, especially among the financial oligarchy. Wolf eats wolf and "Greed is good!" is the most typical mentality. ..."
"... In some way, it is close to the Italian mafia mentality. The mentality of organized mob. They put themselves outside and above the society. ..."
Feb 21, 2017 | economistsview.typepad.com
Sanjait -> pgl... February 20, 2017 at 01:10 PM , 2017 at 01:10 PM
You can point to the fact that Delong says it, and then the goalposts will move ... and they will complain he hasn't said it often enough, or loudly enough, or recently enough, or something.

People determined to assume nefarious motives will usually succeed: evidence, logic and common sense be damned.

Peter K. -> Sanjait... , February 20, 2017 at 03:41 PM
""The low-pressure economies of Volcker, late Greenspan, and Bernanke wreaked immense damage."'

It's good to see Democrats make having a high-pressure economy a priority.

Oh wait no.

You and PGL are huge liars.

libezkova -> Sanjait... , February 20, 2017 at 05:37 PM
There is no need to assume nefarious motives under neoliberalism. They are the essence of the system, especially among the financial oligarchy. Wolf eats wolf and "Greed is good!" is the most typical mentality.

In some way, it is close to the Italian mafia mentality. The mentality of organized mob. They put themselves outside and above the society.

[Feb 21, 2017] February 20, 2017 at 09:31 PM

Feb 21, 2017 | economistsview.typepad.com

David Stockman provides one of the best commentaries on Flynn assassination by deep state and Obama neocon holdovers in the administration. This is a really powerful astute, first class analysis of the situation:

Flynn's Gone But They're Still Gunning For You, Donald

http://ronpaulinstitute.org/archives/featured-articles/2017/february/17/flynns-gone-but-theyre-still-gunning-for-you-donald/

== quote ==
... ... ...
This is the real scandal as Trump himself has rightly asserted. The very idea that the already announced #1 national security advisor to a President-elect should be subject to old-fashion "bugging," albeit with modern day technology, overwhelmingly trumps the utterly specious Logan Act charge at the center of the case.

As one writer for LawNewz noted regarding acting Attorney General Sally Yates' voyeuristic pre-occupation with Flynn's intercepted conversations, Nixon should be rolling in his grave with envy:

Now, information leaks that Sally Yates knew about surveillance being conducted against potential members of the Trump administration, and disclosed that information to others. Even Richard Nixon didn't use the government agencies themselves to do his black bag surveillance operations. Sally Yates involvement with this surveillance on American political opponents, and possibly the leaking related thereto, smacks of a return to Hoover-style tactics. As writers at Bloomberg and The Week both noted, it wreaks of 'police-state' style tactics. But knowing dear Sally as I do, it comes as no surprise.
Yes, that's the same career apparatchik of the permanent government that Obama left behind to continue the 2016 election by other means. And it's working. The Donald is being rapidly emasculated by the powers that be in the Imperial City due to what can only be described as an audacious and self-evident attack on Trump's Presidency by the Deep State.
Indeed, it seems that the layers of intrigue have gotten so deep and convoluted that the nominal leadership of the permanent government machinery has lost track of who is spying on whom. Thus, we have the following curious utterance by none other than the Chairman of the House Intelligence Committee, Rep. Devin Nunes:
'I expect for the FBI to tell me what is going on, and they better have a good answer,' he told The Washington Post. 'The big problem I see here is that you have an American citizen who had his phone calls recorded.'
Well, yes. That makes 324 million of us, Congressman.
But for crying out loud, surely the oh so self-important chairman of the House intelligence committee knows that everybody is bugged. But when it reaches the point that the spy state is essentially using its unconstitutional tools to engage in what amounts to "opposition research" with the aim of election nullification, then the Imperial City has become a clear and present danger to American democracy and the liberties of the American people.
As Robert Barnes of LawNewz further explained, Sally Yates, former CIA director John Brennan and a large slice of the Never Trumper intelligence community were systematically engaged in "opposition research" during the campaign and the transition:
According to published reports, someone was eavesdropping, and recording, the conversations of Michael Flynn, while Sally Yates was at the Department of Justice. Sally Yates knew about this eavesdropping, listened in herself (Pellicano-style for those who remember the infamous LA cases), and reported what she heard to others. For Yates to have such access means she herself must have been involved in authorizing its disclosure to political appointees, since she herself is such a political appointee. What justification was there for an Obama appointee to be spying on the conversations of a future Trump appointee?
Consider this little tidbit in The Washington Post . The paper, which once broke Watergate, is now propagating the benefits of Watergate-style surveillance in ways that do make Watergate look like a third-rate effort. (With the) FBI 'routinely' monitoring conversations of Americans...... Yates listened to 'the intercepted call,' even though Yates knew there was 'little chance' of any credible case being made for prosecution under a law 'that has never been used in a prosecution.'
And well it hasn't been. After all, the Logan Act was signed by President John Adams in 1799 in order to punish one of Thomas Jefferson's supporters for having peace discussions with the French government in Paris. That is, it amounted to pre-litigating the Presidential campaign of 1800 based on sheer political motivation.
According to the Washington Post itself, that is exactly what Yates and the Obama holdovers did day and night during the interregnum:
Indeed, the paper details an apparent effort by Yates to misuse her office to launch a full-scale secret investigation of her political opponents, including 'intercepting calls' of her political adversaries.
So all of the feigned outrage emanating from Democrats and the Washington establishment about Team Trump's trafficking with the Russians is a cover story. Surely anyone even vaguely familiar with recent history would have known there was absolutely nothing illegal or even untoward about Flynn's post-Christmas conversations with the Russian Ambassador.
Indeed, we recall from personal experience the thrilling moment on inauguration day in January 1981 when word came of the release of the American hostages in Tehran. Let us assure you, that did not happen by immaculate diplomatic conception -- nor was it a parting gift to the Gipper by the outgoing Carter Administration.
To the contrary, it was the fruit of secret negotiations with the Iranian government during the transition by private American citizens. As the history books would have it because it's true, the leader of that negotiation, in fact, was Ronald Reagan's national security council director-designate, Dick Allen.
As the real Washington Post later reported, under the by-line of a real reporter, Bob Woodward:
Reagan campaign aides met in a Washington DC hotel in early October, 1980, with a self-described 'Iranian exile' who offered, on behalf of the Iranian government, to release the hostages to Reagan, not Carter, in order to ensure Carter's defeat in the November 4, 1980 election.
The American participants were Richard Allen, subsequently Reagan's first national security adviser, Allen aide Laurence Silberman, and Robert McFarlane, another future national security adviser who in 1980 was on the staff of Senator John Tower (R-TX).
To this day we have not had occasion to visit our old friend Dick Allen in the US penitentiary because he's not there; the Logan Act was never invoked in what is surely the most blatant case ever of citizen diplomacy.
So let's get to the heart of the matter and be done with it. The Obama White House conducted a sour grapes campaign to delegitimize the election beginning November 9th and it was led by then CIA Director John Brennan.
That treacherous assault on the core constitutional matter of the election process culminated in the ridiculous Russian meddling report of the Obama White House in December. The latter, of course, was issued by serial liar James Clapper, as national intelligence director, and the clueless Democrat lawyer and bag-man, Jeh Johnson, who had been appointed head of the Homeland Security Department.
Yet on the basis of the report's absolutely zero evidence and endless surmise, innuendo and "assessments", the Obama White House imposed another round of its silly school-boy sanctions on a handful of Putin's cronies.
Of course, Flynn should have been telling the Russian Ambassador that this nonsense would be soon reversed!
But here is the ultimate folly. The mainstream media talking heads are harrumphing loudly about the fact that the very day following Flynn's call -- Vladimir Putin announced that he would not retaliate against the new Obama sanctions as expected; and shortly thereafter, the Donald tweeted that Putin had shown admirable wisdom.
That's right. Two reasonably adult statesman undertook what might be called the Christmas Truce of 2016. But like its namesake of 1914 on the bloody no man's land of the western front, the War Party has determined that the truce-makers shall not survive.
The Donald has been warned.

[Feb 21, 2017] Relax, Said the Night Man

Notable quotes:
"... In the conclusion, he says "I argued that it is the roach motel of currencies. Like the Hotel California of the song: you can check in, but you can't check out." To be precise, that's true of the Roach Motel (see here , if you don't know what that's all about), but, according to the Eagles, you can actually check out of the Hotel California, though you can never leave (hmm... sounds kind of like "Brexit"...). ..."
"... In any case, the fact it hangs together because eurozone members feel trapped by the costs of exit is hardly an affirmative case for the single currency. ..."
Feb 21, 2017 | twentycentparadigms.blogspot.com
Barry Eichengreen column headlined "Don't Sell the Euro Short. It's Here to Stay" . He writes:
Two forms of glue hold the euro together. First, the economic costs of break-up would be great. The minute investors heard that Greece was seriously contemplating reintroducing the drachma with the purpose of depreciating it against the euro, or against a "new Deutsche mark," they would wire all their money to Frankfurt. Greece would experience the mother of all banking crises. The "new Deutsche mark" would then shoot through the roof, destroying Germany's export industry.

More generally, those predicting, or advocating, the euro's demise tend to underestimate the technical difficulties of reintroducing national currencies.

In the conclusion, he says "I argued that it is the roach motel of currencies. Like the Hotel California of the song: you can check in, but you can't check out." To be precise, that's true of the Roach Motel (see here , if you don't know what that's all about), but, according to the Eagles, you can actually check out of the Hotel California, though you can never leave (hmm... sounds kind of like "Brexit"...).

In any case, the fact it hangs together because eurozone members feel trapped by the costs of exit is hardly an affirmative case for the single currency. In Greece's case, its hard to believe that the costs of exit really would have been higher than the costs of staying; this FT Alphablog post by Matthew Klein pointed out this figure from the IMF's Article IV report :
The IMF also released a self-evaluation of its Greece program , which Charles Wyplosz analyses in a VoxEU column . See also: this Martin Sandbu column and this article by Landon Thomas . Matt O'Brien's write-up of research by House, Tesar and Proebsting of the impact of austerity in Europe is also relevant.

The fact that the eurozone rolls on with no sign that a depression in one of its smaller constituent economies is enough to bring about a fundamental change is disturbing. It wouldn't be able to ignore an election of Marine LePen as President of France - Gavyn Davies considers the consequences of that.

Update: Cecchetti and Schoenholtz also had a good post on the implications of a LePen win . Labels: europe 3 comments:

Gerald said...
"The fact that the eurozone rolls on with no sign that a depression in one of its smaller constituent economies is enough to bring about a fundamental change is disturbing."

Why so? Isn't it in fact encouraging, a sign that the eurozone can withstand such problems (especially a problem in one of its smaller economies)? There's scant reason to think it would be a good thing if the eurozone opted for "fundamental change" every time one of its constituent nations experienced a problem.

February 20, 2017 at 9:12 AM
Bill C said...
Fair enough - it is true that the Greek crisis didn't cause the euro to break up at least. But I think what happened in Greece (and Ireland to an extent) is more than a local problem; it revealed a fundamental design flaw which they haven't fully confronted - the lack of a "banking union". From the outset, economists doubted whether the euro area met the traditional criteria for an optimum currency area (OCA), and those issues are relevant, but I think Greece shows that a banking union (i.e., shared lender of last resort, banking regulation and deposit insurance) is necessary to make it work. I.e., if Greek banks were european banks, the bank-sovereign "doom loop" could be circumvented. The euro area needs a way for countries to go bankrupt without bringing their banks down with them.
February 20, 2017 at 2:42 PM
Gerald said...
I tend to agree with you regarding the necessity for a "banking union"; not having one is indeed a design flaw, and no, it hasn't been confronted. Does that mean the eurozone's days are numbered? Could be, but of course we won't know for certain-sure until the breakup does (or doesn't) happen. So it goes.
February 20, 2017 at 6:37 PM

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[Feb 21, 2017] Degrowth and Disinvestment: Yea or Nay?

Feb 21, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron : February 20, 2017 at 04:39 AM , 2017 at 04:39 AM
RE: Degrowth and Disinvestment: Yea or Nay?

...So my question for the degrowth community is whether declining investment is an occasion for celebration? Does this mean that economic policy is actually getting something right?

Here's one answer I won't accept: we don't care about growth in general, just growth of bad stuff, like fossil fuels, accumulation of waste, destruction of coastlines, etc. That isn't a degrowth position. Everyone wants more of the good and less of the bad, however they define it. I'm in favor of only toothsome pizza crusts and I'm dead set against the soggy kind, but that's not the same as being on a diet.

This is a practical, policy-relevant question. There are many smart economists trying to understand the investment slump so they can devise policies to turn it around. You'll notice this concern is prominent in the writing on increasing industrial concentration, the shareholder value obsession, globalization and outsourcing, and other topics. The goal of these researchers is to reform corporate and market structure in order to restore a higher rate of investment, among other things. That of course would tend to accelerate economic growth. So what's the degrowth position on all this? Should economists be looking for additional measures to discourage investment?

Again, please don't tell me that it's just investment in "bads" that needs to be discouraged. That's a given across the entire spectrum of economic rationality (which is admittedly somewhat narrower than the political spectrum). In the aggregate, is it good that investment is trending down?

My own view, as readers of this blog will know (see here and here), is that degrowth is a suicide cult masquerading as a political position. I'm pretty sure that radically transforming our economy to make it sustainable will involve a tremendous amount of investment and new production, and it seems clear to me that boosting living standards through more and better consumption is both politically and ethically essential. But I could be wrong. I would sincerely appreciate intelligent arguments from the degrowth side.

