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June 20, 2008

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Jane

I disagree (altho I am loathe to do that with anyone on economic issues given my personal expertise). But on political issues - well that's different.

Most people in this country believe that we should start drilling. And most people in this country don't look any further than their beliefs.

clarice

Ditto.

Charlie (Colorado)

If your perspective doesn't look any farther then who wins in November, then McCain's change of position makes sense --- he's adapting to the political reality of the situation.

If your perspective looks a little farther out, then McCain's change of position makes sense: we're not going to have 45 new reactors on line in less than 20 years or so, so we'd better figure out what we're going to do to deal with ten years from now. We're going to have oil platforms off most of the southern end of Florida and the southern side of the Gulf of Mexico no matter what, so why not make them domestic ones?

What didn't make sense was objecting to it ten years ago, but where I come from, changing your mind from "doesn't make sense" to "makes sense" is called "getting an (emphatic vulgarity) clue" and we're surprised and grateful when any politician does that.

clarice

Tell me, TM, that you are just trying to provoke a discussion as you did when you praised the NYT' original coverage of the Duke "rape" case.

Nothing would be more welcome to me than adding a big of economic sense to the hamstringing of domestic energy production and refinary capacity .
Since the mid-70's the enviros have succeeded increasingly in cutting off every sensible means of adding to our production capacity .
I also love that McCain wants to add 45 nuclear power plants ASAP (2020 is it?)

narciso

See, this is what I meant, even when Krugman nominally adopts 'free trade philosophy; he would make make someone adopt anarchism as a response; Friedman's
another example of the species. I'm sure
they based their estimates on the survey of the primary concessions in the area; remember the Energy Task Force that listed the TotalElf Aquatina, Petrochina, & GazProm
concessions; and thought they could be rehabilitated without much trouble. I'm sure
they didn't consider there would be this level of sabotage from Wahhabi and Baathist elements. Maybe they should've considering that Iraq and the aforementioned Caspian oil fields are direct competition to the
fields in Hassa & Hejaz provinces(nominally Shia; though Ilkwan controlled zone)We can extrapolate from the success of the Kurdish fields to what Iraq could bring to market.

kim

Except, merely suggesting that we may start developing domestic energy can put downward pressure on the price of oil. If, as is often suggested, today's price is speculative, even a small impetus may stampede the shorts.

By the way, no one has congratulated Cheney for busily and quietly filling the Strategic Petroleum Reserve with relatively cheap oil over the last seven years. Now the Democrats want to tap it. What hypocrisy.
===================

kim

I guess I'll have to eat my shorts. You can see why I'm not a big deal in the market.
=======================

Barney Frank

the White House’s own Energy Information Administration says that exploiting the outer shelf wouldn’t yield noticeable amounts of oil until the 2020s

For the last 40 years the excuse has always been trotted out that new discoveries won't come on line for ten or fifteen years.
We're well into the third or fourth generation of that canard and it still works.
But of course the fact that billions have been poured into solar and fusion over that same period with very little to show for it only means we need to pour more billions into them because they're always just around the corner.

kim

Well, I guess it makes sense if the short sellers are stampeded into a selling frenzy.
======================

clarice

Yes, Barney.
Take ANWR--the opponents always downplay how much oil is to be gotten from there. Of course, the answer is that the oil companies are willing to take that risk and it's their call that it's worth it. OTOH with every untested teschnology we are bearing the risk thru tax breaks and subsidies and grants.

Buford Gooch

So, let me get this straight. TM thinks Krugman has it right. McCain should be against development of American oil reserves. Does this mean that TM is against said development?

chip

By Krugman's reasoning, and I use that term loosely, if McCain announced a major AIDS initiative he would be aligning himself with the Bush administration because Bush has a significant AIDS initiative.

Energy, like AIDS, are huge policy areas. you're hardly aligning yourself with someone because you happen to agree on a subset within that policy.

Krugman also makes no sense in arguing that drilling won't garner public support. Two-thirds of the public WANT drilling.

And, finally, in terms of the supposed nil effect on gas prices, Krugman is surely aware that oil is currently rising on speculation as much as any emergent supply/demand issues. A comprehensive plan to drill offshore and explore ANWR -- along with the plan to develop nuclear reactors -- would go along away to pricking that speculative bubble.

davod

Chip:

Bush's AIDS initive reminds me of the worse side of McCain. He could have emphasized all the good Bush has done around the world. Instead, he attacks the Bush Administration on just about everything.

davod

Conservatives should be emphasizing how much the price of gas has gone up since the liberals took over.

