Monday, April 07, 2008


Krugman Channels Malthus

Remember the 'end of the world is nigh' books in the late 60s and early 70s? The only one I read was Stanford Professor Paul Ehrlich's The Population Bomb. Thomas Robert Malthus noticed in early 19th Century England that population increased geometrically while food production only arithmetically, so eventually population would outstrip food production and the world as he knew it would end in famine and strife. Ehrlich and the others were just repeating Malthus and were just as wrong--(Ehrlich predicted, in the late 1960s, that hundreds of millions would die from a coming overpopulation-crisis in the 1970s, and that by 1980 inhabitants of the United States would have a life-expectancy of only 42 years) spectacularly wrong! (Food production can increase geometrically as well with technology). So now it's economic troll Paul Krugman's turn.

To his credit he didn't blame George Bush by name, but he does blame the following:

The rise of China and other emerging economies is the main force driving oil prices, but the invasion of Iraq — which proponents promised would lead to cheap oil — has also reduced oil supplies below what they would have been otherwise.

How did Gulf War II reduce oil supplies? We couldn't buy Iraqi oil due to the economic sanctions for years prior to the liberation. Now we can and production is up above prewar levels.

And bad weather, especially the Australian drought, is probably related to climate change. So politicians and governments that have stood in the way of action on greenhouse gases bear some responsibility for food shortages.

Probably related to climate change? Wow, how convincing. There probably were no droughts in Australia before we noticed that the ambient CO2 was rising last century.

But his greatest scorn is for using food to make alcohol fuel which he calls a scam. Well, even a blind hog finds an acorn from time to time.

But here is his bold prediction (note the 'may'): Cheap food, like cheap oil, may be a thing of the past. Let's revisit this prediction in 2011. I predict the price of both food (let's pick corn) and oil will be down from what they are now. From the 'accuracy' of the 60's dire predictions, and Krugman's woeful track record failing to see the future, I'd say I have the edge on him.

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I hope you had a good time in old Mexico.

Actually, Roger, let us visit some of the mundane places that we are required to visit regularly 0or that we do visit regularly. I speak of the gas station, the grocery store, and teh business section of the newspaper.

The price of gasoline is 5o cents more per gallon than it was a year ago. The price of food is higher than it was a year ago largely b/c the cost of fuel to produce it and/or transport it is higher than it was a year ago. As for the business section of the newspaper, in the past 7-10 days, three airlines have stopped flying b/c the rise in fuel costs.

The war in Iraq is not the only reason for the rise in fuel costs but it is a factor. The nervous credit markets are another factor b/c crude oil is a commodity and subject to speculation like all other commodities.

On December 26, 2000, the retail price of a gallon of gas was $1.65 down 14 cents from the price of November 6, 2000.

I believe that the cost of things that you mention have been going up at a more rapid pace than the government admits. However, it is about the most boring topic an old geezer like us can talk about to mention what things used to cost. They're more expensive now. Deal with it. They may well go down in the next three years, but then they will probably go back up.

Mexico was fun. (but expensive)
Although we couldn't buy Iraqi oil, it did fill a need in the world market. When supplies were cut in half after the war, that 3 million barrels per day had to come from somewhere, i.e. our suppliers.

Oil price is determined by the global market. Even you should be able to understand that Roger.
I do understand that, Mike, but thanks for the reminder. That's why embargoing or boycotting a particular country's oil is useless, once it's part of the world supply of oil. But before the war's resumption, except for 'oil for food,' wasn't Iraqi oil kept out of the market supply? My historical knowledge is nearly as bad as my grasp of economics.
Agreed that oil embargos are pointless. It is such a precious resource, they will certainly find a buyer somewhere.

To my knowledge, the Iraqis were exporting all of their excess capacity under Saddam, up to nearly 3 million barrels a day. You can check that if you like.

What I should have said was halving that 3 million per day has its effect on global price, but likewise, the uncertainty surrounding future production drives the price up as well. Every time a pipeline gets bombed, for instance, the price shoots up again.

I'm not saying that this is the only thing driving oil price up: China and India's consumption are more important.

However, the loss of at least 1 million bbl/day on the world market, plus the added consumption because of the war, plus the speculative drivers due to the uncertainty are all having their effect.

To not understand that is being willfully ignorant of the facts.
I agree that price is a product of a lot of things for an important global comodity but, in my innocense, I attribute most of the price rise to greater demand from China and India, just as you mention. I think your figure is what we called oil for food. I have no idea if its right or not. I'll assume it is. So now that Iraq is again above pre war levels, what's the deal? Is Iraqi production no longer a driver?
Its not production levels, but export levels.
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