[Asked and answered, sort of. Degrowth or beneficial degrowth is relative to what metrics (i.e., resources rather than capital) and realistically a far enough ways from where we are now to be moot.]

cm -> RC AKA Darryl, Ron... , February 20, 2017 at 12:24 PM
I think this is too simplistic. There is (and has always been) a growing realization that more is not always better. This insight is not uniform for any given geographic or socioeconomic population group, but often informed by how one relates to the economic process (which correlates with age), individually as well as at the peer group level.

When a larger group is exposed to a situation where the trappings of success are hard to obtain (e.g. younger people coming out of school/college into a bad job market), or where there is an appearance that new technology/gadgets may be initially exciting but don't really translate into better quality of life or better effectiveness of work/activities ("productivity"), or even degrade either (more typical for older people who are not seeing new gadgets/technologies for the first time?), then rejection of whatever is proclaimed as "improvement" can become socially acceptable.

I'm also at the point where I don't really want new stuff, because my impression is that it is generally not better than the previous edition, or if better, then not better in a write-home-about-it way. And the realization many acquisitions create more liabilities than benefits in the long term (for one thing, accumulation of junk and need to throw out "something" - which I may not really want to throw out).

[Feb 21, 2017] The consequences of the Reagan deficits were to cream midwestern manufacturing and destroy worker bargaining power in export and import-competing industries. The switch from government surpluses to deficits under George W. Bush had much the same consequences

Feb 21, 2017 | economistsview.typepad.com
PPaine : February 20, 2017 at 02:41 PM

, 2017 at 02:41 PM
"The consequences of the Reagan deficits were to cream midwestern manufacturing and destroy worker bargaining power in export and import-competing industries. The switch from government surpluses to deficits under George W. Bush had much the same consequences. "


Where's carters volcker ?


And the bit about going from surplus to deficit
Is utterly undeveloped here
Lots of Rubinte lice crawling around under that mossy rock

anne -> PPaine ... , February 20, 2017 at 02:48 PM
Lots of -------- ---- crawling around...

[ Using such language is intolerable. ]

PPaine -> PPaine ... , February 20, 2017 at 02:51 PM
Blaming the GOP ...The business class party...f or this thirty year decimation
Is grotesque ...of course they didn't give a damn about wage types !


The people's party the party of the CIO and the new deal
That is the party that betrayed the assembly line workers of America !

Peter K. -> PPaine ... , February 20, 2017 at 03:32 PM
"Where's carters volcker ?"

"Lots of Rubinte lice crawling around under that mossy rock"

Which PGL always fails to mention, dishonest neoliberal that he is.

Think Harder? Let's study the effects of Lincoln's sky high tariffs? Or East Asian Mercantilism? Globalization not a natural disaster : , February 20, 2017 at 02:54 PM
There was no coming of "globalization" as if it were a hurricane.

US financial sector elites pushed pro-trade deficit policies so that the US would have huge surpluses on the capital accounts, boosting asset prices and financial sector wealth.

Globalization for East Asia means dramatically undervalued currencies and taking over every and all tradable goods sectors.

The US can return to wealth but only if it adopts Abraham Lincoln-inspired strict protectionism - sky high tariffs to fund industrial and infrastructure development and nurture infant industries. Think harder? Why don't economists stop lying and stop shilling for the big banks? THEN and only then can we speak of "alternative facts".

President Trump should draw on Lincoln's example for inspiration...

anne : , February 20, 2017 at 04:11 PM
The consequences of the Reagan deficits were to cream midwestern manufacturing and destroy worker bargaining power in export and import-competing industries....

Brad DeLong

[ I do not understand this passage. ]

Chris G : , -1
Related reading: Josh Bivens, "Brad DeLong is far too lenient on trade policy's role in generating economic distress for American workers" - http://www.epi.org/blog/brad-delong-too-lenient-on-trade-policy-economic-distress/

[Feb 21, 2017] People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.

Feb 21, 2017 | economistsview.typepad.com
RGC -> Ron Waller ... February 20, 2017 at 01:51 PM

, 2017 at 01:51 PM
People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. The sensitivity of the poor to injustice is a trivial thing compared with that of the rich.

-John Kenneth Galbraith
The Age of Uncertainty (1977)
Chapter 1, p. 22

cm -> RGC... , February 20, 2017 at 03:58 PM
"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

I would say this is rational. Surrendering advantages will generally weaken your position and thus increase the risk of complete destruction or being stripped of further advantages. Also quite often members of the elite, individually or as a group, have likely acted in ways that enraged their opponents to the point that they will likely not stop at just stripping advantages until a "reasonable" point, but indeed seek complete destruction. History is full of things like guillotines and hunting down and murder or lifelong imprisonment of all family members (who have not been plausibly disavowed or disassociated while the old regime was still comfortably in power).

cm -> cm... , February 20, 2017 at 04:00 PM
Of course in the past, rulers and elites were often dethroned by other elites, with popular uprisings only used as a temporary tool. In any case, once it gets close to that point, it's an all or nothing fight for either side.
cm -> cm... , February 20, 2017 at 04:06 PM
There have been examples where elites have ceded advantages in a peaceful transition. But that usually happen in a context where there had already been gradual transitions to shared/broader power in the past (generally not peaceful in the initial stages). The UK and its royals/nobility are an obvious example, probably also Scandinavia which are mostly still nominally kingdoms (?), or the royal family and former or still existing nobility has influence but officially only a figurehead role. The transition to democracy happened largely peacefully in the past 1-2 centuries, prior to that not so much.
libezkova -> cm... , February 20, 2017 at 06:10 PM
"Surrendering advantages will generally weaken your position and thus increase the risk of complete destruction or being stripped of further advantages."

This is not a chess party. Sometimes people kill each other if differences are irreconcilable. In 1917 a lot of Russian bankers were simply killed.

[Feb 21, 2017] Democratic Ex-Dove Proposes War on Iran

Notable quotes:
"... Rep. Alcee Hastings has sponsored a bill to authorize President Trump to attack Iran. ..."
"... Alcee Hastings is better known to the public as a federal judge who was impeached for bribery and for a series of ethical lapses as a Congressman than for his legislative record. The 2012 Family Affairs report by the Committee for Responsibility and Ethics in Washington found that Hastings paid his partner, Patricia Williams, $622,000 to serve as his deputy district director from 2007 to 2010, the largest amount paid to a family member by any Member of Congress in the report. ..."
"... Alcee Hastings's voting record on war and peace issues has been about average for a Democrat. He voted against the 2002 Authorization for the Use of Military Force (AUMF) on Iraq, and his 79 percent lifetime Peace Action score is the highest among current House members from Florida, although Alan Grayson's was higher. ..."
"... In the new Republican-led Congress, with the bombastic and unpredictable Donald Trump in the White House, Hastings's bill could actually serve as a blank check for war on Iran, and it is carefully worded to be exactly that. It authorizes the open-ended use of force against Iran with no limits on the scale or duration of the war. The only sense in which the bill meets the requirements of the War Powers Act is that it stipulates that it does so. Otherwise it entirely surrenders Congress's constitutional authority for any decision over war with Iran to the President, requiring only that he report to Congress on the war once every 60 days. ..."
"... The wording of Hastings's bill perpetuates dangerous myths about the nature of Iran's nuclear program that have been thoroughly investigated and debunked after decades of intense scrutiny by experts, from the U.S. intelligence community to the International Atomic Energy Association (IAEA). ..."
"... As former IAEA director Mohamed ElBaradei explained in his book, The Age of Deception: Nuclear Diplomacy in Treacherous Times, the IAEA has never found any real evidence of nuclear weapons research or development in Iran, any more than in Iraq in 2003, the last time such myths were abused to launch our country into a devastating and disastrous war. ..."
"... In Manufactured Crisis: the Untold Story of the Iran Nuclear Scare, investigative journalist Gareth Porter meticulously examined the suspected evidence of nuclear weapons activity in Iran. He explored the reality behind every claim and explained how the deep-seated mistrust in U.S.-Iran relations gave rise to misinterpretations of Iran's scientific research and led Iran to shroud legitimate civilian research in secrecy. This climate of hostility and dangerous worst-case assumptions even led to the assassination of four innocent Iranian scientists by alleged Israeli agents. ..."
"... The discredited myth of an Iranian "nuclear weapons program" was perpetuated throughout the 2016 election campaign by candidates of both parties, but Hillary Clinton was particularly strident in claiming credit for neutralizing Iran's imaginary nuclear weapons program. ..."
"... President Obama and Secretary of State John Kerry also reinforced a false narrative that the "dual-track" approach of Obama's first term, escalating sanctions and threats of war at the same time as holding diplomatic negotiations, "brought Iran to the table." This was utterly false. Threats and sanctions served only to undermine diplomacy, strengthen hard-liners on both sides and push Iran into building 20,000 centrifuges to supply its civilian nuclear program with enriched uranium, as documented in Trita Parsi's book, A Single Roll of the Dice: Obama's Diplomacy With Iran. ..."
"... When Brazil and Turkey persuaded Iran to accept the terms of an agreement proposed by the U.S. a few months earlier, the U.S. responded by rejecting its own proposal. By then the main U.S. goal was to ratchet up sanctions at the U.N., which this diplomatic success would have undermined. ..."
"... Trita Parsi explained that this was only one of many ways in which the two tracks of Obama's "dual-track" approach were hopelessly at odds with each other. Only once Clinton was replaced by John Kerry at the State Department did serious diplomacy displace brinksmanship and ever-rising tensions. ..."
"... Rand Paul: If John McCain Were In Charge, U.S. 'Would Be In Perpetual War' "John McCain is the guy that has advocated for war everywhere." ..."
"... How many wars are enough? ..."
"... That begs the question "What's Rand Paul's definition of perpetual war?" We've been at war since 2003. There's no end in sight. That seems like "perpetual" to me. Do they need to be bigger wars or for there to be more of them in order to meet Paul's threshold for perpetual? ..."
"... 'Know neither your enemy nor yourself', is how US got into this predicament. How many places has the CIA 'organized' to such good effect? Most effectively with Jihadis grown from Afghanistan reorganized in Syria over nearly 40 years. ..."
"... What are you who calls the 'enemy' sinners when your country out does the 'enemy' in war crime across the world? ..."
"... I have never seen a ranking federal bureaucrat do something illegal by accident. ..."
"... Or the faux security services who found yellow cake that don't exist found GOP spies that do not exist. ..."
"... Deep State = Big Brother ..."
Feb 21, 2017 | economistsview.typepad.com
RGC -> RGC... February 20, 2017 at 06:02 AM , 2017 at 06:02 AM
Democratic Ex-Dove Proposes War on Iran

February 19, 2017


Exclusive: The Democrats' rush to rebrand themselves as super-hawks is perhaps best illustrated by the once-dovish Rep. Alcee Hastings proposing stand-by authorization for the President to attack Iran, reports Nicolas J S Davies.


By Nicolas J S Davies

Rep. Alcee Hastings has sponsored a bill to authorize President Trump to attack Iran.

Hastings reintroduced H J Res 10, the "Authorization of Use of Force Against Iran Resolution" on Jan. 3, the first day of the new Congress after President Trump's election.

Hastings's bill has come as a shock to constituents and people who have followed his career as a 13-term Democratic Member of Congress from South Florida. Miami Beach resident Michael Gruener called Hastings's bill, "extraordinarily dangerous," and asked, "Does Hastings even consider to whom he is giving this authorization?"

Fritzie Gaccione, the editor of the South Florida Progressive Bulletin noted that Iran is complying with the 2015 JCPOA (Joint Comprehensive Plan of Action) and expressed amazement that Hastings has reintroduced this bill at a moment when the stakes are so high and Trump's intentions so unclear.

"How can Hastings hand this opportunity to Trump?" she asked. "Trump shouldn't be trusted with toy soldiers, let alone the American military."

Speculation by people in South Florida as to why Alcee Hastings has sponsored such a dangerous bill reflect two general themes. One is that he is paying undue attention to the pro-Israel groups who raised 10 percent of his coded campaign contributions for the 2016 election. The other is that, at the age of 80, he seems to be carrying water for the pay-to-play Clinton wing of the Democratic Party as part of some kind of retirement plan.

Alcee Hastings is better known to the public as a federal judge who was impeached for bribery and for a series of ethical lapses as a Congressman than for his legislative record. The 2012 Family Affairs report by the Committee for Responsibility and Ethics in Washington found that Hastings paid his partner, Patricia Williams, $622,000 to serve as his deputy district director from 2007 to 2010, the largest amount paid to a family member by any Member of Congress in the report.

But Hastings sits in one of the 25 safest Democratic seats in the House and does not seem to have ever faced a serious challenge from a Democratic primary opponent or a Republican.

Alcee Hastings's voting record on war and peace issues has been about average for a Democrat. He voted against the 2002 Authorization for the Use of Military Force (AUMF) on Iraq, and his 79 percent lifetime Peace Action score is the highest among current House members from Florida, although Alan Grayson's was higher.

Hastings voted against the bill to approve the JCPOA or nuclear agreement with Iran and first introduced his AUMF bill in 2015. With the approval of the JCPOA and Obama's solid commitment to it, Hastings's bill seemed like a symbolic act that posed little danger – until now.