John

Basic Economics 101 increase demand requires a) increased price or b) increased production. What is so hard to understand ? I know that this doesn't fit in with you pre-con notions and your enviroment desires but sometimes reality can be a problem.

Bob from Ohio

"Instead, he attacks the Bush Administration on just about everything."

Not true at all. They have plenty of areas of agreement.

But to the extent he does, don't you think he has to do so? Those 25-30% approval ratings are not make believe. Among non-GOPers, the President is unpopular. McCain needs to get more than just GOP votes.

kim

BfO, there is a peculiar dynamic, entirely created by the bias of the MSM. In fact, Bush's reign has been marvelous, as historians will recognize and glorify. It actually hampers McCain to have to run against Bush's record. There is so much dissonance in the attempt, as you are seeing.
=========================

Bill in AZ

The MSM meme on the low "approval ratings" is because President Bush started an unpopular war, ruined Americas standing in the world, etc. How much of that low "approval rating" is caused by folks who didn't think he did enough, was not conservative enough, spent too much, etc? The "approval rating" is intentional fantasy created by pollsters and their poll tricks.

davod

"Not true at all. They have plenty of areas of agreement."

Sorry mate. Listen to the way he says things. Most every comment, even when he agrees, is a slap at the administration.

While this may be good politics for getting the Dems and Centrists in but I do not have to like his approach.

windansea

and linked himself firmly to the most unpopular president on record.

sorry Paul, that would be Truman, who I believe had a 22% approval rating at one point.

Harry looks better with hindsight, and so will W.

Chris

Krugman;
"...there are many people on the right who believe that all our energy problems have been caused by sanctimonious tree-huggers."

The corollary to that infantile bit of petulance;

There are many people on the left who believe that all our energy problems have been caused by eeeevil commodity speculators.

Sue

McCain needs to get more than just GOP votes.

He needs GOP votes. In my travels around the internet, he is not shoring up his base.

Sue

There are many on the left that believe our energy problems have been created by Cheney/Halliburton to line their pocketbooks.

Chris

Sue,
Dittos.

Emphasis

If we convince the world we are serious about committing to drilling and nuclear power, I have money that says the price of oil will plummet.

Rick Ballard

The article by Dar, which Kim pointed out, identifies the primary locus of the Warmer/Peaker cult as the Northeast (with a NorCal adjunct). I would have said Bay Area rather than NorCal but that is a quibble which does not detract from his premise.

I can imagine the Warmer/Peaker cult having adherents who are not wholly brain dead leftists. Nice, thoughtful people who spend time separating glass from paper as an act of atonement and who can't see any reason why everyone shouldn't just take a train to catch the subway to get to work. Their kids ride the bus for 6 minutes to get to school and they bring home assignment after assignment bemoaning the fate of [u-nameit], which they raise at the dinner table.

We're just very fortunate that the Aricles of Faith for the cult are being overcome by reality. Otherwise it would be service on the ANWR Protection Battalion until we saw the truth as revealed by The Goreacle and The Obamessiah.

Jane

Sue,

A dyed-in-the-wool democrat told me last week that the oil crisis is all created so Bush and Cheney can make profit on their vast oil holdings. He was dead serious.

My head literally spun.

Barney Frank

I would have said Bay Area rather than NorCal but that is a quibble which does not detract from his premise.

You got that right Rick. I'm in rural NorCal and my family has been here since the gold rush. California is a microcosm of the nation. The counties on the coast from Mendocino south are pure blue but most of the rest of the state is quite conservative. The global warming schtick plays about as well out here as it does in Texas.

ajacksonian

I take the 30 year perspective, and have for some time, but looking at it from the policy realm. Liquid based fuel delivery for energy is not bad for the short term, but unable to meet requirements for the longer term. To get from there from here requires a look at what has worked in encouraging innovation: a prize based award system with set contracts for those that can meet prize specifications. That system worked well in aviation (compare any 20 years of that industry to any 20 years of government run space flight) by setting awards for time, distance, endurance and safety and then offering contracts for such things as airmail delivery. Public and private awards spurred on aviation no end, and yet we do not look at that as a viable policy system for anything else.

A system of awards and incentives for current technology, such as leasing of 'superfund' sites that we cannot or will not clean up *now* or in 30 years at this rate, would go a long way towards helping the current petroleum industry expand in the areas of fuel research and refining.