In the new Republican-led Congress, with the bombastic and unpredictable Donald Trump in the White House, Hastings's bill could actually serve as a blank check for war on Iran, and it is carefully worded to be exactly that. It authorizes the open-ended use of force against Iran with no limits on the scale or duration of the war. The only sense in which the bill meets the requirements of the War Powers Act is that it stipulates that it does so. Otherwise it entirely surrenders Congress's constitutional authority for any decision over war with Iran to the President, requiring only that he report to Congress on the war once every 60 days.

Dangerous Myths

The wording of Hastings's bill perpetuates dangerous myths about the nature of Iran's nuclear program that have been thoroughly investigated and debunked after decades of intense scrutiny by experts, from the U.S. intelligence community to the International Atomic Energy Association (IAEA).

As former IAEA director Mohamed ElBaradei explained in his book, The Age of Deception: Nuclear Diplomacy in Treacherous Times, the IAEA has never found any real evidence of nuclear weapons research or development in Iran, any more than in Iraq in 2003, the last time such myths were abused to launch our country into a devastating and disastrous war.

In Manufactured Crisis: the Untold Story of the Iran Nuclear Scare, investigative journalist Gareth Porter meticulously examined the suspected evidence of nuclear weapons activity in Iran. He explored the reality behind every claim and explained how the deep-seated mistrust in U.S.-Iran relations gave rise to misinterpretations of Iran's scientific research and led Iran to shroud legitimate civilian research in secrecy. This climate of hostility and dangerous worst-case assumptions even led to the assassination of four innocent Iranian scientists by alleged Israeli agents.

The discredited myth of an Iranian "nuclear weapons program" was perpetuated throughout the 2016 election campaign by candidates of both parties, but Hillary Clinton was particularly strident in claiming credit for neutralizing Iran's imaginary nuclear weapons program.

President Obama and Secretary of State John Kerry also reinforced a false narrative that the "dual-track" approach of Obama's first term, escalating sanctions and threats of war at the same time as holding diplomatic negotiations, "brought Iran to the table." This was utterly false. Threats and sanctions served only to undermine diplomacy, strengthen hard-liners on both sides and push Iran into building 20,000 centrifuges to supply its civilian nuclear program with enriched uranium, as documented in Trita Parsi's book, A Single Roll of the Dice: Obama's Diplomacy With Iran.

A former hostage at the U.S. Embassy in Tehran who rose to be a senior officer on the Iran desk at the State Department told Parsi that the main obstacle to diplomacy with Iran during Obama's first term was the U.S. refusal to "take 'Yes' for an answer."

When Brazil and Turkey persuaded Iran to accept the terms of an agreement proposed by the U.S. a few months earlier, the U.S. responded by rejecting its own proposal. By then the main U.S. goal was to ratchet up sanctions at the U.N., which this diplomatic success would have undermined.

Trita Parsi explained that this was only one of many ways in which the two tracks of Obama's "dual-track" approach were hopelessly at odds with each other. Only once Clinton was replaced by John Kerry at the State Department did serious diplomacy displace brinksmanship and ever-rising tensions.

https://consortiumnews.com/2017/02/19/democratic-ex-dove-proposes-war-on-iran/

RGC -> RGC... , February 20, 2017 at 06:19 AM
02/19/2017 11:53 am ET

Rand Paul: If John McCain Were In Charge, U.S. 'Would Be In Perpetual War' "John McCain is the guy that has advocated for war everywhere."

By Laura Barron-Lopez

http://www.huffingtonpost.com/entry/rand-paul-john-mccain-perpetual-war_us_58a9c139e4b07602ad55ad23

RGC -> RGC... , February 20, 2017 at 06:21 AM
How many wars are enough?
Chris G -> RGC... , February 20, 2017 at 09:09 AM
That begs the question "What's Rand Paul's definition of perpetual war?" We've been at war since 2003. There's no end in sight. That seems like "perpetual" to me. Do they need to be bigger wars or for there to be more of them in order to meet Paul's threshold for perpetual?
EMichael -> RGC... , February 20, 2017 at 06:30 AM
"There are no regular units of the Russian military in the breakaway provinces"

Amazing coordination of these volunteer irregulars. Must be social media.....

ilsm -> EMichael... , February 20, 2017 at 06:53 AM
'Know neither your enemy nor yourself', is how US got into this predicament. How many places has the CIA 'organized' to such good effect? Most effectively with Jihadis grown from Afghanistan reorganized in Syria over nearly 40 years.

What are you who calls the 'enemy' sinners when your country out does the 'enemy' in war crime across the world?

ilsm -> RGC... , February 20, 2017 at 01:01 PM
I would rather find out that the deep state hacking was caused by politics rather than [the lie of] coincidence.

I have never seen a ranking federal bureaucrat do something illegal by accident.

Or the faux security services who found yellow cake that don't exist found GOP spies that do not exist.

EMichael -> RGC... , February 20, 2017 at 05:41 AM
Yeah, I'll pay attention to a guy who seems to have no knowledge whatsoever of what McCarthyism was.
pgl -> EMichael... , February 20, 2017 at 05:50 AM
I wonder if he has read 1984.
Mike S -> pgl... , February 20, 2017 at 05:57 AM
I don't think liberals are going to establish a committee on un-American activities or blackball people.

On the other hand, I do think that some people would publish things like Robert Parry's article because they don't like sunshine shining on their activities.

ilsm -> pgl... , February 20, 2017 at 06:46 AM
I only read historical novels why bring in Orwell?
RGC -> pgl... , February 20, 2017 at 06:51 AM
Deep State = Big Brother
ilsm -> EMichael... , February 20, 2017 at 06:45 AM
Say what was McCarthyism? Do you think Zwicker was handled differently than Flynn?

How so?

Pity HRC is not d=running the deep state they would not be running scared telling the world they wiretap US citizens!

EMichael -> ilsm... , February 20, 2017 at 06:51 AM
Mc·Car·thy·ism
məˈkärTHēˌizəm/
noun
noun: McCarthyism

a vociferous campaign against alleged communists in the US government and other institutions carried out under Senator Joseph McCarthy in the period 1950–54. Many of the accused were blacklisted or lost their jobs, although most did not in fact belong to the Communist Party.

ilsm -> EMichael... , February 20, 2017 at 06:55 AM
How does Stalin lead communist equal GOPster talking to Russians?

Or even suggest trampling the bill of rights?

EMichael -> ilsm... , February 20, 2017 at 07:05 AM
When you become incomprehensible, there is no sense talking.

Before it is too late,

http://www.tricare.mil/CoveredServices/Mental/GettingMHCare

ilsm -> EMichael... , February 20, 2017 at 07:12 AM
I had 20 or 30 more questions about how the deep state is justified by not looking like Joe McCarthy.

You are smart enough to quit before I commence a "forlorn hope" effort to teach you how to think.

At least you did not toss out some vague phrase about marshy land.

HEH!

kthomas -> RGC... , February 20, 2017 at 06:41 AM
GOOD!

You deserve to live in fear. Facists like you love to throw stones.

ilsm -> kthomas... , February 20, 2017 at 06:47 AM
while patriots like you stand by and watch the bill of rights trampled!
RGC -> kthomas... , February 20, 2017 at 06:59 AM
The Nazis are in the Ukraine government and were supported by the Obama state department.
ilsm -> RGC... , February 20, 2017 at 07:08 AM
k has TDS, cognitive dissonance, everything else is confirmation bias leading from a severe case of self pity over the neolibs' Clinton losing and missing the chance to experience WW III over Putin.

[Feb 21, 2017] The Did-You-Talk-to-Russians Witch Hunt

Notable quotes:
"... Exclusive: Democrats, liberals and media pundits – in their rush to take down President Trump – are pushing a New McCarthyism aimed at Americans who have talked to Russians, risking a new witch hunt. ..."
"... As Democrats compete to become the new War Party – pushing for a dangerous confrontation with nuclear-armed Russia – some constituents are objecting, as Mike Madden did in a letter to Sen. Amy Klobuchar. ..."
Feb 21, 2017 | economistsview.typepad.com
RGC : February 20, 2017 at 05:29 AM , 2017 at 05:29 AM
The Did-You-Talk-to-Russians Witch Hunt

February 18, 2017

Exclusive: Democrats, liberals and media pundits – in their rush to take down President Trump – are pushing a New McCarthyism aimed at Americans who have talked to Russians, risking a new witch hunt.

By Robert Parry

https://consortiumnews.com/2017/02/18/the-did-you-talk-to-russians-witch-hunt/

RGC -> RGC... , February 20, 2017 at 05:35 AM
February 17, 2017

France: Another Ghastly Presidential Election Campaign; the Deep State Rises to the Surface

by Diana Johnstone

As if the 2016 U.S. presidential election campaign hadn't been horrendous enough, here comes another one: in France.

The system in France is very different, with multiple candidates in two rounds, most of them highly articulate, who often even discuss real issues. Free television time reduces the influence of big money. The first round on April 23 will select the two finalists for the May 7 runoff, allowing for much greater choice than in the United States.

But monkey see, monkey do, and the mainstream political class wants to mimic the ways of the Empire, even echoing the theme that dominated the 2016 show across the Atlantic: the evil Russians are messing with our wonderful democracy.

The aping of the U.S. system began with "primaries" held by the two main governing parties which obviously aspire to establish themselves as the equivalent of American Democrats and Republicans in a two-party system. The right-wing party of former president Nicolas Sarkozy has already renamed itself Les Républicains and the so-called Socialist Party leaders are just waiting for the proper occasion to call themselves Les Démocrates. But as things are going, neither one of them may come out ahead this time.

http://www.counterpunch.org/2017/02/17/france-another-ghastly-presidential-election-campaign-the-deep-state-rises-to-the-surface/

RGC -> RGC... , February 20, 2017 at 05:53 AM
Challenging Klobuchar on Ukraine War

February 19, 2017

As Democrats compete to become the new War Party – pushing for a dangerous confrontation with nuclear-armed Russia – some constituents are objecting, as Mike Madden did in a letter to Sen. Amy Klobuchar.


From Mike Madden (of St. Paul, Minnesota)

Dear Senator Klobuchar, I write with concern over statements you have made recently regarding Russia.

These statements have been made both at home and abroad, and they involve two issues; the alleged Russian hack of the presidential election and Russia's actions in the aftermath of the February 22, 2014 coup in Kiev.

U.S. intelligence services allege that President Vladimir Putin ordered an influence campaign to denigrate Hillary Clinton and help elect Donald Trump. The campaign is purported to include the production of fake news, cyber-trolling, and propaganda from Russian state-owned media. It is also alleged that Russia hacked the email accounts of the Democratic National Committee and Clinton campaign chair John Podesta, subsequently providing the emails to WikiLeaks.

Despite calls from many quarters, the intelligence services have not provided the public with any proof. Instead, Americans are expected to blindly trust these services with a long history of failure. Additionally, the former Director of National Intelligence, James Clapper, and the former Director of the Central Intelligence Agency, John Brennan, have both been known to lie to the public and to Congress, Mr. Clapper doing so under oath.

Meanwhile, WikiLeaks founder Julian Assange maintains the emails did not come from Russia (or any other state actor) and his organization has an unblemished record of revealing accurate information in the public interest that would otherwise remain hidden. While responsible journalists continue to use the word 'alleged' to describe the accusations, Republicans with an ax to grind against Russia, and Democrats wishing to distract from their own failings in the campaign, refer to them as fact. Indeed, on the Amy in the News page of your own website, Jordain Carney of The Hill refers to the Russian meddling as "alleged".

A congressional commission to investigate the alleged Russian hacking is not necessary. Even if all the allegations are true, they are altogether common occurrences, and they certainly don't rise to the level of "an act of aggression", "an existential threat to our way of life", or "an attack on the American people" as various Democratic officials have characterized them. Republican Senator John McCain went full monty and called the alleged meddling "an act of war".
Joining War Hawks

It is of concern that you would join Senator McCain and the equally belligerent Senator Lindsey Graham on a tour of Russian provocation through the Baltics, Ukraine, Georgia, and Montenegro. The announcement of your trip (December 28, 2016) on the News Releases page of your website renewed the unproven claim of "Russian interference in our recent election". It also claimed that the countries you were visiting were facing "Russian aggression" and that "Russia illegally annexed Crimea".

It is unfortunate that these claims have become truisms by sheer repetition rather than careful examination of the facts. Russia has not invaded eastern Ukraine. There are no regular units of the Russian military in the breakaway provinces, nor has Russia launched any air strikes from its territory. It has sent weapons and other provisions to the Ukrainian forces seeking autonomy from Kiev, and there are most certainly Russian volunteers operating in Ukraine.

However regrettable, it must be remembered that the unrest was precipitated by the February 22, 2014 overthrow of the democratically elected president Viktor Yanukovych which, speaking of meddling, was assisted by U.S. State Department, other American government agencies, and one Senator John McCain. The subsequent military and paramilitary operations launched by the coup government against the People's Republics of Donetsk and Luhansk were described by President Putin as "uncontrolled crime" spreading into the south and east of the country. In American parlance, both the interim coup government in Kiev and the current government of President Petro Poroshenko have engaged in "killing their own people".

https://consortiumnews.com/2017/02/19/challenging-klobuchar-on-ukraine-war/

[Feb 21, 2017] My Kaspersky Internet Security blocked the No Hesitations link for phishing. I trust Kaspersky more between the two.

Feb 21, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron : , February 20, 2017 at 04:09 AM
My Kaspersky Internet Security blocked the No Hesitations link for phishing. I trust Kaspersky more between the two.
cm -> RC AKA Darryl, Ron... , February 20, 2017 at 11:04 AM
Probably a false positive, or the site may run ads/third party code that was flagged, which are not controlled by the author. Ads with their intrusiveness have been well-known malware vectors. Ad funded sites (or which "monetize" their brand by selling ad space) typically outsource the mechanics of inserting ads, user tracking etc. to third parties, and necessarily give them control over what content is delivered to readers. In part due to high overheads and low margins, there is not a lot of "vetting" what content gets on the page.

And of course intrusive tracking code may be legitimately viewed as malware in itself, even if it doesn't try to "infect" your system.

No reason to distrust the authors.

cm -> RC AKA Darryl, Ron... , February 20, 2017 at 11:25 AM
Even if you use an ad blocker, the schemes they use are necessarily heuristic and reactive in nature - basically block/avoid accessing content by known domain name, URL patterns, common "standard" image sizes and other tells, known suspicious patterns in programmable content, etc.

It comes with the usual heuristic-detection/classification problem - you can increase the result rate only by increasing the error, and you can only choose whether you want to err on the side of more false positives or false negatives (misses). This is because of the forced binary outcome (block/let through, or flag/don't flag).

Usually the algorithm computes some sort of confidence score that is used to detect (and possibly reject) "inconclusive" results. If the algorithm is any good, there is a region where it accurately detects (presence or absence of the targeted feature) with high confidence. To simplify, the choice is then to map low confidence scores to "detect" (more security) or "not detect" (more convenience).

[Feb 21, 2017] How will President Trump reshape the Fed?

Feb 21, 2017 | economistsview.typepad.com
Fred C. Dobbs -> RC AKA Darryl, Ron... February 20, 2017 at 07:51 AM , 2017 at 07:51 AM
(The door was briefly ajar.)

How will President Trump reshape
the Fed? http://on.ft.com/2lW9bB7
FT.com = Gavyn Davies - Feb 19

President Trump has an almost unprecedented opportunity to reshape the key personnel and legal basis of the Federal Reserve in the next 12 months, essentially rebuilding the most important economic organisation in the world in his own image, if he so chooses.

The President may be able to appoint five or even six members to the seven-person Board of Governors within 12 months, including the Chair, Vice Chair for monetary policy, and a new Vice Chair for banking supervision. He may also be able to sign into law a bill that alters aspects of the Fed's operating procedures and accountability to Congress, based on a bill passed in 2015 by the House of Representatives.

Not surprisingly, investors are beginning to eye these changes with some trepidation.

Some observers fear that the President will fill the Fed with his cronies, ready to monetise the budget deficit if that should prove politically convenient. Others fear the opposite, believing that the new appointments will result in monetary policy being handed over to a policy rule (like the Taylor Rule) that will lead to much higher interest rates in the relatively near future. Still others think that the most important outcome will be a deregulation of the banking system that results in much easier credit availability, with increased dangers of asset bubbles and economic overheating.

It is not difficult to see how this process could work out very badly indeed. But, at present, I am optimistic that a modicum of sense will prevail.

During the election campaign, Trump was fairly consistent in calling for a Republican to replace Janet Yellen as Chair in February 2018, and for bank credit to be made more readily available to corporate America, especially to small companies. On the setting of interest rates, he has been inconsistent, and on rules-based monetary policy he has been largely silent. Meanwhile, Republicans in Congress seem focused on deregulation of the banking sector, with the partial removal of Dodd Frank, and a rules-based monetary policy mandate, with audits of the Fed by the GAO.

Fortunately, there does not seem to be any Republican support for using the Fed balance sheet to support inflationary financing of the fiscal deficit. Although that might come later, it will be hard to impose on the Fed once the appointments and institutional changes have been implemented in the next 12 months. After that, the new regime will be relatively free to operate under the new arrangements. A lurch towards inflationary populism is therefore not high on the list of worries at present.

The first test for the administration will probably be the nomination of the new Vice Chair for Supervision, a post left unfilled by President Obama, though the functions have been undertaken by the now departing Daniel Tarullo. It has been reported that Gary Cohn and Treasury Secretary Steven Mnuchin have been actively engaged in picking the nominee, which is very reassuring since they are likely to select an impressive professional who is fit to hold the most important regulatory post in America.

David Nason, identified as the front runner, certainly fits that bill. He has been strongly supported by Hank Paulson, his former boss at Treasury, and that support might influence Cohn and Mnuchin, both of whom, like Paulson, are Goldman Sachs alumni. The nomination of someone like Nason would calm concerns about the entire process.

Donald Trump has also been talking about giving the job to John Allison, a libertarian who admires the gold standard and doubts whether the Fed should even be setting interest rates. He has strong academic and business credentials, with coherent views about the capital requirements and regulation of the banks, but the markets would worry about the unpredictable consequences his appointment might have for monetary policy.

Although an important litmus test, the appointment of the Vice Chair on supervision pales into insignificance compared to the probable decision to replace Janet Yellen and Stanley Fischer in the two top slots next year. These appointments are not yet on the political agenda but the markets are already thinking about what they may portend for monetary policy after 2017. After all, unless reconfirmed, Yellen and Fischer will soon be viewed as lame ducks.

The administration can turn to a lengthy list of respected, mainstream macro-economists with broad affiliation to the Republicans: John Taylor, Greg Mankiw, Glen Hubbard and many others. There is another list of former Fed officials who would fit the bill, including Kevin Warsh and Richard Fisher. Then there is a very long list of business people or bankers that might be considered appropriate, some of whom could unfortunately be portrayed as Trump "cronies". Finally, there are some "Austrian" economists, a school that has apparently influenced Vice President Pence.

An "Austrian" candidate would certainly alarm the markets. Assuming that is avoided, investors will be interested in a couple of issues.

Where does the new leadership sit on the divide between economist and non economist? The last four Fed Chairs have all been clearly on the economist side of the line, and because they have all bought into the Fed's economic orthodoxy, their actions have been considered somewhat predictable by the markets. A business person or banker might be less predictable, at least initially, and more prone to shake up the Fed's orthodoxies, for good or ill.

The second question will be whether the new team is supportive of rule-based monetary policy, with GAO audits. In recent years, the House of Representatives has tried on several occasions to bring forward legislation that would require the FOMC to establish an appropriate rule for setting interest rates and then explain to Congress why it had deviated from the rule in any future decisions. This would clearly shift the bias of policy making somewhat away from discretion, especially if a "rules guru" like John Taylor, or one of his academic supporters (listed here), becomes Chair.

The possibility of Congress forcibly imposing a rules-based regime is being taken increasingly seriously inside the present Board, which has followed the Fed tradition in strongly preferring discretion to the rigidity of formal algorithms, even if they are selected by the Fed itself.

Janet Yellen, in her Congressional testimony last week, was unusually explicit about the adverse consequences, as she saw them, of adopting the Taylor Rule. She said this would require interest rates to rise to 3.5-4.0 per cent, leading to lower growth and higher unemployment.

Stanley Fischer has also weighed in, suggesting that the Taylor Rule would have resulted in a premature tightening in monetary policy after 2011 (see Appendix below). But a new law similar to the bill passed by the House in 2015 would allow them plenty of scope to deviate from the rule if they so choose.

How will the Fed emerge from these potential shocks? The organisation has an extraordinarily strong and much admired culture, which will be hard for Trump to shake, even if he wanted to. All his nominations will be reviewed internally by Cohn and Mnuchin, and externally by the Senate.

My guess is that the institution will survive largely unscathed, albeit with onerous regulation of bank credit, and some increased role for specified monetary rules, with formal reporting on these rules to Congress. Compared to the present regime, this may lead to higher, rather than lower, interest rates.

The current Fed Board will (rightly) try to minimise any restriction on their discretion and independence. But in practice the likely new framework would not represent much of a threat to the sensible conduct of monetary policy in President Trump's term.

(At the link:)

Appendix: Recent Fed Comments on the Taylor Rule

RC AKA Darryl, Ron -> Fred C. Dobbs... , February 20, 2017 at 08:25 AM
THANKS!

[Feb 21, 2017] Fool me once again

Feb 21, 2017 | angrybearblog.com
From the Roosevelt Institute comes this graphic on the overall reality of macro policies:

The Republicans' underlying assumption-that corporations invest more and create more jobs only when they are relieved of burdensome tax rates-is false. American businesses already enjoy a historically low cost of capital, and they have more than enough cash on hand to invest, raise wages, and create jobs. Corporations are choosing to make dividend payments and stock buybacks instead of investing because they face a lack of competitive pressure-itself the result of power and wealth shifting toward rich shareholders. Another tax cut for the rich will only make the problem worse.

[Feb 21, 2017] Debt slavery and high unemployment are two the most direct method of keeping wages low

Feb 21, 2017 | economistsview.typepad.com
J ohnH -> New Deal democrat... February 20, 2017 at 07:31 AM , 2017 at 07:31 AM
I expect that if you look at the pre-bellum South, there will be plenty of examples of stagnant wages, low interest rates...

In Mexico, wages never rose regardless of monetary policy.

The point that I've been making for a while: despite a few progressive economists delusions for rapid economic growth to tighten wages, it won't happen for the following reasons.

1) most employers will just say 'no,' probably encouraged centrally by the US Chamber of Commerce and other industry associations. Collusion? You bet.

2) employers will just move jobs abroad, where there's plenty of slack. Flexible labor markets has been one of the big goals of globalization, promoted by the usual suspects including 'librul' economists like Krugman.

3) immigration, which will be temporarily constrained as Trump deports people, but will ultimately be resumed as employers demand cheap, malleable labor.

New Deal democrat -> JohnH... , February 20, 2017 at 07:35 AM
If what we get is easy money, no inflation, and stagnant wages, then that is the Coolidge bubble. We know how that ends.
Peter K. -> JohnH... , February 20, 2017 at 07:36 AM
I disagree. It happened in late 90s. The ideas you mention are factors, including the decline of unions.

What has happened in recent decades is that asset bubbles - like the dot.com and housing bubbles - have popped sending a high pressure economy into a low pressure one with higher unemployment.

Neoliberal economists often talk about "flexible labor markets" as desirable but I don't think Krugman ever has. Maybe he has in a roundabout, indirect way.

JohnH -> Peter K.... , February 20, 2017 at 07:58 AM
Peter K still insists on propagating the myth that the 1990s was a period of easy money that led to increasing wages. Not so:
https://fred.stlouisfed.org/series/FEDFUNDS

Fed funds rates were consistently about double the rate of inflation.

The fact that the economy boomed and wages increased was due to the tech boom--an unrepeatable anomaly. The Fed and Clinton administration unsuccessfully attempted to stifle it with high rates and budget balancing.

To make sure that wages never rose again, Clinton signed China PNTR, granting China access to WTO, ushering in the great sucking sound of jobs going to China. Krugman cheered.

Peter K. -> JohnH... , February 20, 2017 at 08:28 AM
Again I just disagree with you.

"Fed funds rates were consistently about double the rate of inflation."

That doesn't matter. What matters is if they were tightening or loosening. Where they reducing access to credit or expanding it.

The real history is that Democrats on the FOMC wanted to raise rates - as Dean Baker has discussed.

Greenspan decided not to raise rates for various reasons and unemployment stayed low at around 4 percent with wages sharing in productivity gains until the Dot.com stock bubble popped.

I see no reason why you should believe labor markets will never get tight again and that even if they do it won't lead to increased worker bargaining power and higher wages.

Your reasoning and logic isn't sound.

Peter K. -> Peter K.... , February 20, 2017 at 08:30 AM
Some people were afraid of inflation but it never came. But wages did share in productivity gains.
JohnH -> Peter K.... , February 20, 2017 at 03:17 PM
There are numerous reasons why wages won't increase even if labor markets tighten...you just don't want to acknowledge the nefarious consequences of neoliberal policies: business collusion, offshoring, immigration, and the tax system's preference for returns of returns to capital over wages, which preferences technology.
pgl -> JohnH... , February 20, 2017 at 10:36 AM
The real interest rate was around 2.5% per your own argument which was a lot lower than real rates in the 1980's. So by any reasonable standard - we did have easy money.
JohnH -> pgl... , February 20, 2017 at 01:35 PM
lol!!! 2.5% real Fed funds rates as cheap money? Who are you kidding???

If pgl is good at anything, it's producing nonsense!

Julio -> JohnH... , February 20, 2017 at 08:35 AM
Another round of tax and regulatory giveaways can create a short-term boom and keeping jobs at home.

Of course, with the giveaways they're hitting the zero lower bound...

JohnH -> Julio ... , February 20, 2017 at 03:21 PM
"Another round of tax and regulatory giveaways can create a short-term boom," as part of the race to the bottom for wages...IOW Republicans and their Democratic allies will have succeeded when American wages are about the same as wages in China or Mexico. But, per their logic, then jobs will be plentiful because there will be no need to off-shore.
pgl -> JohnH... , February 20, 2017 at 09:11 AM
"the pre-bellum South"? You mean slavery. Yeah - wages were incredibly low.
JohnH -> pgl... , February 20, 2017 at 01:37 PM
Yep...slavery is the most direct method of keeping wages low. The policies I outlined--monopsony, offshoring, and immigration--are all a fall back, to be used when industry can't use their best policy.
libezkova -> JohnH... , February 20, 2017 at 12:02 PM
If the neoliberal elite can't part with at least a small part of their privileges, the political destabilization will continue and they might lose everything.