Set up a system of goals for things like biofuels, making them 100% more productive (currently converting less than 10% of sunlight into useful fuel, so why not awards at 15% and 20%?) and alternative sources of energy production that can outdo the best of solarelectric systems...

That sets up an entire category of energy storage and transport that needs to go along with these things. In particular in this realm is electricity, and setting goals for higher temperature and higher capacity superconductors would help spur R&D in that realm. Likewise the Polywell fusion system undergoing start-up tests in NM uses mostly COTS equipment, and yet could, if proven, serve as a ready replacement for many current 'surge capacity' electrical facilities operating off of natural gas, coal or oil.

Technologies such as nanosolar, using roll-to-roll presses to print photovoltaic cells should also get incentives: new and innovative design via R&D is just as important as Basic and Applied research.

Finally there is the question: is an active biosphere the best place for industrial capacity? Not only for energy generation, but manufacturing and production. The 'greenest' way to treat industry is to remove it from ever being a pollutant source and put it in an environment where anything that goes to 'waste' has a negative survival function. Orbital energy generation and microwaving it to earth has been an economic equation first applied by Gerard K. O'Neill's class back in '69 using technology from that era to show the opportunity for a net positive cash flow for industries doing this. Government regulation and subsidies, not only in energy but in transportation control, killed that concept. Today loosening those up and shifting to the standard 'safety in transport' mode is putting a new generation of venture capitalists, daring capitalists and those just wanting to get to an exciting frontier back into play. It doesn't matter if it is done via X-Prize or just via a group looking to figure out the non-rocket boost freight business to orbit: the economics are there for production, investment and income.

To get there requires the sustainment of the current infrastructure and the slow shift from it to something better. You cannot mandate that via government fiat - the USSR demonstrated that and clearly so. Drilling in ANWR, off-shore, in the Bakken formation, or in the oil/tar sands/shales from Colorado to Athabasca are all necessary for that future to come about. Money spent today does not see a first drop until 5-7 years out, economic production at 10-15 years and mature production via marginal increases at 20 years. The need for energy on a global basis is only going in one direction, and it will far outstrip chemical based fuels within 50-75 years as the stored stuff is relatively limited and the 'renewable' is not energy efficient in turning sunlight into energy. Efficient energy conversion requires getting out of the biosphere, out of the atmosphere and out to the source where it can be gathered easily, cheaply and with as little loss as possible.

That, unfortunately, requires government and politicians to realize that you cannot regulate these things via central planning. If India demonstrates the SPS to earth capacity, and they are readying the receiving ground station for deployment of such in 5 years, then the US will look like fools for dithering and complaining about *oil* when the cheap energy is in space. That is a winning formula... if you dare to let creative and innovative citizens and their companies reach for it.

Too bad that won't be America. Because we are stuck arguing about the past, not looking towards the future.

kim

If you import more energy from space than is already arriving, it will warm the globe. I think.
=================

Mike Volpe

This is a rather simplistic and, with all due respect, naive interpretation of the issue. Gasoline is unlike any other issue we have right now. The country is engaged, sophisticated, and looking desperately for a politician to provide solutions. The reality is that drilling is favored overwhelmingly and that's just because the public gets supply and demand. Krugman, the economist no less, doesn't get it. That said, gasoline is far more complicated than merely drilling so there is plenty of work for McCain to do. That said, he is still far ahead of Obama that wants to conserve energy which just doesn't work as government policy. Folks get that as well. Here is how I viewed the issue...


http://theeprovocateur.blogspot.com/2008/06/politics-of-gasoline.html

Peter

Gee. Drilling now won't fill my gas tank today. Um, for my whole career I went too work knowing I wouldn't get paid for two week. So, I shouldn't have gone to work because the payoff didn't happen right then?

So, with drilling the payoff takes a little longer, it doesn't mean we don't need to drill. Every barrel of oil coming out of a hole now is gone. The hole will empty. We damn well better have new holes when they do go empty. Sorry, Krugman is a fool.

Bob from Ohio

Based on reality or not, the President does not have the support of the majority of the people in this country at this time. It is just smart politics for McCain to retoricly separate himself. I still submit that other than the environment, there is little substance differences bewteen the President an McCain.

"He needs GOP votes."

He needs both.

Look, I support the President and am lukewarm on McCain but conservatives or even republicans do not get him elected even if every single one votes for him.


boris

democrat told me last week that the oil crisis is all created so Bush and Cheney can make profit on their vast oil holdings

There is a rather strange movie "The Reflecting Skin" that tells a good allegory for the peril of falsely perceiving evil in the innocent when the real thing is in play.