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage." -- John Kenneth Galbraith

ilsm -> libezkova... , February 20, 2017 at 12:53 PM
You may know that JK Galbraith served on the US' evaluation of strategic bombings effect in WW II.

He is one of the minority whose opinion was suppressed by the military industry complex which concluded outside the A bomb no relation to bombing and victory was proven, including both industry output and energy production in Germany.

Allied bombing did kill a lot of civilians, which if Germans or Japan had won bomber commanders would have been hanged.

Julio -> libezkova... , February 20, 2017 at 05:44 PM
"...the political destabilization will continue and they might lose everything."

Or they might find a way to end the political destabilization. You know, we're not arresting you, we just want to know, in the war on Muslim terrorists and Mexican criminals, are you with us or against us? You'd be surprised (or maybe you wouldn't!) how the question is enough to quiet everybody down.

Julio -> Julio ... , February 20, 2017 at 05:46 PM
Just heard an interview clip with candidate Trump defending his Muslim ban as being the same as the Japanese interment, and saying we're in a war.

[Feb 21, 2017] Did post-Marxist theories destroy Communist regimes?

Feb 21, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron : February 20, 2017 at 04:12 AM , 2017 at 04:12 AM
RE: Did post-Marxist theories destroy Communist regimes?

[Branko discusses "A slender volume by Wisła Suraska (How the SovietUnion disappeared, Duke University Press, 1998)." Interesting stuff and reasonably cogent enough for idle curiosity, but nowhere near the center of my world.]

cm -> RC AKA Darryl, Ron... , -1
The short answer is no. (I guess it depends on how one interprets what "destroy" means.)

Suraska explains in much detail, and IMO correctly, the exact mechanisms and critical motivations/actions of leaders by which the regime lost or ceded its power.

The underlying reasons are as always social and economic processes and facts. Summarized, with increasing complexity, expressing itself in good part in increasing maintenance liabilities and stagnation of progress, the "empire" became too large to be manageable. This also explains the decentralization aspect - the central government recognized that with the available technology and state organization (which could not be altered either by fact or ideological principle), it was simply not able to control everything effectively. It could (and did) send its agents to mete out enforcement actions and punishments, but you cannot manage something that depends on producing value with a stick only.

One "mistake" may have been that the recognition that the prevailing management system could not be sustained, or its translation into action (under Gorbachov), came too late. But had the corrective action happened earlier, the end result may have been approximately the same, only accelerated by so many years. And it would also have affected the West - had the late 80's/early 90's "shock" happened let's say 10 years earlier, what of what happened in the 80's would have happened differently?

libezkova said in reply to cm... , February 20, 2017 at 08:23 PM
Was not it the infection of neoliberalism that brought down the Soviet Union?
cm -> RC AKA Darryl, Ron... , February 20, 2017 at 11:52 AM
I find the following relatively short exposition very convincing, and have recommended it before. It explains the underlying economic principles at a very high "metabolic" level. At that level, it is not very actionable, nor explains anything in detail, but it is straightforward.

http://www.ecoshock.org/transcripts/greer_on_collapse.pdf

Or search for "greer catabolic" or similar keywords.

[Feb 21, 2017] Our situation with neoliberalism reminds me lines from the Hotel California

Feb 21, 2017 | economistsview.typepad.com
February 20, 2017 at 04:51 PM , 2017 at 04:51 PM
Plato oil might throw a monkey wrench into such projections.

Also Kunsler question stands: what type of growth do we need? Growth of what? Of Wall Street banks and hedge funds? Of private equity sharks ? Do we need more Wal-Marts, more McDonalds? Do we need more battleships, fighter planes and attack helicopters?

Or we need more hybrid and electrical cars, huge upgrade of the US national grid (east-West high voltage lines, new, safer types of nuclear reactors and huge investments in improving oil extraction technologies.

The political stability of neoliberal society much like stability of Bolshevism depends on whether the promises of higher standard of living for everybody are delivered.

If not, and for the bottom 80% they were not, the society enters the period of political instability.

Which in the USA probably has started with the election of Trump.

MSM dogs who are now barking at Trump are barking to the wrong tree.

im1dc -> libezkova... , February 20, 2017 at 07:16 PM
We can agree that all politico-economic systems tried thus far by man have fatal flaws. Ours just works better, or has, for longer than any other, so far that is.
libezkova said in reply to im1dc... , February 20, 2017 at 07:18 PM
Very true.
libezkova -> libezkova... February 20, 2017 at 08:36 PM , 2017 at 08:36 PM
Our situation with neoliberalism reminds me lines from the "Hotel California " ;-)

http://www.azlyrics.com/lyrics/eagles/hotelcalifornia.html
== quote ==
Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
"Relax, " said the night man,
"We are programmed to receive.
You can check-out any time you like,
But you can never leave! "

[Feb 21, 2017] Are you willing To kill the Goose That Laid the Golden Eggs .

Notable quotes:
"... Free trade always and everywhere leads to poverty. The US must return to Lincoln's protectionist tariff regime if it wants to recovery the prosperity Krugman and co. helped destroy in the free trade "globalization" period from 1973 to January 20, 2017. ..."
"... It is easier said then done. Many US companies now depends on foreign manufacturing and foreign markets. The train has left the station. ..."
"... Careful actions might help to change the situation for better, but any abrupt or reckless action will definitely make the current situation worse, as employment in the USA now depends on employment in Mexico like one auto part manufacturer recently explained to Trump: you institute tariffs -- we lay off the US workers, because we have no other option. ..."
Feb 21, 2017 | economistsview.typepad.com
Arrogance of free traders... February 20, 2017 at 08:06 PM , 2017 at 08:06 PM
Arrogant economists? Yes - the US may not have much, but it is overflowing with arrogant economists.

A trillion dollar goods trade deficit that persists year after year? A wealthy country stripped of its manufacturing and turned into a debtor nation thanks to economists refusing to bother with economic history that could not be more clear.

Free trade always and everywhere leads to poverty. The US must return to Lincoln's protectionist tariff regime if it wants to recovery the prosperity Krugman and co. helped destroy in the free trade "globalization" period from 1973 to January 20, 2017.

Trump should revive Lincoln protectionism - then he will rightfully take his place among the greats.

libezkova : , February 20, 2017 at 08:44 PM

"Trump should revive Lincoln protectionism - then he will rightfully take his place among the greats."

It is easier said then done. Many US companies now depends on foreign manufacturing and foreign markets. The train has left the station.

Careful actions might help to change the situation for better, but any abrupt or reckless action will definitely make the current situation worse, as employment in the USA now depends on employment in Mexico like one auto part manufacturer recently explained to Trump: you institute tariffs -- we lay off the US workers, because we have no other option.

Are you willing "To kill the Goose That Laid the Golden Eggs". Paradoxically this idiom means an unprofitable action motivated by greed

[Feb 21, 2017] Aging of baby boomers has some interesting political side effects as the past is always seen by this age category through rose-colored glasses.

Feb 21, 2017 | economistsview.typepad.com
W hen they were younger, at least looking back things were more hopeful and remembered quality of life as being better

ken melvin : , February 20, 2017 at 02:49 PM

The Nostalgia of Trump: Remembering the days when birds fell from the sky from the polluted air in L.A., When the Cuyahoga River caught fire in Cleveland, death from black lung desease, death from white lung desease, death by crushing, ...

I don't ever see nostalgia for Trump. I wish to see him expunged from the Nation's as quickly as possible.

cm -> ken melvin... , February 20, 2017 at 03:06 PM
I'm not sure what any of that has to do with nostalgia for Trump.

Quite a while back Paine (who seems to be back here) characterized contemporary Republicans as "the party of a better yesterday". This refers to many people's impression that when they were younger, at least looking back things were more hopeful and remembered quality of life better. This is independent from the things you mentioned. In my own observation the same phenomenon could be observed in prior generations of family and their acquaintances that experienced in various degrees WW1 and WW2 and the postwar fallouts. Life had always been better when they were young, war or not.

libezkova -> cm... , February 20, 2017 at 04:41 PM
Very true.

Aging of baby boomers has some interesting political side effects as the past is always seen by this age category through rose-colored glasses.

cm -> libezkova... , February 20, 2017 at 08:35 PM
As by most other generations apparently - I don't think this is anything specific to the boomers. By credible accounts the Greeks were already complaining about "kids these days" a few millenia ago. "They are so not like 'we' used to be - no merit and all depravity." How could society possibly continue to exist with this unfit generation having responsibility?
cm -> libezkova... , February 20, 2017 at 08:42 PM
The difference between now and the pre-internet era is that now anybody and everybody can take a dump on current and previous generations, and things in general, at the cost of next to nothing.

[Feb 20, 2017] Paging Robert Shiller?

Feb 20, 2017 | economistsview.typepad.com
Fred C. Dobbs : February 20, 2017 at 07:29 AM , 2017 at 07:29 AM
(Is this anything?)

(The Dow index is up 15.3% since Nov 4. Go figure.)

Goldman: 'Cognitive dissonance exists in the US stock market'
http://finance.yahoo.com/news/goldman-cognitive-dissonance-exists-in-the-us-stock-market-132336034.html
via @YahooFinance - Feb 20

Goldman Sachs analysts believe investors and traders in the stock market are acting irrationally.

"Cognitive dissonance exists in the US stock market," Goldman Sachs' David Kostin said. "S&P 500 is up 10% since the election despite negative [earnings per share] revisions from sell-side analysts."

Earnings and expectations for earnings growth are the most important drivers of stock prices in the long run. In the short run, however, earnings and prices will often diverge.

"Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward," Kostin continued. "On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth. In contrast, sell-side analysts have cut consensus 2017E adjusted EPS forecasts by 1% since the election and 'hard' macroeconomic data show only modest improvement." ...

pgl -> Fred C. Dobbs... , February 20, 2017 at 09:21 AM
Paging Robert Shiller?

[Feb 20, 2017] Plato oil problem is looming large and overshadows other problems.

Feb 20, 2017 | economistsview.typepad.com
libezkova -> Tom aka Rusty... , February 20, 2017 at 01:18 PM
"Repealing some of the dumber regulations might have a tiny positive impact on some industries and some areas."

I agree. "Plato oil" problem is looming large and overshadows other problems.

And nothing but high prices can probably restore the USA shale industry to its previous glory days after "Obama destruction" of 2014-2016.

Chris G -> libezkova... , February 20, 2017 at 02:13 PM
Article in NYT yesterday re an essentially jobless recovery in the TX oil industry. Technology has advanced to the point where they only need a small fraction of workers they did a few years ago to get the oil out of the ground. (Lose-lose in that lower extraction costs support lower fuel costs which support higher CO2 emissions and there's no employment gain.) Will post the link to the NYT article later.
anne -> Chris G ... , February 20, 2017 at 03:58 PM
https://www.nytimes.com/2017/02/19/business/energy-environment/oil-jobs-technology.html

February 19, 2017

Texas Oil Fields Rebound From Price Lull, but Jobs Are Left Behind
The industry is embracing technology, and finding new ways to pare the labor force. But as jobs go away, what of presidential promises to bring them back?
By CLIFFORD KRAUSS

cm -> Tom aka Rusty... , February 20, 2017 at 02:50 PM
The temporary adrenaline shot may help some people "temporarily" (probably a decade or so), vs. no help at all. In the long run we are all dead, but you can have had more or less of a life before that. A decade is a significant period in anybody's life.

[Feb 20, 2017] People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed. The voters no longer believe them. They're like the boy who

Feb 20, 2017 | economistsview.typepad.com
Peter K. -> Peter K.... February 20, 2017 at 08:13 AM , 2017 at 08:13 AM
https://www.ft.com/content/cd4e8576-e934-11e6-967b-c88452263daf

Revoking trade deals will not help American middle classes

The advent of global supply chains has changed production patterns in the US

by Larry Summers
FEBRUARY 5, 2017

Trade agreements have been central to American politics for some years. The idea that renegotiating trade agreements will "make America great again" by substantially increasing job creation and economic growth swept Donald Trump into office.

More broadly, the idea that past trade agreements have damaged the American middle class and that the prospective Trans-Pacific Partnership would do further damage is now widely accepted in both major US political parties.

As Senator Daniel Patrick Moynihan once observed, participants in political debate are entitled to their own opinions but not their own facts. The reality is that the impact of trade and globalisation on wages is debatable and could be substantial. But the idea that the US trade agreements of the past generation have impoverished to any significant extent is absurd.

There is a debate to be had about the impact of globalisation on middle class wages and inequality. Increased imports have displaced jobs. Companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource. The advent of global supply chains has changed production patterns in the US.

My judgment is that these effects are considerably smaller than the impacts of technological progress. This is based on a variety of economic studies, experience in hypercompetitive Germany and the observation that the proportion of American workers in manufacturing has been steadily declining for 75 years. That said I acknowledge that global trends and new studies show that the impact of trade on wages is much more pronounced than a decade ago.

But an assessment of the impact of trade on wages is very different than an assessment of trade agreements. It is inconceivable that multilateral trade agreements, such as the North American Free Trade Agreement, have had a meaningful impact on US wages and jobs for the simple reason that the US market was almost completely open 40 years ago before entering into any of the controversial agreements.

American tariffs on Mexican goods, for example, averaged about 4 per cent before Nafta came into force. China had what was then called "most favoured nation" trading status with the US before its accession to the World Trade Organization and received the same access as other countries. Before the Korea Free Trade Agreement, US tariffs on Korea averaged a paltry 2.8 per cent.

The irrelevance of trade agreements to import competition becomes obvious when one listens to the main arguments against trade agreements. They rarely, if ever, take the form of saying we are inappropriately taking down US trade barriers.

Rather the naysayers argue that different demands should be made on other countries during negotiations - on issues including intellectual property, labour standards, dispute resolution or exchange rate manipulation. I am sympathetic to the criticisms of TPP, but even if they were all correct they do not justify the conclusion that signing the deal would increase the challenges facing the American middle class.

The reason for the rise in US imports is not reduced trade barriers. Rather it is that emerging markets are indeed emerging. They are growing in their economic potential because of successful economic reforms and greater global integration.

These developments would have occurred with or without US trade pacts, though the agreements have usually been an impetus to reform. Indeed, since the US does very little to reduce trade barriers in our agreements, the impetus to reform is most of what foreign policymakers value in them along with political connection to the US.

The truth too often denied by both sides in this debate is that incremental agreements like TPP have been largely irrelevant to the fate of middle class workers. The real strategic choice Americans face is whether the objective of their policies is to see the economies of the rest of the world grow and prosper. Or, does the US want to keep the rest of the world from threatening it by slowing global growth and walling off products and people?

Framed this way the solution appears obvious. A strategy of returning to the protectionism of the past and seeking to thwart the growth of other nations is untenable and would likely lead to a downward spiral in the global economy. The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges.

Peter K. -> Peter K.... , February 20, 2017 at 08:16 AM
" The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges."

People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed.

The voters no longer believe them. They're like the boy who cried wolf.

[Feb 20, 2017] With high unemployment rate employers can more broadly discriminate

Feb 20, 2017 | economistsview.typepad.com
Peter K. : Reply Monday, February 20, 2017 at 10:35 AM , February 20, 2017 at 10:35 AM
PGL says "reverse hysteresis" is fair dust.

More trolling from out neoliberal friend?

https://economix.blogs.nytimes.com/2014/03/03/undoing-the-structural-damage-to-potential-growth/?_r=0

Economix - Explaining the Science of Everyday Life

Undoing the Structural Damage to Potential Growth
By JARED BERNSTEIN MARCH 3, 2014 11:00 AM

What follows is macroeconomics, but I'll start with the micro - a microcosm, in fact, of the larger idea I'm hoping to get at here.

I think it was around 1998, and I was on a tram between terminals at O'Hare Airport in Chicago. Two young men, who clearly worked for the airport (they had a bunch of badges dangling around their necks) were trying to figure out how they knew each other, while I eavesdropped. Turned out they had met each other in prison.

At the time, I was beginning a research project on the benefits of full employment, and my first thought was, "Aha - another example of how tight labor markets pull in the hard-to-employ." This was also the era of work-based welfare reform, and while analysts worried that employers would avoid those with welfare histories, strong demand turned out to an antidote to such preferences.

Basically, profiling based on gender, race and experience is a luxury that employers can't afford when the job market is really tight. That is not to imply, of course, that employers broadly discriminate, but there is strong evidence that many do, most recently against the long-term unemployed. In tight markets, however, they face a choice of indulging their preferences or leaving profits on the table, and profits usually win.

Now, put this story aside for a second and let's turn to the macro. A few months ago, I reported on a study by a few Federal Reserve economists with pretty striking results of the damage done to the economy's future growth rate by the deep and protracted downturn known as the Great Recession. The Congressional Budget Office just published a similar analysis, resulting in the chart below showing growth in gross domestic product as projected in 2007, before the recession, and a revised projection from this year. By 2017, the budget office predicts that the new and decidedly not-improved level of G.D.P. will be 7.3 percent below the old projection.

What does 7.3 percent of lost gross domestic product actually mean? Well, last year G.D.P. amounted to about $16.8 trillion, and 7.3 percent of that comes to around $1.2 trillion. Conventional estimates translate that into more than 10 million jobs.

It would be very good to avoid that fate. The thing is, both the Fed economists and the Congressional Budget Office basically argue that while their estimates are admittedly uncertain, that fate cannot be avoided - it's baked into the economic cake by the assumption that once your trend growth rate slows as ours has, it does not come back barring some positive, unforeseen shock. Here is how the Fed guys put it:

Policy makers cannot undo labor market damage once it has occurred, but must instead wait for it to fade away on its own accord; in other words, there is no special advantage, given this specification, to running a high-pressure economy.

I disagree! I think the damage can be at least partly reversed precisely by running "a high-pressure economy." I saw it myself that day in the airport.

Technically, I'm talking about "reverse hysteresis." When a cyclical problem morphs into a structural one, economists invoke the concept of hysteresis. When this phenomenon takes hold, the rate at which key economic inputs like labor supply and capital investment enter the economy undergoes a downshift that lasts through the downturn and well into the expansion, reducing the economy's speed limit. But what I'm suggesting here is that by running the economy well below conventional estimates of the lowest unemployment rate consistent with stable inflation, and doing so for a while, we can pull workers back in, raise their career trajectories, improve their pay and their living standards, and turn that downshift to an upshift that raises the level and growth rate of G.D.P.

Won't that be inflationary? Three points. First, if anything, the current economy is suffering from inflation that is too low (same with Europe), so near-term growth-oriented policy seems clearly safe in this regard. Second, the precise relationship between full employment and inflation is poorly understood. When that latter-1990s story above was taking place, economists frequently and incorrectly warned that full employment would dangerously juice inflation. Third, the correlation between these two variables - inflation and labor market tightness - has become far weaker in recent years (i.e., the Phillips Curve has flattened, for those who like the jargon).

How do we reverse the hysteresis process (which is to ask: How do we get back to very tight labor markets)? In earlier posts, I've suggested a number of policies that would help, including investment in public goods, direct job creation, reducing the trade deficit and work-sharing. Still, you may well be wondering, "Wait a minute - this dude wants us to go with him down this path because of a conversation he overheard 16 years ago?"

O.K., I'll admit that the economic journals are not busting with evidence in support of reverse hysteresis. But those of us who closely monitored full-employment economies have observed and documented significantly positive labor supply and investment outcomes. (True, a lot of that investment has flowed into bubbles; I'm not saying this idea solves every problem.)

The employment rates for young African-American adults, like the guys I saw in the airport, averaged around 70 percent in the 1970s and '80s, but hit 80 percent in the late 1990s; they are in the mid-60s now. The employment rates for single mothers also hit new highs in those years. The labor force participation rate, itself an important victim of hysteresis right now, hit its all-time high at the end of the 1990s expansion. In other words, full employment pulled a lot of new people into the job market.

As part of the full-employment project I'm running at the Center on Budget and Policy Priorities (and have written about before on this blog), a number of top economists are looking into the relationships between fiscal policy, and hysteresis and reverse hysteresis. They are coming up with some compelling findings, which I'll share once they are ready. For now, allow me to assert the following: We have shown we can do a lot of economic damage. With the political will, sorely lacking these days, it can also be undone.

Peter K. -> Peter K.... , February 20, 2017 at 10:38 AM
"What does 7.3 percent of lost gross domestic product actually mean? Well, last year G.D.P. amounted to about $16.8 trillion, and 7.3 percent of that comes to around $1.2 trillion. Conventional estimates translate that into more than 10 million jobs."

https://www.bloomberg.com/view/articles/2016-04-28/president-obama-s-economic-disappointment

Obama's Economic Disappointment by Narayana Kocherlakota

In January 2009, at the beginning of Obama's first term, the nonpartisan Congressional Budget Office issued a 10-year forecast for the U.S. economy, including such indicators as unemployment, gross domestic product, the budget deficit, government debt and interest rates. Here's a table comparing the CBO's expectations for the year 2015 to what has actually happened:

NGDP forecast to grow 33 percent, actually grew 22 percent.

Real GDP, forecast 20 percent, actual 10.

----------------

Peter K. -> Peter K.... , February 20, 2017 at 10:42 AM
https://www.federalreserve.gov/newsevents/speech/yellen20150327a.htm

Yellen

"A final argument for gradually adjusting policy relates to the desirability of achieving a prompt return of inflation to the FOMC's 2 percent goal, an objective that would be advanced by allowing the unemployment rate to decline for a time somewhat below estimates of its longer-run sustainable level. To a limited degree, such an outcome is envisioned in many participants' most recent SEP projections. A tight labor market may also work to reverse some of the adverse supply-side developments resulting from the financial crisis. The deep recession and slow recovery likely have held back investment in physical and human capital, restrained the rate of new business formation, prompted discouraged workers to leave the labor force, and eroded the skills of the long-term unemployed.15 Some of these effects might be reversed in a tight labor market, yielding long-term benefits associated with a more productive economy. That said, the quantitative importance of these supply-side mechanisms are difficult to establish, and the relevant research on this point is quite limited."

[Feb 20, 2017] To reach pay out for the wells started in 2009-2016 requires an estimated oil price of 65 dollars bbl WTI starting Jan-17. To get a return of 2.5% which can be called an

Notable quotes:
"... Looking at Bakken(ND) as one big project, it has now spent an estimated total of about $36Billion more than generated from net operational cash flows (Jan-09 – Dec-16). To reach pay out for the wells started in 2009-2016 requires an estimated oil price of $65/bo (WTI) starting Jan-17. To get a return of 2.5% (which is, call it, an inflation hedge) on the $36B requires an estimated oil price of $77/bo (WTI). ..."
"... To enable a debt reduction requires a net positive cash flow from operations and the longer it takes before positive cash flow happens, the higher the required oil price becomes to earn some return. ..."
"... Some of this $36B debt has already been written down (also through bankruptcies (Chapter 11s), the business model is not sustainable with low oil prices!), which means that the companies now needs to recover less than the $36B. ..."
"... Write downs/impairments shrinks the affected companies' assets/equities and thus debt carrying capacities. Some make forecasts about future developments without considering the companies' balance sheets. ..."
"... At present oil pries (low/mid 50's) the companies may add an average of 60-70 wells/month from cash from operations, this will likely be a mixture of DUCs and "new" wells. ..."
"... For 2017 I expect companies in Bakken(ND) will continue to spend above what is generated from operations. ..."
Feb 20, 2017 | peakoilbarrel.com
Rune Likvern says: 02/19/2017 at 1:04 pm
To keep the Dec-15 output level from Bakken(ND) through 2016, I estimated this would require the addition of an average of about 95 wells/month (61 wells/month were added through 2016).

In 2016 an estimated $2.0 – $2.5Billion more than (net) cash flow from operations was spent. This is about 300 – 350 new wells (spud to flow).
Without this external capital infusion fewer wells would have been brought to flow and thus a steeper decline in production.

Looking at Bakken(ND) as one big project, it has now spent an estimated total of about $36Billion more than generated from net operational cash flows (Jan-09 – Dec-16). To reach pay out for the wells started in 2009-2016 requires an estimated oil price of $65/bo (WTI) starting Jan-17. To get a return of 2.5% (which is, call it, an inflation hedge) on the $36B requires an estimated oil price of $77/bo (WTI).

To enable a debt reduction requires a net positive cash flow from operations and the longer it takes before positive cash flow happens, the higher the required oil price becomes to earn some return.

Some of this $36B debt has already been written down (also through bankruptcies (Chapter 11s), the business model is not sustainable with low oil prices!), which means that the companies now needs to recover less than the $36B.

Write downs/impairments shrinks the affected companies' assets/equities and thus debt carrying capacities. Some make forecasts about future developments without considering the companies' balance sheets.

At present oil pries (low/mid 50's) the companies may add an average of 60-70 wells/month from cash from operations, this will likely be a mixture of DUCs and "new" wells.

For 2017 I expect companies in Bakken(ND) will continue to spend above what is generated from operations.

shallow sand says: 02/19/2017 at 4:33 pm
Rune, thank you for this post.

[Feb 20, 2017] Is The Bakken a Bust

Feb 20, 2017 | peakoilbarrel.com

Bakken production down 86,150 barrels per day to 895,330 bpd. North Dakota production down 92,029 bpd to 942,455 bpd. It was noted that this the largest decline ever in North Dakota production. But it should not be overlooked that the October in crease in production was also the largest ever increase in North Dakota production.

[Feb 20, 2017] it looks likely that the moment Dakota Access is built, there will be a pipeline capacity glut.

Feb 20, 2017 | peakoilbarrel.com
Nathanael says: 02/15/2017 at 1:15 pm
If I'm not mistaken, this means that the North Dakota production (BPD) is now only slightly more than than the existing pipeline capacity leading out of North Dakota (BPD), which is 851,000 at the end of 2016. Production will probably be down to the existing pipeline capacity by March.

https://ndpipelines.files.wordpress.com/2012/04/williston-basin-transportation-table-nov-2016.jpg

Now this isn't quite comparable because part of the Williston isn't in North Dakota, so I'd have to look at the Montana numbers. But still, it looks likely that the moment Dakota Access is built, there will be a pipeline capacity glut.

So is the Dakota Access Pipeline going to be half-empty, or will some of the other pipelines be empty and go bankrupt? They're fighting over market share in a surplus-capacity environment.