Kim,

more energy from space than is already arriving, it will warm the globe

All sources of energy produce wasted energy, ususally as heat. If the waste energy is dumped in space and only the effiecient forms of energy arrive on planet there can be a net decrease in warming. Reduction of CO2 production would arguably improve the situation also.

boris

He needs both.

McCain is ALMOST a democrat, but Beau Bama is ALMOST a communist.

Democrats who aren't commie should vote McCain. Conservatives should vote against Beau Bama.

MikeS

drilling doesn’t make sense as a response to $4-a-gallon gas:

Drilling does make sense as a response to 25 years of artificially restricted domestic oil production. In fact Krugman's assertion that the U.S. continental shelf could only produce insignificant quantities of oil by 2020 emphasizes the gravity of the current energy crisis.

The fact is that we should now pursue not just oil but all sources of energy simultaneously. We have already waited too long to hope that we might avoid a crisis which will affect our lifestyles.

Why wouldn't we? I don't agree with the enviro-nuts who claim that any drilling is an ecological catastrophe. The same nuts have the same objection to windmills, solar farms, and nuclear plants.

My objection to McCain's drilling proposal is that it is not enough. It is too weak a response to 25 years of suicidal energy policies.

Thomas Jackson

Drilling wouldn't have an immediate impact on current prices? Really?

_What would the impact of the US drilling on OPEC?

Wanna bet they'd increase production?

Wanna bet speculators would starting hedging their bets and looking elsewhere?

Wanna bet that if corporations knew that drilling, refineries, nuclear plants, coal and other forms of energy production were allowed to proceed that employment would be stimulated and new energy would be online quickly?

Wanna bet that if the tree huggers were told to buy the properties they want to protect so badly that they fade away?

Wanna bet that the tree huggers and watermelons can't explain why Vietnam, China, and Cuba can better respect the environment than American corporations when producing off the US coasts?

Wanna bet the watermelons can't explain what happened to the trillion dollars spent since Jimmy Carter's time on alternate forms of energy haven't produced any sgnificant contribution to America's energy mix?

Wanna bet that if ANWAR had been drilled 10 years ago we'd have over a million barrels of oil added to our inventory each day.

Wanna bet that the watermelons can't explain why Pruedoe Bay has far exceeded original estimates for production and continues to do so and will for the next twenty years?

Wanna bet that the watermelons can't explain why offshore drilling is such a menance why not one offshore platform collapsed or caused a spill during Katrinia, yet we must ban offshore drilling.

Drilling may not solve all our energy problems. But refusing to do anything in the future is how we got here in the first place. Watermelons want us to live like the Amish while they live in homes like Al Gore's (consuming what 232 homes would use in an average month).

Wanna bet you'll never see Pelosi, Reid, Snobama or the Hildabeast in a Yugo or its equivalent but will be seen in the biggest SUV you can imagine accompanied by fleets of other SUVs?

SukieTawdry

I think it will be a net gain for McCain and Republicans (if they all play it right which anymore is a big if). Rasmussen has 45% of Florida Democrats agreeing with McCain on this one.

On the other hand, Just 47% Oppose Nationalizing Oil Industry. Yikes.

JM Hanes

This piece isn't about energy policy, it's about Krugman jumping on the Obama bandwagon with an exercise in handcuffing McCain to Bush. Krugman is quite frank about the "broader picture" he's painting here.

"If McCain pushed a "Yes to nukes, no to offshore" platform he could distinguish himself from both Bush and Obama in a way that actually made sense."

Huh? In what way does that actually make sense? This is what a just say no to oil platform looks like -- a position which logically includes punitive taxation of the oil bidness, because the higher the price of oil, the bigger the incentive for alternatives. What doesn't make sense is objecting to the liberal version of corporate raiding because it discourages exploration while prohibiting exploration and putting ourselves at a competitive disadvantage in our own oily backyard. The idea that there's not enough oil in the Gulf to be worth pumping is belied by the industry's interest in exploiting it -- not to mention new technologies which suggest that existing estimates of productive potential will ultimately be revised upwards.

As a political matter, I'm not sure why McCain can't have his cake and eat it too by saying yes to offshore drilling (beyond the horizon where the dreaded Chinese are buying exploration leases from Cuba! To pump our oil!) and no to ANWR (where we will protect our pristine wilderness!). I'm all for nukes, but I doubt any current McCain advantage on that score will last long. Per your Yucca link, "Illinois has a significant nuclear power presence." I predict that no one has done more to promote nuclear power than Obama. Opposing the Yucca Mtn depository will be emblematic of his lifelong insistence on handling nuclear waste responsibly, for his children and his children's children.

JM Hanes

Sukie Tawdry:

(Love the moniker!) That nationalization stat blew me away too.

Roy Mustang

About 50 cents of the $4 gas is due to short term speculation. So you and Krugman are wrong. This will help a bit in the short term.

McCain seems to be worrying more about the future of this country than distancing himself from Bush. I'm glad McCain isn't listening to your bad advice.

Rick Ballard

JMH,

There are currently 173 out 272 available rigs drilling away in the GOM. 36% of the rigs available are just sitting at the moment. McCain's proposal could put them to work on the shallow water plays that would be useful in bridging the period necessary to work out the kinks in deepwater production. Shallow water plays don't require the 10 years from lease acquisition to production that really is required on the deepwater plays mentioned in that NYT article.

I wonder how long the Warmer/Peaker orthodoxy can hold up when even the Times provides actual numbers showing its rather glaring fallacies?

jimmyk

Krugman is wrong on the economics when he says the effect won't be felt for many years. Lower prices 10 years from now will feed back into lower prices today (or at least very soon), unless suppliers today are absolutely at 100% capacity. The reasoning is as follows: Lowering future prices increases the incentive of suppliers to get more on the market today while prices are high. That lowers prices today. It's pretty basic economics, and I'm surprised Krugman gets it wrong. Do you think maybe he knows better but is politically motivated?

Charlie (Colorado)

I wonder how long the Warmer/Peaker orthodoxy can hold up when even the Times provides actual numbers showing its rather glaring fallacies?

Wow, there's an improbable hypothetical for you.

Rick Ballard

Jimmyk,

That would be true in a free market (assuming the chimerical rational man). Why would it be true in an oligopoly (oilygopoly?) composed of state players? Gazprom and the KSA can toy with production to create artificial "shortage" conditions due to the fact that they can reduce ROI for any alternative means of energy just by turning on the $2-$5 a barrel tap. Even the deepwater plays at $10-$12 a barrel can be placed in peril regarding ROI if those two want to flood the market for two years opposite to the way that they reduced production through '06-'07.

Look at it slightly differently - worldwide demand was forecast to increase by about 1.2 mbd next year. Production could easily be increased by double that next year. Oil traders certainly have access to that knowledge and yet the bubble hasn't burst - even in the face of China and India's reduction of susidy.

Becoming truly independent would require the establishment of a floor price at around $70-$80 per barrel. That would bring on the tar sands at a more rapid pace and allow the financing of shale oil, coal gasification and nuclear plants at very low interest rates.

If the US actually wanted energy independence, it could be achieved within 10 years with gas costing $3 per gallon (in '08 dollars) at the end of the project.

jimmyk

That would be true in a free market (assuming the chimerical rational man). Why would it be true in an oligopoly (oilygopoly?) composed of state players?

It's true that if the players are doing something other than trying to maximize profits, there might be other possible outcomes. But that doesn't make the naive "Prices will fall only in the future when the supplies arrive" any more correct. If you throw out any coherent view about how decisions are made, then anything goes. Most models of what the big players are doing would still have the prediction that changes in future supplies feed back into today's prices. The big players might try to do something perverse in the shortrun, but it seems unlikely they'd shoot themselves in the feet indefinitely.

Elliott

Can our left wing friends remind us that "you can't spell oligopoly without GOP." Non possunt*!
________________
*No they can't.

Rick Ballard

"But that doesn't make the naive "Prices will fall only in the future when the supplies arrive" any more correct."

Absolutely true. My argument is slightly different in that I'm dismissing the idea of a "free market" as being irrelevant wrt the actions state players in setting production levels over the past two years.

Can they keep it up? No, but if they collapse the price to $40 for two years it will set back substitution by a decade - just as it did with shale oil in the late '80's. That's why a floor would make sense if we were actually serious about independence.

Which we aren't. We're just mad about $4 gas at the moment.

Jim MIller

Nuclear power plants -- which I favor --have one great defect: They will not help Michelle's children buy gas for their cars.

Elliott

Good point, Jim.

Pofarmer

That's why a floor would make sense if we were actually serious about independence.

Which we aren't. We're just mad about $4 gas at the moment.

Excellent observation.

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