[Feb 20, 2017] EUR for Bakken for new investments is assumed to be at unrealistic 980K Boe per well

Feb 20, 2017 | peakoilbarrel.com
HVACman says: 02/16/2017 at 2:04 pm
"The incremental investment is budgeted to deliver an average estimated ultimate recovery (EUR) of, or approximately 15% over the previous average EUR of 850,000 Boe per well. At $55 per barrel WTI, these completions should generate a cost forward average rate of return in excess of 100%"

The estimated EUR's appear VERY high for Bakken wells by my untrained eye. Any thoughts from the resident experts?

George Kaplan says: 02/16/2017 at 3:21 pm
I am certainly not an expert on tight oil but see above. If they get 30 to 40% extra from gas I think they might make it (GOR of 1500 adds 25% I think, and it looks like it will be more than that for most wells). What I don't get is a 'previous average' of 850,000. There's not even one well that looks like that at the moment, based on Enno Peters' charts.
AlexS says: 02/15/2017 at 5:41 pm
Even more striking declines in drilling/completion activity for individual operators.

In December 2016, Continental had only 21 producing wells that started production in 2016, with combined output of 8.6 kb/d

In December 2015, it had 152 producing wells that were started in 2015,
with combined output of 45.1 kb/d.

In December 2014, it had 253 producing wells that were started in 2014,
with combined output of 58.9 kb/d.

So, the number of new producing wells for CLR in 2016 was 12 times less than in 2014.

AlexS says: 02/15/2017 at 6:58 pm
CLR guidance for 2017:

"The Company plans to complete 131 gross (100 net) operated wells out of its Bakken uncompleted well inventory with first production commencing by year end. In addition, Continental plans to complete with first production approximately 17 gross (8 net) newly drilled Bakken wells in 2017. At year-end 2017, the Company expects to have 140 Bakken wells in inventory, of which 72 gross (40 net) wells will have been completed but waiting on first sales and 68 gross (47 net) operated wells will be waiting on completion.

The Company also plans to participate in completing 40 net non-operated wells in 2017, 35 of which will be in the Bakken.

Continental expects to grow Bakken production by approximately 26% in 2017, when comparing the 2017 exit rate to the fourth quarter 2016.

Approximately $550 million, or 70%, of the operated Bakken capital investment in 2017 will be focused on completing wells from the Company's uncompleted well inventory. The Company has five stimulation crews working currently and plans to average seven crews for 2017 as a whole.

Continental plans to apply various enhanced stimulation techniques on all Bakken completions in 2017 to define the optimum designs for future completions. This includes larger proppant loads, diverter technology, shorter stage lengths and shorter cluster spacing. The Company is also applying high-rate production lift technology to accelerate fluid recovery and early production rates. Combined, these techniques add an average of approximately $1.4 million to the previous standard enhanced completion cost of $3.5 million.

For the uncompleted well inventory, the average budgeted completion cost for the larger enhanced completion is approximately $4.9 million per well. The incremental investment is budgeted to deliver an average estimated ultimate recovery (EUR) of 980,000 Boe per well, or approximately 15% over the previous average EUR of 850,000 Boe per well. At $55 per barrel WTI, these completions should generate a cost forward average rate of return in excess of 100%.

The Company also plans to maintain four operated drilling rigs in the Bakken throughout 2017 and drill 101 gross (57 net) operated wells, with 17 gross (8 net) of these wells completed in 2017 with first production. The 17 gross wells will have an average budgeted well cost of approximately $7.0 million. The average EUR for wells drilled in 2017 is expected to be 920,000 Boe per well. At a WTI price of $55 per barrel, these wells should generate over a 40% rate of return."

http://nocache-phx.corporate-ir.net/phoenix.zhtml?c=197380&p=irol-newsArticle&ID=2239817

Eulenspiegel says: 02/16/2017 at 5:39 am
Are they producing mainly gas?

According to Enno, an average Bakken well gives about 200k+ of oil, not 900k. It looks like it's much more gas than oil, or the numbers are completely bogus. Or they have bought the sweetest center of all sweet spots in Bakken?

Questions over questions

AlexS says: 02/16/2017 at 8:21 am
As of 3Q16, oil accounted for 61% of total CLR output.
Apparently, oil's share in CLR production in the Bakken is higher.

According to Enno, CLR Bakken wells with the first flow in 2014 have on average already produced > 200kb of oil. Their average EUR may exceed 400 kb and probably reach 500 kb.
Wells with first flow in 2015 and 2016 perform better.

That said, even including gas, EURs of 900 kboe look unrealistic

shallow sand says: 02/16/2017 at 9:19 am
AlexS.

I have mentioned company proved reserves and PV10 quite a bit here in the past two years.

I am coming to the opinion that these numbers, required by the SEC, have too many uncertainties to make them worthwhile, at least as to PUD. PDP may be useful.

AlexS says: 02/16/2017 at 9:24 am
shallow sand,

I agree. I think PUD estimates for tight oil formations are much more uncertain compared with conventional fields.

George Kaplan says: 02/16/2017 at 11:14 am
They appear to have been increasing well performance since 2014, maybe getting above 400k for oil if the curves continue (as below). It looks like they recomplete after some time. It will be interesting to see how the two 2016 curves go – started high and then the first took a dive. The late 2015 wells did the same and then jumped up, which looks like a re-completion. How much area does one of their new wells drain? Presumably the savings must mostly be on reduced drilling and completions cost, and maybe front loading the returns with higher initial production, not overall additional recovery.

Marathon announced today they'd have six rigs average this year – up one – not sure if that is enough to hold the decline near present levels, mostly that depends on completions rather than rigs though, but they are going for "multiple enhanced completion trials" and expect to increase overall USA production by up to 20% (also six rigs in Eagle Ford).

http://www.marathonoil.com/News/Press_Releases/Press_Release/?id=1012103

[Feb 20, 2017] Bakken steep drop of production

Feb 20, 2017 | peakoilbarrel.com
Heinrich Leopold says: 02/16/2017 at 5:19 am
Bakken data were out yesterday and we have seen a steep drop below 900 000 bbl/d nearly 300 000 bbl/d below its peak of 1.164 mill bbl/d in December (see below chart). Well performance (new and existing wells) is down to a five year low of 83 bbl per well and falling -20% year over year. This means a cost increase per produced barrel of 20%, even if new wells are performing better and costs per rig are down.

Since the well production declines by -20% over two years now, costs per produced barrel are up 40% and rising fast. No wonder companies seem to abandon Bakken for less mature fields such as the Permian. New permits are at five year low and rig count is also grinding down slowly. Inerestingly, number of wells are also falling – down 100 wells in December – which has been deemed as impossible in some forecasting models.

[Feb 20, 2017] 2017 offshore activity shows remarkable competitiveness against shale

Feb 20, 2017 | peakoilbarrel.com
Energy News says: 02/16/2017 at 7:13 am
Rystad Energy have a new article

2017 offshore activity shows remarkable competitiveness against shale
One of the key reasons for offshore projects starting to becoming competitive again, is the strong deflation of unit prices which is actually higher for offshore than onshore. In 2016, unit prices for offshore developments have been reduced 27% from the peak in 2014 for awarded contracts. One of the key segments, which have helped the offshore cost to come down, is related to the immense pressure on dayrates for drilling rigs. Here, prices have come down more than 50%.
https://www.rystadenergy.com/NewsEvents/Newsletters/OfsArchive/ofs-february-2017

[Feb 20, 2017] Spending on oil sand plummeted amid low oil prices

Feb 20, 2017 | peakoilbarrel.com
Energy News says: 02/17/2017 at 3:28 pm
Canadian Oil Sands – Wall Street Journal – 2017-02-17
Oil sands projects can require billions of dollars in upfront investment and seven to 10 years, or more, to bring returns. Instead, companies are increasingly focusing on new sources of crude oil, such as shale, that don't require the same massive investment and that can get from development to production much more quickly.

To be sure, oil output isn't expected to fall in Canada as it has in the U.S., and some projects for which money has already been spent may go forward, a sign of the resilience of oil sands investments once money has been spent. That is because the cash cost of producing barrels once projects are up and running is low.
https://www.wsj.com/articles/energy-companies-face-crude-reality-better-to-leave-it-in-the-ground-1487327406

Boomer II says: 02/17/2017 at 11:27 pm
I can't see the original article since it is behind a paywall.

But this appears to be the text of the article without the above graph.

Energy Companies Face Crude Reality: Better to Leave It in the Ground | Fox Business : "Once considered a safe bet, Canada's vast deposits are emerging as among the first and most visible reserves at risk of being stranded by a combination of high costs, low prices and tough new environmental rules."

[Feb 20, 2017] Canadian oil sand per barrel break even cost is around 60 dollars per barrel for SAGD project and around $75 for a standalone mine.

Feb 20, 2017 | peakoilbarrel.com
Energy News says: 02/17/2017 at 7:47 am
In their 11th annual review of oil sands supply costs, the Canadian Energy Research Institute (CERI) concludes all new oil sands projects unprofitable (at current oil prices) . . .

The plant gate supply costs, which exclude transportation and blending costs, are C$43.31/bbl for a SAGD project and C$70.08/bbl for a stand-alone mine.

After adjusting for blending and transportation, the WTI equivalent supply costs at Cushing for SAGD projects is US$60.52/bbl, and US$75.73/bbl for a stand-alone mine. In comparison to last year's update, the WTI equivalent costs for a greenfield SAGD project are 25 percent lower and 16 percent lower for a stand-alone mine based on lower operating costs, changes in US/CDN exchange rate assumption and a lack of premium on diluent costs. At current WTI prices of just above US$50/bbl, one can assume that these greenfield projects are not economic or have to accept a lower rate of return.
http://resources.ceri.ca/PDF/Pubs/Studies/Study_163_Executive_Summary.pdf

Suncor Energy announced a scope change, construction delay and capital cost increase for its upcoming Fort Hills Oil Sands Mine. The revisions were blamed on the Alberta wildfires and design changes made to the plant's Froth Treatment facility. Despite the cost increase, Suncor says the project's capital intensity remains in-line with its sanction guidance of CAD$80,000 to $83,000 per flowing barrel, excluding foreign exchange impacts.

Partner Teck Resources put out a more cautious forecast and estimates the plant will produce 186,000 bbl/day over the life of the project. Factoring in a lower Canadian dollar (which has declined over 20% since the project was sanctioned in 2013), capital intensity could be as high as C$91,000/bbl.

As a point of comparison, capital costs for Imperial Oil's Kearl Oil Sands project (which has a comparable process and product), were estimated at $22 billion for 220,000 bbl/day of bitumen production, or C$100,000 per flowing barrel.
http://www.oilsandsmagazine.com/oilsands-weekly/2017/2/10

Western Canadian Select (WCS), Jan 2017: CAD$52.3 and USD$39.6

[Feb 20, 2017] Republicans as the party of a better yesterday

Feb 20, 2017 | economistsview.typepad.com
ken melvin : , February 20, 2017 at 02:49 PM
The Nostalgia of Trump: Remembering the days when birds fell from the sky from the polluted air in L.A., When the Cuyahoga River caught fire in Cleveland, death from black lung desease, death from white lung desease, death by crushing, ...

I don't ever see nostalgia for Trump. I wish to see him expunged from the Nation's as quickly as possible.

cm -> ken melvin... , February 20, 2017 at 03:06 PM
I'm not sure what any of that has to do with nostalgia for Trump.

Quite a while back Paine (who seems to be back here) characterized contemporary Republicans as "the party of a better yesterday". This refers to many people's impression that when they were younger, at least looking back things were more hopeful and remembered quality of life better. This is independent from the things you mentioned. In my own observation the same phenomenon could be observed in prior generations of family and their acquaintances that experienced in various degrees WW1 and WW2 and the postwar fallouts. Life had always been better when they were young, war or not.

[Feb 20, 2017] Trump sold to Russia is Clintonista fantasia sold by the yellow press

Feb 20, 2017 | economistsview.typepad.com
New Deal democrat -> RC AKA Darryl, Ron... , February 20, 2017 at 05:06 AM
Well, even without the FT telling us, it seems obvious that Trump, a real estate developer who loves debt, is going to want an easy money policy. So he will presumably stock the Fed with cronies who want interest rates reduced back to zero or even lower if possible, with no restrictions (like reserves) on borrowing.

He probably won't be able to gain actual control of the Fed until Yellen's term is over, and it is certainly possible that by that time he will have been removed from office (as we have discussed, this latter possibility depends on Trump having alienated enough GOP voters that the GOP establishment feels it can removed him and install Pence without losing primary challenges).

I suspect that a combination of easy money and stagnant wages is not something that can last long. But so far I have been unable to find a historical example. Certainly in the US, the 1970s do not fit (wages grew as well as inflation), nor 1948 (inflation was 20% or more, but at the pinnacle of union power wages also grew by at least as much. 1948 was an inventory correction, like 2001 but if anything actually milder). Maybe 1920 comes close, but I haven't examined wages from that time.

Does anybody else know of an easy money/high inflation/stagnant wage historical example?

RC AKA Darryl, Ron -> New Deal democrat... , February 20, 2017 at 06:09 AM
There is an alternative view that aligns Trump with high interest rent seeking gold bugs. I don't know which is true. It may even be true that behind all of the bravado that Trump actually knows how deep in over his head that he is with regards to monetary policy. In that case he would protest a lot to the contrary while unceremoniously seeking to preserve the status quo at the Fed. Certainly your guess is as good as mine and probably even better. OTOH, nothing is certain with Trump.
ilsm -> RC AKA Darryl, Ron... , February 20, 2017 at 06:39 AM
Trump Derangement Syndrome (TDS). Spread by neolib propaganda organs claiming to be the "free" press.

More dangerous than Obama's deep state wiretapping republicans and raping the Bill of Rights falsely screaming 'Trump the traitor'!

There is no freedom to lie and to mislead 'we the people'.

New Deal democrat -> ilsm... , February 20, 2017 at 07:34 AM
At risk of being flamed by everybody else with an opinion on this matter, I can see both sides of the issue:

You are correct if Trump is not selling out to Russia.

You are also correct if (1) Trump *is* selling out to Russia, *AND* (2) his voters were aware that he is selling out to Russia, but voted for him with eyes wide open on that issue.

In either of those two cases the Intelligence Community leakers are trying to subvert the democratic will of the people in elected Trump president.

You are wrong if: (1) Trump is selling out to Russia, *AND* (2) his voters did not believe it when they voted for him. In this case the Intelligence Community leakers, in my opinion, are patriotic heroes.

Just because the Intellligence Community is not laying the sources of its intelligence out in the open on the table does not mean that the leakers are wrong. My suspicion is that they are correct (see, e.g., Josh Marshall today. Google is your friend.) The deeper problem is that I suspect Trump's voters simply don't care, even if the Intelligence Community is correct.

RC AKA Darryl, Ron -> New Deal democrat... , February 20, 2017 at 08:07 AM
No flames from me, Dude. Ya nailed it.
ilsm -> New Deal democrat... , February 20, 2017 at 08:09 AM
I did a mini max regret: More regret with Clinton sold out to neoliberal profiteering war mongers who care only for perpetual war, the max regret I see is unneeded nuclear war over a few hundred thousand Estonians who hate Russia since the Hanseatic league was suppressed by Ivan the Terrible.

Lesser regret with Trump sold out to Russia* that would only bring China I against both US and Russia in about 50 years.

*Trump sold to Russia is Clintonista/Stalinist fantasia sold by the yellow press.

Julio -> New Deal democrat... , February 20, 2017 at 08:25 AM
I disagree. It is not enough that Trump voters were aware of Trump selling out to Russia and didn't care; if there had been conclusive proof of that before the election, other people might have come out to vote against him.

Besides, some of his voters might not care and some might.

In any case, whether the leakers are patriots or traitors does not have to do with subverting "the will of the people". At the most extreme, leaks could lead to, say, impeachment, which is another way to express the will of the people. (Or actually, the will of the plutocrats and their Republican and Democratic running dogs, but that's another discussion).

ilsm -> Julio ... , February 20, 2017 at 04:54 PM
Read this:

http://thefreethoughtproject.com/deep-state-trump-dangerous-washington/

It concerns "deep State" treason, a deep state built by democrats working for Clinton, attempting a coup!

It is time to stand with the US constitution against the deep state!

Julio -> ilsm... , February 20, 2017 at 05:29 PM
It has always been time to stand for the Constitution and against the deep state.

And you really think this was built by democrats and Clinton? Since you are about my age, I'll keep it brief and just say one word: COINTELPRO.

And it's not either or. There are plenty of bad actors, some as dangerous as the spooks. E.g. a President that believes we're in an existential war against Islam, and who is likely pull every trigger available to him if some Muslim stages an attack in the US. Frankly, if such a time comes I'll feel safer thinking that Trump and the spooks at not working too closely together.

libezkova -> ilsm... , February 20, 2017 at 11:59 AM
New Deal democrat and couple of other Hillary enthusiasts here used to sing quite a different song as for Hillary bathroom email server ;-).

Russia bogeyman (or "ruse" as Trump aptly defined it) is now used to swipe under the carpet the crisis of neoliberal ideology and the collapse of Democratic Party which is still dominated by Clinton wing of soft neoliberals). Chickhawks like a couple of people here (for example, im1dc), are always want to fight another war, but using some other ("less valuable") peoples bodies as the target of enemy fire.

Democratic Party now is playing an old and very dirty trick called "Catch the thief", when they are the thief.

Why we are not discussing the key issue: how the redistribution of wealth up during the last two decades destabilized the country both economically and politically?

Also it is unclear whether a simple, non-painful way out exists, or this is just something like a pre-collapse stage as happened with Brezhnev socialism in the USSR. The Damocles sword of "peak/plato oil" hangs over neoliberal globalization. That's an undeniable and a very important factor. Another ten (or twenty) years of the "secular stagnation", and then what? Can the current globalized economy function with oil prices above $100 without severe downsizing.

The economic plunder of other countries like the plunder of xUSSR economic space (which helped to save and return to growth the USA economics in 90th, providing half a billion new customers and huge space for "dollarization") is no longer possible as there are no any new USSR that can disintegrate.

Obama achievement of reinstalling neoliberal regimes in Brazil and Argentina ( https://nacla.org/news/2015/10/10/brazil%C2%B4s-sudden-neoliberal-u-turn ) was probably the "last hurrah" of neoliberalism, which is in retreat all over the globe.

And "artificial disintegration" of the countries to open them to neoliberal globalization (aka "controlled chaos") like practiced in Libya and Syria proved to be quite costly and have unforeseen side effects.

The forces that ensured Trump victory are forces that understood at least on intuitive level that huge problems with neoliberalism need something different that kicking the can down the road, and that Hillary might well means the subsequent economic collapse, or WWIII, or both.

Trump might not have a solution, but he was at least courageous enough to ask uncomfortable questions.

Blackmailing Russia can probably be viewed as just an attempt to avoid asking uncomfortable questions (Like who is guilty and who should go to jail ;-) , and to distract the attention from the real problems. As if the return us to the good old Obama days of universal deceit (aka "change we can believe in") , can solve the problems the country faces.

And when neoliberal presstitutes in MSM now blackmail Trump and try to stage "purple" color revolution, this might well be a sign of desperation, not strength.

They have no solution for the country problem, they just want to kick the can down the road and enjoy their privileges while the country burns.

As Galbright put it: "People of privilege will always risk their complete destruction rather than surrender any material part of their advantage." -- John Kenneth Galbraith

ilsm -> libezkova... , February 20, 2017 at 12:49 PM
libezkova,

The fake liberals directed the intelligence services to target the political opposition. Now the opposition is in power the intelligence services could be held to respond to their destruction of the US Bill of Rights.

It is not just the fake liberal economics the democrats will answer to in 2018.

In 15 months people like me will spend a lot of time reminding the democrats of their ignoble treatment of the US constitution because their neoliberal scam artist was defeated.

Julio -> ilsm... , February 20, 2017 at 05:35 PM
"Now the opposition is in power..."

Well, now I see very clearly why I disagree with you so much.

This government is the apotheosis of neoliberalism. I'm only sorry we didn't get the pure version with Mitt, instead of this one stained with a cabal of White Christian jihadis.

libezkova -> Julio ... , February 20, 2017 at 07:24 PM
Julio,

"This government is the apotheosis of neoliberalism."

I respectfully disagree. Trump neoliberalism is a "bastard neoliberalism" (or neoliberalism in a single county, in you wish) as he rejects globalization and wars for the expansion of the US led neoliberal empire.

New Deal democrat -> libezkova... , February 20, 2017 at 12:59 PM
I was a Bernie supporter, but thanks for playing.

[Feb 20, 2017] Trump Chooses General McMaster as National Security Adviser

Feb 20, 2017 | economistsview.typepad.com
Fred C. Dobbs : , February 20, 2017 at 12:28 PM
Trump Chooses H.R. McMaster as National
Security Adviser https://nyti.ms/2lo3mNK
NYT - PETER BAKER - February 20, 2017

WASHINGTON - President Trump picked Lt. Gen. H.R. McMaster, a widely respected military strategist, as his new national security adviser on Monday, calling him "a man of tremendous talent and tremendous experience."

Mr. Trump made the announcement at his Mar-a-Lago getaway in Palm Beach, Fla., where he has been interviewing candidates to replace Michael T. Flynn, who was forced out after withholding information from Vice President Mike Pence about a call with Russia's ambassador.

The choice continued Mr. Trump's reliance on high-ranking military officers to advise him on national security. Mr. Flynn was a retired three-star general and Defense Secretary Jim Mattis is a retired four-star general. His first choice to replace Mr. Flynn, who turned the job down, and two other finalists were current or former senior officers as well.

Shortly before announcing his appointment, Mr. Trump wrote on Twitter: "Meeting with Generals at Mar-a-Lago in Florida. Very interesting!"

General McMaster is seen as one of the Army's leading intellectuals, first making a name for himself with a searing critique of the Joint Chiefs of Staff for their performance during the Vietnam War and later criticizing the way President George W. Bush's administration went to war in Iraq.

As a commander, he was credited with demonstrating how a different counterterrorism strategy could defeat insurgents in Iraq, providing the basis for the change in approach that Gen. David H. Petraeus adopted to shift momentum in a war that the United States was on the verge of losing.

ilsm -> Fred C. Dobbs... , February 20, 2017 at 01:38 PM
He is an armor guy with a Ranger tab!

Passed over for Brigadier twice but made it by the board run by Petraeus who looked for "combat leaders".

[Feb 20, 2017] Globalism is just a mirage to lead the weak minded into subservience to corporatism.

Feb 20, 2017 | economistsview.typepad.com
rayward : February 20, 2017 at 05:29 AM , 2017 at 05:29 AM
A problem with today's views about globalization is that they look backward rather than forward. The future's globalization is much different from the past's globalization. In particular, growing nationalism is the future in the places, such as China, that have benefited from globalization. By that I mean China is beginning to produce goods for China firms rather than for western firms to compete with goods produced for western (American) firms including goods produced in China for western firms.

It's a much different dynamic than what we have experienced in the past 30 years. And the response to the new globalization should (and will) be much different.

Ironically, Trump's views about globalization come closer to what will be the response as western firms adjust to the new globalization. Is Trump that smart? No, it's just that everybody else is that dumb.

RC AKA Darryl, Ron -> rayward... , February 20, 2017 at 08:36 AM
China has never not had nationalism. Globalism is just a mirage to lead the weak minded into subservience to corporatism.

[Feb 20, 2017] Reply

Feb 20, 2017 | onclick="TPConnect.blogside.reply('6a00d83451b33869e201b7c8d83928970b'); return false;" href="javascript:void 0">
Monday, February 20, 2017 at 01:51 PM RC AKA Darryl, Ron said in reply to point... Your point is well taken. THANKS! Reply Monday, February 20, 2017 at 02:12 PM cm said in reply to point... Is enabling and not-preventing the same thing? US companies were always able to offshore work. Before commodity internet, telecom, and international transport (OK in good part enabled by international trade/etc. deals), that was much more costly.

IMO, offshoring has largely been an automation and IT story. Likewise domestic/national level business consolidation. IT has made it possible to effectively manage larger business/institutional aggregate than before on an industrial scale and using industrial management paradigms. Others and I have made that case before. This is not a new insight, but probably still not an obvious one.
Reply Monday, February 20, 2017 at 04:42 PM cm said in reply to point... E.g. I have seen it in my own work and with many others: companies can farm out any work to foreign subsidiaries or contractors they don't want to keep stateside for some reason. In the case of subsidiaries, this requires international legal frameworks allowing US companies to operate foreign subsidiaries, or buying foreign companies, with low enough overheads ("compliance" etc.) to make distributing work worthwhile.

Considering the case of US vs. Asia - depending on where you are in the US, Asia/PAC (India/Far East/Pacific) business hours are off by about a half day because of time zone effects. To a lesser but similar degree this applies to Europe and the Middle East.

The general sentiment seems to be that people in "low cost geographies" are of lesser quality at least as concerns the subject matter. This is not my experience. What used to lack (as of today I would doubt even that) is years of experience, as the offshoring industry branches hadn't existed in the remote locations, so all you could hire was freshers; or a lag in access to bleeding edge Western technology and research literature. This is no longer the case, and hasn't been the case for about a decade.

Then there is the aspect that people in "some" geographies are more habituated to top-down management styles, talking back less, etc. which may be an advantage or liability depending on what the business requires of them.
Reply Monday, February 20, 2017 at 04:57 PM

[Feb 20, 2017] Free-trade globalization is so ridiculous on so many levels one can only conclude that economic theologians who support it are either utterly incompetent or corrupt.

Feb 20, 2017 | economistsview.typepad.com
Ron Waller : February 20, 2017 at 01:24 PM , 2017 at 01:24 PM
Free-trade globalization is so ridiculous on so many levels one can only conclude that economic theologians who support it are either utterly incompetent or corrupt.

First take skyrocketing inequality and government debt. Both are related to free-trade outsourcing schemes. When production is moved out of country to cut wage costs and cut corners on regulations the only people who profit from it are corporate executives and shareholders. In the US, the top 20% own 80% of all investments. If the top 20% are the only ones benefiting – while workers are getting slaughtered – then clearly this is a major source of rising inequality.

In a functioning economy – and yes America once had a functioning economy during the Keynesian New Deal era that began with FDR and was ended with Reagan – all segments of society benefit from GDP growth – not just self-aggrandizing robber barons.

Next factor in twin deficits. When a country is importing more goods than it is exporting it has a trade deficit. The US has had a whopping structural trade deficit for about 40 years spanning the entire Friedmanian neoliberal era that began with Reagan. How does a nation purchase imports it is not earning with exports? By borrowing: i.e., running government deficits.

A simple analysis of international trade over the Friedmanian neoclassical era shows that economists must be mental midgets or they are on the take. During the Ricardian era, economists railed against mercantilist monarchs on the